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Organizations need strategies not only to out-smart competitors but even to maneuver through threatening environments (Mintzberg, 1985). Strategy helps focus effort and coordination of activity. A strategy defines the organization. Tesco, the giant retailer, has faced certain turbulent times as it diversified both geographically and in its product offerings…
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Download file to see previous pages Tesco initially had a localized approach as they could perceive benefits in expanding in and around London. However, their policy since the beginning had been “Pile it high and sell it cheap” (ICMR, 2005) which adversely impacted their brand image. When Britain imposed the Retail Price Maintenance Act which prevented the retailers from selling goods below a minimum price, Tesco introduced trading stamps which were given to the customers which could be traded for cash or gifts. This was abolished in 1964 and then Tesco could offer competitive prices. Cost-leadership strategy In the early 1990s, the market condition being bad, Tesco faced difficulties such as low population growth, low food price inflation, matured and saturated supermarket sector in the UK, and strong competition from retailers such as Sainsbury, ASDA, and Safeway (Coriolis, 2004). The company’s profit margins were under pressure and it remained in 2nd position with Sainsbury leading in market share (ICMR, 2005). In saturated markets competitive rivalry increases and the profits diminish as the costs are high. This was when the British economy was hit by recession and Tesco was in trouble although competitors such as Sainsbury and Marks & Spencer’s announced record earnings. This was the period when Tesco changed its strategy and focused on increasing its market share by selling goods at prices much lower than its competitors. Their strategy was to grow bigger by increasing sales volume through lower prices: Source: Coriolis (2004). Tesco went in for a major image overhaul and closed down many of its stores and replaced many with bright and attractive stores (ICMR, 2005). They were focusing on the cost-leadership strategy. In fact, Tesco was the first to introduce the cut-price strategy which led to price war (Yoruk & Radosevic, 2000). According to Porter (1996) strategy rests on unique activities and to be sustainable the strategic position requires trade-off. They did acquire cost-leadership and became the leading retailer in the UK but cost-leadership comes with disadvantages (Porter, 1979). Very low cost can take loyal customers away and lead to a decrease in revenue which is exactly what Tesco suffered with. They also earned a bad reputation in the process, which is when they decided to diversify. Strategy can be formulated at three different levels – corporate level, business unit level and the ...Download file to see next pagesRead More
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