Comparison of Two Supermarkets and their E-business Strategies - Term Paper Example

Internet has the potential to change the way businesses operate and it has certainly re-configured the underlying process of retailing. This has beenpossible due to the highly dynamic and innovative nature of the electronic marketplace. The retail sector has undergone transformation due to the increasing interest and support by the consumers. It was estimated that in 2005, about one million customers shopped with Tesco.com and the company’s annual sales rose to about £1 billion (Ellis-Chadwick, Doherty, & Anastasakis, 2007). Sainsbury too has registered a marked increase in the use of their online stores. Apart from the customers, the retailers too are realizing the potential of online sales and are trying to add vale to their services. The internet provides an extremely rich and flexible new retail channel that all the major supermarkets are keen to exploit. Many have failed because they overlooked the social context and behavior of the customers. The e-tailers with poor business model, no brand collateral and dependent solely on advertising revenue have collapsed (Perry, 2002). Tesco has demonstrated competitive use of e-business strategies in grocery retail over its rivals, particularly Sainsbury in understanding consumer behavior, which has helped them to devise strategies and improve the value chain. Any e-business should add value to the business which means efficiency, profitability, quality, innovation, effectiveness, flexibility and speed. The value chain would typically include inbound and outbound logistics, operations, marketing and sales and after-sales services. Porter argues that firm’s must pursue cost and leadership differentiation to add value to the firm. Value has been defined by Porter as ‘what buyers are willing to pay’. Firms create value for their customers either by lowering the costs or offering something different from the competitors (Bevan & Murphy, 2001). Customer’s value perception also depends upon the past association with the product or service. If the retailer can capture what creates value for their customer then they gain competitive advantage. Amit and Zott (2000) contend that retailers can create new methods of producing, marketing and selling. Hence they can offer brand new value propositions. Being first to introduce something new gives competitive advantage but it depends heavily on the capabilities and the strategy of the firm. Tesco did not succeed merely being the first-mover in online business but it gained its market leading position by educating and empowering its customers to adapt the online channel (Tse, 2007). The revised value chain proposed by Deise et al., incorporates the Pull marketing model. This model determines the customer demand and need for new product development. Once the customer needs have been identified, the material and process are resourced and then service provided to the customers. Deise et al., also determine that the companies have only focused on automating internal processes whereas advanced web-technology can be used to enhance business communications and transactions (cited by Fink, 2006). This would give rise to values such as complimentary services. Source: Hales & Barker, 2003 Sainsbury has been the largest in the sector until Tesco attained supremacy. Since 1995, Tesco has been ahead of Sainsbury in formulating and implementing policies. When Tesco announced the launch of their online Wine ordering service in 1995, Sainsbury started their Wine mail order service (Ellis-Chadwick, Doherty, & Anastasakis, 2007). Tesco was way ahead in offering online services while Sainsbury did not consider of it an additional channel for sales. They merely considered it an integrated part of their retailing business where consumers could get a lot of information. By 2000 Sainsbury did take initiatives to improve the e-commerce activities across the group. While Tesco had the store based system to deliver the products to the customers, Sainsbury moved into the dedicated picking centers considered by them to be the best solution for serving customers without affecting their offline services. Their strategies were proved to be wrong over a period of time. While both Tesco and Sainsbury did their own market research and developed new products, both could market and procure the material to be sold, the difference between the two organization lies in the fulfillment of managing and selling. This includes managing the customers as well as the supplies. Gaining competitive advantage requires building on the proven principles of effective strategy (quoted by Porter, cited by Delaney-Klinger et al.,). Unlike Sainsbury, Tesco did not try to attempt to build a new model of business but used existing assets to grow. Tesco has moved aggressively to improve SCM to balance customers’ demands with the need for profitable growth. This includes coordination within different functional levels, inventory management and cost control. The credit or debit card of the shopper is not charged until packing is done. This helps to keep the confidence level high among the consumers. There should be coordination of functional level strategies