Business Model: Comparison between Sainsburys and Tesco - Case Study Example

Business Model: Comparison between Sainsbury’s and Tesco Introduction Most businesses in the late 1990s embraced new approaches in the construction and implementation of the business models. This was mainly triggered by the technological advance that gave rise to the internet that is widely applied in most business activities currently (Vitale, 2001). This business models differ from one company to the other as every company strives to achieve maximum success from their specific business model. In this essay a comparison between two companies, Tesco and Sainsbury’s are handled. Their business models are handled independently in detail by addressing the various aspects of the general structure of a business model. Definition of a business model This conceptually represents a tool that contains that contains objectives and concepts and gives how these two relate to the objectives of a given firm as to accurately express the business logic. It provides, by description, the rationale which the organization uses to create, to deliver and to capture value economically, socially or by any other form. This therefore implies that the term business model can be used to represent the various aspects of the business that are core and vital to the success of the business and these may include; trading practices employed, the manner in which the organization is structured, operational policies and processes, infrastructure and offerings. Business Model for Tesco History Tesco is an international company that specializes in the selling and marketing of grocery and other general merchandise globally. It has headquarters in the United Kingdom in the town called Cheshunt. When measured by revenues it is found to occupy the third position in the list of the largest falling behind Wal-Mart and Carrefour. However, it becomes the second largest coming after Wal-Mart when the measurement is done on the basis of the profits. The company has several stores situated in more than 14 countries of the 3 continents, Europe, Asia and North America. This has in turn made it to become the third largest leader on the market of groceries in the UK by attaining a 30% of the market share. It is also the market leader in countries such Malaysia, Thailand, and the Republic of Ireland. The company was founded by Jack Cohen in the year 1919 and it started as a small group of market stalls and the name TESCO was coined after the founder, Sir. Cohen had imported tea from another company called T.E Stockwell. He used the initials of the name and combined them together with the part of his name (Surname) to form Tesco. The company the n started experiencing exponential growth in that by the year 1939 it had opened about a hundred stores all over the country. Market Segment For many years since its founding, the company mainly targeted the majority of the groceries customers. The companys management believed in the policy of stocking many products then selling them to people at all levels of life. The company strives to attract people at all levels of income i.e. high-income, middle-income and low-income earners. Its customers were the citizens in the countries in which the company had opened its stores and included European countries such as Ireland and Scotland. With time the company diversified its approach in business by embracing diversification in both commodity and service delivery. By the late 1990s for example the company had invested seriously in other fields such as in the opening of various petrol stations after coming into partnership with Esso which was a constituent of the large ExxonMobil Company. This was a measure targeted at the customers who drive to its stores. The company had also invested in the electronics business which involved dealing with the sell of TVs computer accessories and other peripherals. This targeted the youth and parents who intended to buy the various electronic gadgets for their children. The adventure into the entertainment world sealed the company’s aspiration of becoming an all-round store for this provided the extra elements of attraction of the potential customers to the stores as they came to rent DVDs and buy downloaded music. The companys sections that deal with the selling of clothes have become one of the most predominant approaches and business impacts the company has had. The company so far is ranked one of the best centres for the shopping of clothing addressing the needs of all their customers sourced from all the spheres of life. It occupies the second position in the list of the greatest retailers in the clothing sector. Value proposition The company maximizes the principle of economies of scale for it buys stock in large volumes and then sells it cheaply to their customers. This has been advantageous since as a result of their enormous size they are in a better position to target smaller profits from large volumes of sales. This therefore involves stocking general products i.e. products that vary in brand names types and the intended use or consumption. By doing this they are placed in a better position to attract nearly every kind of customer since it has nearly everything for everyone. This is what has been the greatest favorable advantage for the company and it is what has been attracting the customers from all spheres of life. Competitive Strategy The companys greatest strategy has been in ensuring that it captures as many customers as possible so as to outplay their competitors. This has been achieved in various ways which includes the opening the stores branches in many parts of the Europe and continent and even more branches outside the European continent. The company intends to maximize on the worldwide representation which will definitely increase their contact with the customers thereby increasing their income from sales. The move to stock large volumes with lower prices has been the classical for it has facilitated the company in beating the competition and has in turn enabled it remain the market leader. This has had the unique advantage that has enabled the company to enjoy the good side of the economies of scale. The location and ability of Tesco to buy huge pieces of land in strategic places has increased its accessibility to customers and this has been harnessed fully by the management. The company has embraced a unique motto that drives them to sell everything, everywhere to everyone. The opening of an online marketing and selling system has been even more successful for it has increased customers’ accessibility to the most updated