Marketing Strategies For Growth Overseas At Tesco - Essay Example

? Marketing strategies for growth overseas at Tesco BY YOU YOUR SCHOOL DATA HERE HERE Marketing strategies for growth overseas at Tesco Background Marketing strategies are organisation-wide programmes that help to identify a specific target market and then developing processes and systems to satisfy consumers in the chosen market through focus on elements of the marketing mix. These include price, promotion, place and product as well as facilities management and design. Marketing strategies are integral to maintaining a competitive edge as a product or particular brand must “measure up to a threshold of acceptable quality and be consistent with buyer behaviour, preferences and expectations” (Keegan and Green 2009: 5). The marketing strategy determines the strategic objectives of the business and also centres it as a market-oriented system designed to fulfil consumer needs. An international marketing strategy must consider the external forces that impede or enhance profit and branding success. These include the five forces offered by Michael Porter associated with new entrants, supplier and buyer bargaining power, competitive rivalry and threat of substitute products on the market (Fitzsimmons and Fitzsimmons 2010). International marketing strategies provide value, competitive advantage and specific focus as a means to leverage against competitive forces. The strategies associated with elements of the marketing mix position the business against other rivals and, in a well-laid strategy, differentiate the business from existing competition. It is important to develop an international marketing strategy when operating as a multi-national since the socio-economic and socio-cultural backgrounds of diverse consumers influence business decision-making. In one region, consumers may be highly homogenous related to their demands and expectations related to product and service whilst in another foreign operating territory, radically different respectively. It is necessary to mould a strategy related to price, promotion, distribution, or simply to recognise cost controls in different operating environments. The marketing strategy recognizes all factors associated with improving profitability and outlines the specific objectives needed to achieve strategic goals. Having described the premise of marketing strategies, this report will focus on Tesco, a multinational foods retailer operating in China, the United States, India, Thailand, Malaysia and South Korea. In some regions of the world, consumers are collectivist and value tradition whilst in other operating areas, consumers are more individualistic and brand-conscious. Price elasticity is a concern depending on the socio-economic conditions in each area of operations, thus requiring customized marketing strategies for each region. The results of a recent survey identified that 67 percent of customers considered Tesco their favourite supermarket due to its value and quality focus in the marketing mix and related to how the business positions itself among international competitors (Ma, Ding and Hong 2010). Tesco operates in an oligopoly market structure where competitive activities related to marketing continue to change the focus of business activity. The foods retailing environment maintains considerable competitive rivalry in pricing and promotion, as well as distribution methodology in order to serve diverse customers. Because of this, Tesco must focus on the marketing mix in order to differentiate from competitors that carry rather homogenous goods for the international consumer. Tesco utilizes marketing strategies related to green environmentalism, value promotions, brand extensions, diversifying product line offerings, and e-commerce as methods to improve its competitive position and ensure higher sales volumes internationally. 2. Theoretical framework International marketing strategies are plans of action that recognize costs, efficiency, and brand value/equity associated with specific strategic objectives related to how the business wants to position itself in its operating markets. International strategies must consider the socio-economic environment where the organisation operates, such as currency exchange rates and household discretionary income levels, before it can develop appropriate products and services that can best serve a market-oriented philosophy. The organisation must consider the home country cultural traits that dictate purchasing behaviour and the social norms that drive market preferences if the business hopes to serve its market efficiently and provide satisfaction (Keegan and Green). The organisation must consider the sourcing issues associated with their product strategy, including infrastructure for distribution and the associated strategic costs that will be incurred if the organisation chooses an international or localized procurement strategy. Product and place are major factors associated with cost control when establishing an international marketing strategy. In some regions, political forces demand higher tariff rates for importing merchandise whilst in other regions, there are more liberal and capitalistic regimes that provide more taxation incentives or support to new market entrants. Thus, issues of exporting and importing merchandise along with the retail channels needed to support product must be