The Tesco Company Way of Development - Essay Example

For a company of your choice (Service or b to b) evaluate the way it develops and maintains relationships with its s (existing and new). Makerecommendations, (based on this research) for improvements in their service offering with a view to giving it a sustainable competitive advantage. Tesco opened its first supermarket in 1956, and a 16500 sft store in Leicester in 1961. It’s founder, Jack Kohen, in the 1960s propelled its growth on the basis of service, in the form of ‘loyalty stamps’ (Humby et al 2003). It is this understanding of the importance of providing service through leveraging its existing store-based distribution process (Peppers 2004) and an attempt through service to recreate the customer-shopkeeper relationship that was the norm some decades ago ( Peck et al 79) that has made Tesco UK’s largest retailer in terms of market share and the world’s biggest e-grocer (Yoruk & Radosevic, 2000). With intense competition and globalisation, sustainable competitive advantage in any industry depends upon customer service. Customer service has been greatly enhanced with the use of new marketing tools. New technologies and emerging market trends, for instance the growth of the customer power, disintermediation and reintermediation have had an impact on customer services (Perry, 2002). The e-commerce platform has contributed to the services being delivered in a more sophisticated manner. The retail industry too thrives on delivery of service in the face to stiff competition. Those with existing brand value have been successful in reaping the benefits of e-commerce. Sustained competitive advantage can be gained by offering what creates value for the customers. Porter defines value as ‘what buyers are willing to pay’. Bevan and Murphy (2001) contend that firms can do this by either lowering the costs or doing something different from competitors. Tesco had initially launched their online channel Tesco Direct but today they have moved beyond online grocery retailing and offer a wide range of products. Their website www.tesco.com enables the customers to buy online from their familiar local store. The pricing and inventory system is linked directly to Tesco.com so that the customers can select the good at the prices they are used to (Müller-Lankenau, Klein & Wehmeyer, 2004). They charge a nominal fee as delivery charges for their online customers. Besides, Tesco had the first-mover advantages in introducing online grocery shopping but in addition, it gained its market leading position by educating and empowering its customers to take up the online channel (Tse, 2005). This created the point of differentiation which added value to its service offering, thereby giving it the competitive advantage. Another point of differentiation in its services that Tesco has created is that it is the only retailer whose site is accessible by the disabled or the impaired people. The government of UK is attempting to make improve the quality of their life so that they live as normal a life as others. Tesco has taken the step and integrated accessibility into the main stream grocery site (Mairs, 2006). This accessible website was created for the partially sighted and blind people but had more of the normal visitors as well. This helped it to improve its customer base and brand image. To ensure customer loyalty, according to Amit and Zott, a company must lock-in its customers by raising their switching costs to such a level that they have no incentive to shop elsewhere (cited by Tse, 2007). Websites should be able provide the customers opportunity to tailor their products, services and information to their needs. This enriches the relationship between the buyer and the seller. Recognizing the benefits of customer loyalty, Tesco has introduced the Club Loyalty Cards. Its Loyalty Cards helped it to move from the third position in the UK to the first (Ferguson & Hlavinka, 2006). Customer loyalty is based on the satisfaction that a customer feels during the purchasing process, which includes the display and until the payments and delivery. It could be expressed in different ways – either through repeated purchase or influencing the purchase decision of others. Tesco’s Clubcard loyalty card was introduced in 1995, and its market share had crossed Sainsbury’s by the middle of the year (Fenn 2008). It was the beginning of Tesco’s return to good times, and it was due to making their customers feel that they were a part of the company and that their decisions would influence the direction that the company would take. Loyalty Cards that carry the purchase history of the customer and through data mining technique this data can be transformed into a valuable source of information like targeting mail and personalized communications (Rowley, 2006). This data also helps the company in assessing the introduction of new services (Müller-Lankenau, Klein & Wehmeyer, 2004). The customers need to log in to get all the information. Tesco does not enable customer channel switching at any point during the transaction. This ensures that they keep the customers locked-in. Its Loyalty Cards have become an inter-industry benchmark for customer profiling and CRM. In addition to selling online, they focus on building customer loyalty by delivering personalized and value-adding services. It has integrated the physical and online channels and is thus able to serve the customers on several touch points (Müller-Lankenau, Wehmeyer, & Klein, 2006). The online strategy is an extension of the conventional marketing strategy. Tesco has segmented their Club Card shoppers into six behavior categories - price-sensitive, traditional, mainstream, healthy, convenience and fine-foods (Ferguson & Hlavinka, 2006). All their efforts are directed towards delivering relevant offers to specific sets of shoppers who behave in different ways. Their efforts have resulted in 20 to 40 percent redemption rate following their unique mailings to their 10 million members. Tesco has been very innovative is the use of data collected through their loyalty cards. As soon as they identify a new pet owner from the purchase of pet food segment, Tesco sends them a mailer containing information on caring for new pets. Their loyalty strategy is based on sophisticated application of recognition and reward. The data base helps them to decide on their store opening hours, on the pricing and promotional strategy and new store sites (Phillips, 2007). According to Porter, competitive advantage can be gained by building on the proven principles of effective strategy (cited by Delaney-Klinger, Boyer & Frohlich, 2003). Tesco did exactly this as they used their existing assets to grow. Online transactions require a great deal of trust and this enhances commercial competitiveness and advantage. In the