commodity pricing which helps them in budgeting for shopping (Michael, 2001). Another strategy stated previously here is the partnership with some of the leading companies in the business world even though the business does not involve selling of commodities or services similar to those of the supermarkets. The best example is the partnership between the Tesco and Esso which saw the setting up of petroleum stations in various parts of Europe and Asia that to some extent had an extra advertising and marketing advantage to the supermarkets (Lang, 2004). Tesco has been known to channel huge amounts in projects that result in the development of the society. The role played by the company in its corporate-social responsibility is overwhelmingly acknowledged by many consumers and social activist groups. Sainsbury’s History This company represents a chain of supermarkets that fall under a parent company J. Sainsbury Plc. This company is the third largest in terms of market share in UK having about 16.5% of the market share in the supermarkets sector. The company ha sits headquarters in Holborn Cirrus located in the city of London. The company comes third after the market leader Tesco and the second placed Asda. It is also in this headquarter that the customer support centre is located. The company was founded by James J. Sainsbury together with his wife Mary Sainsbury in the year 1869. The company experienced growth that saw it become the largest retailer of groceries in 1922. It continued being the market leader and experienced the greatest success in the 1980s but was overtaken in the year by Tesco. The company was pushed to the third position by Asda in 2003 a position it still occupies to date. The company has over a long time been owned by the various descendants of Sainsbury. Currently the two wings of the family own about 15% in shareholdings. This ownership has in many instances proven to be a real obstacle in the companys development strategy. It is noted that expansion and other development measures and aspirations have been greatly opposed by the some of the shareholders who happen to be conservative in their manner of thinking and action. Market segment The company as stated above enjoys about 16% of the market share. It endeavors in targeting the middle income earners through their pricing policy which is known to be cheaper than most of the large stores. In order to retain and improve its market share the company has also invested in the diversification of its products which includes the investment in the banking sector and the various mechanisms initiated to target the property ownership mechanisms. These diversifications however are too little to rival those implemented by their competitors in the market which renders the field unfavorable for the Sainsbury’s to compete effectively with other giants such as Value proposition The company unlike Tesco buys and stocks only famous brands. This has disadvantaged it on many fronts since it has resulted in the attraction of few people from all the spheres of life. The supermarkets stock only those brands that have a good preference among the people who are middle-income owners. This has in turn chased away most of the high-income earners since they find nothing that fits their class in the supermarkets. The current state of activities has been associated with the shareholders decisions not to support the needed diversification programs and development to enable Sainsbury’s to catch up with their competitors. It is believed that the rigidity on the part of the share-holders is highly responsible for the challenges faced in the industry. Competitive strategy The company boasts of its unique stocking system in which only famous goods are found in the stores. This therefore maximizes on most of the commodities that move faster thereby having shorter stagnation time on the shelf. This has had a positive impact on the companys sales for it has seen in faster movement of the stock. It should however be noted that it has had a negative impact on the general number of customers visiting the stores for at any particular instance of shopping not everyone is interested in buying the fast moving or famous products (Miles 2008). The company also stocks its own branded products which helps it in the marketing strategies. Such branded products include sugar, flour and other cereals that are repackaged in packets. These branded products are sometimes sold at a cheaper price and are therefore preferred to those products with brands of other manufacturing or packaging companies. The company has invested in research to study the competitors’ mode of doing business and has included studying the various modes of advertising and product promotion to come up with counter active advertisement to woo customers to their stores. This research has been performed both as field research which involves agents going to the field to see for themselves what is being done by the competition, and desk research in which the various data and results from reports and internet blogs are used for analysis (Linder, 2000). The company just like Tesco has embraced online marketing and selling system that has proved to be a success for the company as the customers are in a better position to order for whatever they intend to buy and in some instances it is delivered to the doorstep (Michael, 2001). Conclusion Business models play a big role in the success of any given company. They outline the various pathways which if followed diligently would definitely lead to the success of the company involved (Magretta, 2000). Companies with more elaborate business models will definitely experience more success than those with less elaborate business models and this is one of the causes of the disparities experienced in the business world (Weill, 2005). It is however important to note that the real success lies with other external factors and which may include the approach taken by the management in the implementation of the business model. The shareholders decision might be destructive to companys endeavor to succeed as manifest by the family shareholders in the Sainsbury’s who have opposed some critical decisions from being implemented in the past. Bibliography Ketchen D, (December 1993). “Configurational Approaches to Organization Organizational Configurations and Performance: A Comparison of Theoretical Approaches” Academy of Management Journal, 36 (6). Lang HP, (December, 2004). “Tobin’s q, Corporate Diversification and Firm Performance,” The Journal of Political Economy, 102 (6):1248-1280. 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