considered if budget is to be recognised and efficiencies realized. This is why the marketing strategy is vital to success as it recognises all factors associated with performing sales and service to ensure that the corporate strategy is in-line with market orientation and customer needs fulfilment whilst also recognising expenditures. The marketing strategy acts as a template for all of the activities that will be undertaken throughout the organisation toward meeting profit and customer-oriented goals. If the business intends to create a differentiated product or service offering, the need exists to establish the specific measures that will lead to a better market position that is unique among competition. To position the business means to define a specific phrase or word that speaks toward the value of the company and what it is trying to accomplish with its target customers (Trout 2008). By developing an effective system of recognising efficiencies in the marketing mix as it relates to socio-economic or purchasing behaviour of local markets, a business can position itself uniquely from area competition. Differentiation and positioning occur through innovation. Research shows that congruency between brand name and the variety of innovations elevate positive consumer response to supporting the business (Auh and Shih 2009). The international marketing strategy recognises the inter-dependencies between all areas of the marketing mix in order to improve consumer perceptions about brand viability, trust, and purchasing intention against competition. Thus, for competitive reasons, the marketing strategy positions the business competitively as a means to establish a brand that differs from other organisations in the same industry. In saturated markets with considerable competition, the marketing strategy outlines the steps required to bring more value to the brand. An effective international marketing plan is based on conducting environmental analyses of competitive rivalry and market research to determine what is driving current consumption behaviour in the target market. If the brand already maintains high recognition, it can pursue building on existing equity to offer new services associated with the current product focus or any other extension strategy to build sales revenues. Trust, when it has been previously established, can extend such trust to extended product when consumer-perceived risks to the parent brand no longer exist (Laforet 2007). In opposite accord, if a wholly new market environment with little brand recognition, the organisation should focus on its core competencies and structure the operations to create a reputation through brand-building strategies with more concentration on promotional materials until brand recognition and loyalty are established. The international marketing strategy identifies all steps needed to meet business goals and market preferences that are linked to strategic intent related to profit and growth. 3. Analysis The concepts described in the previous section definitely apply to Tesco, the multinational foods retailer. In the supermarket competitive environment, there is considerable mimicry of competitive activities especially related to promotion. For instance, pricing in the supermarket sales environment change frequently, sometimes as much as 40 percent in one week, due to temporary pricing promotions from competitors and product sales strategies (Bank of England 2009). Therefore, Tesco attempts to differentiate itself by focusing on other aspects of the product such as quality and value to position itself as a premium brand rather than tackling price competition in the marketing mix. Grocers believe price crucial to their competitive advantage, however in order to differentiate, they are turning toward quality of service and premiumisation as part of a new value-driven agenda (Global Information Inc 2010). Tesco utilises a procurement strategy to position itself as a customised, premium and relationship-oriented supermarket. For example, in South Korea, the business conducted considerable market research and realised that the preferences driving food consumption with these target markets differed substantially from home country operations. South Korean customers demand more fresh fish, squid and local produce found only in the home region, a substantial difference from British consumers that value products procured through its international procurement strategy (Felsted 2010). Because of this, Tesco has developed both a corporate social responsibility effort to support local agriculturalists in order to position its brand locally and also adjusted its procurement model to enhance overall perceptions of value and relationship. By changing product offerings to fit local needs, the business enhances product and promotion in the marketing mix to position the business uniquely among local supermarket competition. In the United Kingdom, customers are turning toward frozen foods due to the recession and a new type of household frugality that is widespread based on social factors (Baker 2009; Casatelli 2008). Tesco utilises a procurement model that provides more value-added frozen foods along with promotional materials to reinforce frozen food quality and to motivate consumers toward this product. However, in South Korea and Malaysia, as two examples, these strategies are ineffective in serving local