Tesco and the Macro and Competitive Environments - Assignment Example

Tesco and the macro and competitive environments BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE Tesco and the macro and competitive environments 1. Competitor and macro analysis Tesco is currently lagging behind its largest competitors in terms of overall sales volumes (Felsted, 2009). This poor sales performance is being experienced against competitors such as Asda, Sainsbury’s and Wm Morrison, each of these competitors developing their own, unique differentiation strategy through creative marketing. Tesco, and its competitors, operate in a very dynamic environment which relies on innovation in marketing, ongoing consumer research to identify with customer needs, and a marketplace where potential increases in market share can lead to more relevant marketing. Tesco competes in the “grocery sector, apparel and accessories retail, convenience stores, as well as discount stores and truck stops” (Hoovers.com, 2009, p.1). This report focuses on only the grocery sector and grocery competitors. There is also a strong push in this competitive marketplace to focus on international expansion as part of a brand philosophy and to improve profitability. Tesco has recently launched several supermarket concept stores in the Western United States branded as Fresh & Easy (Felsted). Because this marketplace is saturated with many different competitors, both small- and large-scale in the grocery business, domestic sales declines can be radical and unpredicted. Therefore, diversifying the amount of international stores can bring a new competitive edge for Tesco and its competition and is something which is occurring today. In order to gain consumer loyalty, Tesco unveiled its Clubcard 2 promotional campaign which is more than just a revamp of its existing club card, but an attempt to offer more substantial benefits to consumers. This new promotional campaign offers consumers two Clubcard points for each qualifying £1 spent at the grocer (Barrett, 2009). Tesco’s use of the club card as a means to build a better brand image for the company illustrates the strong competitive environment in which it operates. The promotional buzz surrounding the launch of the new Clubcard 2 shows the heavy time and financial investment which is put into marketing to consumers in this competitive marketplace. From a budget perspective, devotion of higher marketing funds seems to be the most competitive tool for grocery competitors to be able to meet with consumer values and ensure healthy business rivalry. This is also a market environment where new talent is developed and recruited in order to give the business a competitive edge in leadership. Tesco appears to understand what drives the marketing success of competing business or looks toward benchmarking to adopt models which are relevant and workable within the Tesco system. Tesco was able to recruit Lance Batchelor as the marketing director for UK stores, a former successful marketing expert from Vodafone. This demand for talent in all competitors, including Tesco, extends into the macro environment in pursuit of those who have proven track records of marketing success with large companies. It seems that failure to adopt top talent in the marketing division can be a rapid opportunity for sales declines and shrinking consumer sentiment. This is a very difficult marketplace to operate, where competitors are constantly observing the marketing actions of their top competitors and working on strategies to outperform. Each competitor uses different promotional efforts and positioning strategies to make their businesses stand out uniquely in the minds of consumers. It is this focus which drives business success in this marketplace above all other strategies. Unlike other industries which must focus solely on product and product quality in order to guarantee sales, Tesco’s diverse retail environment supports multiple domestic and international food brands, therefore focusing on dimensions of product (in the marketing mix) is unrealistic. The ongoing risk of losing market share to competitors who are skilled in meeting with modern consumer values and lifestyles through promotion describes this tough operating environment at the macro level. 2. PESTLE analysis for Tesco 2.1 Political environment In areas of employment, the UK government supports retailers in the provision of “a mix of jobs from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid careers (Balchin, 1994). In most of the marketplaces where Tesco operates, the political environment is favourable toward the development of consumer-focused products. In the United States and in broader Europe, these basic beliefs about the importance of commerce on local and national economies work to support positive relationships with government and Tesco. Remaining focused on the UK, however, there are political factors which are not favourable in regards to areas of consumer privacy and governmental relations. The UK government leadership had planned “to link proposed compulsory biometric identity cards, designed to help control immigration, to the data contained on supermarket loyalty cards” (Simms, 2007, p.24). This type of data is stored in Tesco’s consumer database and can easily be used to track the spending habits or social/behavioural activities of Tesco consumers at the governmental level. The ability of government officials to tap this information for criminal or immigration-related issues represents a political environment where Tesco must sustain ongoing relationships with government officials and also comply with legislation regarding consumer data when required by law. 2.2 Economic environment The economic environment in Tesco’s operating marketplace is very favourable for sustaining future business operations at the retailer. There are thriving consumer marketplaces throughout most of Tesco’s operating territories with the resources and needs necessary to drive higher sales increases. For example, Tesco currently has roughly 25 million loyalty cards being existing, with over 11 million of them being used actively (Simms). This represents diverse, high volume markets with a mass market focus to meet the needs of wide demographics. The only notable limitation in this environment is the current economic downturn which has caused many businesses to downsize, streamline, or otherwise alter their business model due to consumers cutting back on their spending. Despite this current trend, Tesco looks to be well-positioned for growth in this economic environment. 