and trying to optimize individual functions can lead to failure. Theory suggests that facilities can be reduced in online business. In line with this, Tesco did not adopt the warehouse approach for effecting supplies like competitors did, but instead used its stores as distribution centers. In a digital economy it is very easy for the customers to get lured by the numerous offers available on the internet not to mention of the online auctions in the retail sector. Strategic Direction (2006) points out shoppers usually are free riders. Sophisticated shoppers browse through the informative website and then prefer to go and buy from regular stores. Hence lock-in is considered a driver for the success of e-commerce and is a challenge in the retail industry. Hence e-commerce companies must find ways to motivate the customers for repeated purchase. These companies must know how to lock-in the customers so that they would not have any incentive to switch elsewhere. The website should be able to provide the customers with the opportunity to tailor the products, services and information as per individual needs (Tse, 2007). Tesco had many ways to bring the customers back to their website. Tesco has employed customer segmentation strategy by publishing newsletters for different segments. It has further added value by partnering with iVillage, which brings together content, community and commerce (Tse, 2007). iVillage offers a large number of services for women like advices on health, beauty, work and leisure. A great deal of conformation comes from the advice of the users’ which also serves to guide the management in taking further decisions. Tesco has thus been able to attain market segmentation and is able to offer its products in an economically viable fashion. In the traditional channels this may not only have been expensive but may not have even provided the same degree of awareness, globalization and variety as can be found on iVillage. The degree of involvement has led to creation of an emotional link with the brand. This has spread to the Tesco brand and is a direct consequence of the consumer perception. The company thus remains cognizant of the customer needs; it generates a better market image and has created product differentiation for itself against competition. There are a high number of failures in internet pure players in grocery retailing (Müller-Lankenau, Klein & Wehmeyer, 2004). This emphasizes the need for multi channel strategies. For most mainstream organizations e-commerce is another key or another channel to the market which adds to the revenue growth (Stace, Holtham & Courtney, 2001). Their channels complement their existing channels rather than replacing them. Tesco is using both online and offline channels as full-fledged equally promoted distribution channels. Both the channels are fully integrated and support each other. Tesco offers low as well as upscale products. Tesco has extensive customer knowledge which helps to assess the introduction of new services. They offer online orders, home delivery and extensive information services. Tesco does not allow customer channel switching at any point during the transaction. Tesco redefined its strategy to a customer centric approach with the core purpose of creating value for their customers to earn their lifetime royalty. Sainsbury was lagging behind and in 2000 realized that their IT system needed uphauling. They invested in new software and hardware to improve performance and ensure security. Sainsbury upgrade from EDI data interchange to electronic automated stock notices (ASNs) and managed to reduce the operating as well as the purchase costs (Reed, 2004). While their shelves are replenished more rapidly, and there is good visibility of inventory from incoming truckload to supermarket shelves, they manage to have an in-store availability of 97 percent. Nevertheless, Sainsbury has not been able to match the benefits and the relationship that Tesco has been able to maintain with the customers. Despite all these efforts, Sainsbury has only 14 percent share of UK’s online (Best, 2006). Even in late 2006, Sainsbury was still trying to revamp the stores in a bid to over take Tesco but “stealing market share from Tesco will continue to be a gargantuan challenge”, says a report of Verdict Research (2007). Sainsbury was concentrating on reducing costs through IT investment but it is essential for a company to first capture enough share of the market and then secure cost and price advantage. Only brand and innovation cannot lead to long-term success in the digital economy (Perry, 2002). It can thus be seen that all through Tesco was concentrating on improving customer loyalty and customer satisfaction while Sainsbury is still struggling to have a proper IT system. Their concentration was on leveraging cost benefit and wanted to adopt a new model of business while Tesco stuck to the old model. At every stage Tesco has been trying to add value to the services and products that are on offer to the customers and they have been able to successfully do so. References: Amit, R., & Zott, C., (2000), Value Drivers of E-Commerce Business Models, Best, J., (2006), Tesco dominates Internet shopping, Read More