markets. This is why the marketing strategy is crucial for multi-national operations as it identifies aspects of the supply chain and costs in order to provide competitive edge and differentiation by appealing differently to diverse market segments. Tesco is one of the only supermarkets to offer an e-commerce model that provides online grocery delivery to many international consumers. The business receives 70,000 customer orders online each week, earning ?6 million per week (Quader and Quader 2008). This is part of the value-added marketing strategy for Tesco by offering a unique type of convenience to international consumers and also establishing the technologies, logistics, and employee services required to continue to build revenue growth. The business not only differentiates itself in terms of value and convenience, but also stays true to the basic concept of value provision that positions it as a value leader. The e-commerce delivery model is a method of changing traditionalism in supermarket shopping and modernizing it with emphasis on the Tesco brand as the innovative leader in grocery retailing. Tesco also remains focused on value-added positioning through brand extensions domestically and internationally in order to build more brand equity. The organisation has developed financial services offerings that are available in-store in some of its international facilities. The decision to create this new value-added service is in-line with strategic objectives for added profitability and competitiveness and also to create brand loyalty with its existing target customers. The decision to establish a service extension was based on market research data regarding the consumer willingness to select Tesco financial services based on trust, perceptions of competency to perform the services and their overall perception of brand quality (Laforet 2007). Credibility and performance beliefs in consumer markets dictated a high willingness to use Tesco financial services, thus again illustrating that the business is uniquely positioned as a brand leader in foods retailing. Tesco has further established a loyalty programme in which consumers gain points toward future discounts when they make purchases in the supermarket. The ClubCard programme is used in China and Malaysia as incentives marketing and also to promote extended value. Chinese consumers are very price sensitive and are willing to defect to rival brands when prices increase only marginally (Suessmuth-Dyckerhoff, Hexter and St-Maurice 2008). Therefore, Tesco needed to develop a form of price competition, which does not work in home country markets as effectively, in order to gain customer loyalty and build profitability in China. In this country, companies that have a member card and incentives are less likely to achieve competitive success (Chen, Zhang, Yuan and Huang 2008). Establishing the loyalty cards again fulfils the strategic objectives of extended value provision and also creates competitive barriers to market entry from new potential competitors by building a system that is unique in incentives-based promotions. This sales environment is largely affected by competitive forces and Tesco creates internal and external structure to support this type of discounting philosophy in key international markets. Also to provide value, Tesco promotes its corporate social responsibility, thus building positive relationships with the communities where it operates. Tesco built its “Together” climate change campaign illustrating to international customers how to save energy and has also changed its supply strategy, gaining support from suppliers to change package designs and create eco-friendly labels on its products (Brasher 2008; Winston 2008). In order to build trust under value positioning, Tesco must create relationships with the local community and accomplishes this through CSR and inviting customers, through promotion, to become engaged with environmentalism. The goal in this effort is to continue to promote its value agenda and remain positioned as a value leader. 4. Conclusions and recommendations Since the environment where Tesco operates internationally is saturated with grocer competition, the business has developed effective strategies to try to avoid price promotions common with other supermarkets. Its value agenda provides the business with considerable brand loyalty and also brand equity that can be extended to supplementary service provision. It is uniquely positioned through its e-commerce model as a value leader and through its flexibility in procurement to fit local tastes even though these costs are higher for adjusting the supply chain methodology in the home country. However, the revenue gains achieved by Tesco, which is the number one supermarket according to comparative sales, offset these costs associated with the marketing mix adjustments. Corporate social responsibility, too, stays away from pricing promotion and price emphasis in order to remain true to its value-conscious agenda and positioning efforts. According to results of a large sample group questionnaire, 71 percent of those targeted believed that Tesco has reasonable prices (Ma, et al. 2010). This market research serves as an indicator that Tesco can remain positioned according to value if they avoid pricing issues and focus on more brand extensions and improve relationships with local consumers through flexible sourcing