2.3 Social factors There is a very strong social push for all things green, in terms of consumers demanding more ethical business practices in relation to their impact on the environment. Tesco has cut its carbon footprint and manages to recycle shopping bags, but has not managed to “build sustainability into the brand” (Raeburn, Robertson, Warley and Thompson, 2006, p.26). Asda, one of its largest competitors, recently devoted considerable resources into development of a 30 minute documentary designed to show waste reductions and sustainable packaging to consumers. The programme is entitled People, Prices, Planet (walmartwatch.com, 2009). Tesco and competitors recognise this social trend regarding eco-friendly business efforts and work to alter their business models to improve bio-relations with consumers. Otherwise, at the social level, consumers are targeted through research data gathered by Tesco (and competition) and the business is suited to meet changing consumer demands if they arise at the social or lifestyle level. There is also a social trend, created by today’s tough economy, where loan-seekers are turning toward alternative lending options other than traditional bank agencies. Sainsbury’s is offering reduced rate loans to consumers who hold a loyalty card at an APR of only 7.9 percent (mcconsulting.co.uk, 2009). These loans include instant decision-making and rapid money transfer. Changing social behaviours in areas of finance represent a future risk to Tesco and potential lost market share when consumers defect to their new loan holder: Sainsbury’s. 2.4 Technological factors "A retail stores biggest impact on the environment is the use of energy," (Piell, 2009, p.88). Because of this, technological breakthroughs are available to create a more sustainable business and improve energy consumption whilst satisfying consumer demands for these business practices. For example, one supermarket in the UK was fitted with a rainwater recovery system which routes water from the roof into areas such as employee handwashing stations and restroom facilities (Chilton, Maidment, Marriott and Tobias, 2000). This represents that technological improvements are giving new opportunities for sustaining the environment and also the operational budget. Other noticeable improvements are changes to refrigeration technologies which save energy and give consumers new food options in areas of dairy, cheese, and frozen foods due to their high availability. Technological is favourable for Tesco in this market environment. 2.5 Legal and environmental Research could not identify any important legal concerns for Tesco. Examination of the company’s annual reports from 2007 and 2008 also did not make mention of legal situations which slow the success rate of business at the firm. Tesco and competitors must concern themselves with issues of liability insurance and other basic risk management tools, but these are common themes in today’s businesses and are not significant at the legal level. At the environmental level, the social shift toward eco-consumerism was identified in the social analysis. Other than the previously-mentioned recycling and waste reduction efforts spotlighted in the social analysis section, the environmental environment is one where reduction of waste and improving energy efficiency is always on the forefront of competitive and profit strategy. One exception is that Tesco appears to be outperformed by its competition as Asda and Sainsbury’s have devoted more efforts into creating eco-friendly business models and incorporating it into their brand strategies. References Balchin A. 1994. Part-time workers in the multiple retail sector: small change from employment protection legislation?, Employee Relations, 16(7), pp.43-57. Barrett, Lucy. 2009. Tesco’s out to make a point. Marketing, London. 19 August, p.23. Chilton, J., Maidment, G., Marriott, D. and Tobias, G. 2002. Case study of a rainwater recovery system in a commercial building with a large roof. Urban Water, 1(4), pp.345-354. Felsted, Andrea. 2009. Tesco puts ad muscle behind US business. Financial Times, London. 5 October, p.21. Hoovers.com. 2009. Tesco Competitors. Viewed 20 Oct 2009 at http://www.hoovers.com/free/co/burn.xhtml?ID=90426?cm_ven=PAID&cm_cat=YHS&cm_pla=CSP&cm_ite=tesco_competitors Mcconsulting.co.uk. 2009. Sainsbury’s promotes low loan rates for loyalty. Viewed 19 Oct 2009 at http://www.mconsulting.co.uk/news-desk/industry-news/sainsbury-s-promotes-low-loan-rates-for-loyalty-members-19108239.aspx Piell, A.B. 2009. A Closer Look at Green Retail Facilities, Buildings, 103(6), pp.88-91. Raeburn, O., Robertson, G., Warley, A and Thompson, C. 2006. Has Tesco’s marketing been too successful? Marketing, London. 11 October, p.26. Ramsay, Fiona. 2009. Asda explains its bold attempt to involve consumers in decision-making. Viewed 19 Oct 2009 at http://www.marketingmagazine.co.uk/news/943449/Asda-explains-its-bold-attempt-involve-customers-decision-making/#comment Simms, A. 2007. Getting to know you. New Statesman, London. 136(4850), p.24. Walmartwatch.com. 2009. Asda launches green marketing campaign. Viewed 19 Oct 2009 at http://walmartwatch.com/blog/archives/asda_launches_green_marketing_campaign. Read More