digital economy there is greater reliance on technology and hence there is a shift towards people-oriented and process-oriented practices (Bryant & Colledge, 2002). The trust can help increase the sustainability of B2B relationships. Personal information of the credit cards has to be protected. Trust in e-commerce can reinforce the faith that customers have on any website and Tesco has been able generate this confidence. To keep the confidence level high among the customers, they do not charge the credit or the debit card till the packing is done. Besides, the virtual shopping card at Tesco Direct is stored each time the shopper leaves the virtual store thereby making it easier for the multiple family members to contribute to the shopping cart. Frequent users are offered special prices, discounts or access to special information. Virtual communities is another concept that allows the members to share their ideas and concepts and it also induces some degree of stability, growth, loyalty and commitment among the members (Flavian & Guinaliu, 2005). The visitors to the site feel a sense of belonging and it has helped to increase customer loyalty. The internet is a cheap medium to bring customers together and the more people interact with each other the richer the system becomes. iVillage (http://www.ivillage.co.uk) is a website owned by Tesco’s internet distribution division offering large number of services for women, like advice on health, beauty, leisure and work (Guinaliu, 2004). Information on this website comes from other users’ advice and this guides them for further action. This virtual community targets the high potential customers and caters to their specific needs. It has a precise and effective impact on such customers. The huge database thus collected helps them to identify what services should be offered. Segmentation becomes easier and promotional campaigns can be personalized. The same product may be distributed through Tesco physical stores but would have more value when distributed through iVillage especially most demanded products meant for women. iVillage is a virtual shopping centre for women and designed to serve their needs. The managers are deeply involved in this program and the degree of involvement has led to creation of an emotional link with the brand. In the US, Tesco will approach the American consumer the same way as it did in Eastern Europe and Asia; with intense and extensive research. In countries where Tesco does not have loyalty cards, it sends its executives to live with the customers, to watch them shop and to watch them cook and eat (Phillips, 2007). They determine every detail about how they spend their leisure time and what they worry about. This is its way of researching into the consumer behavior and then deciding on what to offer and when. Thus it is evident that Tesco is the leader in customer service innovation and is used as an industry benchmark. Its loyalty card is very effectively used. Many firms have such loyalty cards but the data is not as effectively analyzed and made use of as Tesco. For the US they are adopting the same approach of intense research, similar to that followed by them for Japan and would most likely meet with the same success. They are charging a nominal fee from their online customers for home delivery. This Tesco could do away with, which could possibly increase their online customer base. They could even have a section for the youth over 18, who are eligible to place orders independently. A virtual community of the youth could help them understand the needs of the youth and introduce products and services aimed at them. This is a growing segment to tap and the potential is high. Overall, Tesco, as an online retailer, is leading the industry and demonstrates innovative use of data from its loyalty cards and iVillage platform, specifically targeted as a women’s interest internet experience (tesco.com, quoted by Groucutt et al 2004). References Bevan, J & Murphy, R 2001, The nature of value created by UK online grocery retailers, International Journal of Consumer Studies, vol. 25, no. 4, pp. 279–289 Bryant, A & Colledge, B 2002, TRUST IN ELECTRONIC COMMERCE BUSINESS RELATIONSHIPS, Journal of Electronic Commerce Research, vol. 3, no. 2 Delaney-Klinger, K Boyer, KK & Frohlich, M 2003, The return of online grocery shopping: a comparative analysis of Webvan and Tescos operational methods, The TQM Magazine, vol. 15, no. 3 pp. 187-196 Fenn J & Raskino M 2008 Mastering the Hype Cycle: How to Choose the Right Innovation at the Right Time, Harvard Business Press, pp. 18 Ferguson, R & Hlavinka, K 2006, Loyalty trends 2006: three evolutionary trends to transform your loyalty strategy, Journal of Consumer Marketing, vol. 23, no. 5, pp. 292–299 Flavian, C & Guinaliu, M 2005, The influence of virtual communities on distribution strategies in the internet, International Journal of Retail & Distribution Management, vol. 33, no. 6, pp. 405-425 Groucutt J, Leadley P & Forsyth P 2004 Marketing: essential principles, new realities. Kogan Page Publishers Humby C, Hunt T & Phillips T 2003 Scoring Points, Kogan Page Publishers Mairs, C 2006, Inclusion and Exclusion in the Digital World, THE COMPUTER JOURNAL, vol. 50, no. 3 Müller-Lankenau, C Klein, S & Wehmeyer, K 2004, Developing A Framework For Multi Channel Strategies – An Analysis Of Cases From The Grocery Retail Industry, Retrieved online 12 February 2009, from http://ecom.fov.uni-mb.si/proceedings.nsf/0/fbb45414baf2bdafc1256ee00030ea56/$FILE/34Mueller.pdf Müller-Lankenau, C Wehmeyer, K & Klein, S 2006, Strategic channel alignment: an analysis of the configuration of physical and virtual marketing channels, Information Systems and e-Business Management, vol. 4, no. 2, pp.187-216 Peck H, Christopher M, Payne A & Clark M 1999, Relationship Marketing, Butterworth-Heinemann, pp 79 Peppers D & Rogers M 2004 Managing customer relationships: a strategic framework, John Wiley and Sons Perry, R 2002, Digital brand building, Corporate Edge, Retrieved online 12 February 2009, from http://www.cim.co.uk/mediastore/pp2629_R_Perry_ThesisLR.pdf Phillips, T 2007, Approaching the U.S. Market, Global Retail Giant Tesco Will Continue to Build Loyalty Through Research, Retrieved online 12 February 2009, from http://www.customerthink.com/article/tesco_does_research Rowley, J 2006, Customer relationship management through the Tesco Clubcard loyalty scheme, International Journal of Retail & Distribution Management, vol. 33, no. 3, pp. 194-206 Tse, T 2007, Reconsidering the source of value of e-business strategies, Strat. Change, vol. 16, pp. 117–126 Yoruk, D E & Radosevic, S 2000, International Expansion and buyer-driven commodity chain: The case of Tesco, Retrieved online 12 February 2009, from http://profesores.ie.edu/enrique_dans/TESCO/international%20expansion.pdf Read More