strategies. Tesco would benefit from developing a future strategy that recognises low cost competition that continues to erode market share from the larger competition such as Sainsbury’s, Morrison’s and Asda. Aldi is a flourishing, privately-owned grocer that offers only private label brands priced significantly or competitively lower than name brand merchandise offered at Tesco. According to Steenkamp and Kumar (2009, p.8) “Aldi strikes fear in the heart of brand managers”. New consumer frugality created by global economic problems and depreciating currencies make Aldi favourable not only in terms of cost, but due to the social attitudes that consider thrift to be trendy. Tesco wants to remain positioned differently than price, however new entrants such as Aldi continue to steer customers toward the cost agenda when making product purchases, thus always improving Aldi’s competitive position and revenue growth which allows for more international expansion and rivalry. Tesco should devote more capital investment into international market research to identify the specific socio-cultural factors that drive consumers to the private label brands and then diversify its portfolio of products to include more private label brands. Retailers, due to economic reasons, are seeing more interest and revenue growth in private label products. A 2009 survey of consumers identified that only 17 percent surveyed believed that private label products were of lower quality than major brands (Anselmsson and Johansson 2009). Thus, private label brands are not only inviting on price, but also on perceptions of equal quality and value to major brands. Tesco may not be able to maintain its unique value-orientation against competition with the new entrants like Aldi that carry discounted goods that consumers perceive as top quality. Partnerships with local producers to create private label Tesco products still fulfils its corporate social responsibility objectives in its marketing strategy for relationship and value-building, but can enhance its product selection for private label introduction or extension. When it is not only pricing, but also value associated in consumer markets with private label brands, it has long-term risk potential for Tesco’s unique differentiation and positioning related to value provision. Promotions that highlight the CSR associated with private label procurement and linking them with the reputation for Tesco brand would provide new revenue sources from currently non-targeted customers and provide more revenue linked with its value-added agenda. Premiumisation has worked in recent years, but may have consequences for market share growth due to new market entrants with considerable pricing differences and the ability to extend promotion of quality of private label goods to gain consumer attention. 5. References Anselmsson, J. and Johansson, U. (2009) Third generation of retailer brands – retailer expectations and consumer response, British Food Journal 111(7), 717-734. Auh, S. and Shih E. (2009) Brand name and consumer inference making in multigenerational product introduction context, Journal of Brand Management 16(7), 439-455. Baker, R. (2009) Brand sector report: love in a cold climate, In-Store January, 29. Bank of England. (2009) Do supermarket prices change from week to week?, Quarterly Bulletin 49(4), 299. Brasher, R. (2008) Save the environment, the polar bears and money on your bills, Marketing Week, 27 March, 13. Casatelli, L.M. (2008) Adding value, Frozen Food Age 57(3), 18-21. Chen, J., Zhang, C. Yuan, Y. and Huang, L. (2008) [internet] The nature of the emerging C2C electronic market in China: a case study from social network theory and CRM perspectives, p.6 [accessed November 9, 2011 at http://www.ifipwg94.org.br/fullpapers/R0052-1.pdf] Felsted, A. (2010) Tesco finds thriving market and launch pad for China, Financial Times 11 November, 6. Global Information Inc. (2010) [internet] UK Grocery Retailers 2007, The vertical markets research portal [accessed November 9, 2011 at http://www.the-infoshop.com/report/dc48415-retailers.html] Keegan, W. and Green, M. (2009) Global Marketing, 5th ed. Pearson Prentice Hall. Laforet, S. (2007) British grocers’ brand extension in financial services, The Journal of Product and Brand Management 16(2), 82-97. Ma, Y., Ding, J. and Hong, W. (2010) Delivering customer value based on service process: the example of Tesco.com, International Business Research 3(2), 131-135. Quader, S. and Quader, R. (2008) The utilization of e-commerce by traditional supermarkets in the UK through strategic alliances with internet-based companies, Journal of Services Research 8(1), 177-211. Steenkamp, J.E. and Kumar, N. (2009) [internet] Don’t be undersold. [accessed November 10, 2011 at http://harvardbusiness.org/product/don-t-be-undersold/an/R0912K-PDF-ENG?N=4294967220&Ntt=sales] Suessmuth-Dyckerhoff, C., Hexter, J. and St-Maurice, I. (2008) [internet] Marketing to China’s new traditionalists, Far Eastern Economic Review. [accessed November 10, 2011 at http://www.mckinsey.com/locations/greaterchina/mckonchina/pdfs/marketing_to_china.pdf] Trout, J. (2008) [internet] The new positioning: the latest on the world’s #1 business strategy, Genii Group. [accessed November 10, 2011 at http://www.genii-group.com/pdf/book_review_the_new_positioning.pdf] Winston, A. (2008) The green wave, Retail Merchandiser 48(5), 15. Read More