Strategic Management at Tesco Stores - Case Study Example

Task: Strategic Management: Tesco Stores Introduction Tesco is one of the major stores in the UK dominating the retail supply. The company launched its activities in the year 1956. Initially, the firm started as a miniature grocery stand. However, the corporation has achieved a sizeable growth over the time. Currently, the Company owns numerous stores in and out of the UK with a recent venture into the international market. Appropriate application of strategic organization presents the foundation for the success of the company. Retailing section signifies an outsized trade in the American population. The company is presently a key player in the UK economy granting employment to a significant population. Regardless of its great achievement, the company understands the need of inviting creativity and strategic management to remain competitive in the market. According to Woods (26), with the emerging stiff competition pressures, recruiting effectual strategic organization is central to realization of successes. Competition in business is never a compromise but a reality. This central factor defines the triumph of any industry. Thus, companies, which are able to control this factor effectively, survive the forces. However, handling competitions force is a challenging endeavor and requires a coherent approach since competition is a multifaceted factor. Five major forces formulated by Porter explain the nature of competition in business. Tesco and their competitors Initially, the company was battling with few competitors. Nevertheless, the retailing in the UK has grown to be a competitive field in the late decades. Competition forces are so stiff and there exists enmity among large corporations in the market (Table 1). In the UK, large stores like Sainsbury’s, Morrison’s, and Asda challenges Tesco. Furthermore, in the American market, the corporation fights with the leader Wal-mart, Target and K-mart. In order to survive in such hostile environment, Tesco stores provokes strategic competitive model that necessitates various critical ideas. Superior branding is a key approach that has enabled Tesco to outweigh their competitors. The marketing campaigns and the eminence of their goods create convincing claims. The company provides a wide range of supply providing their customers with a room of choice (Wood, 17). Introduction of own branding has helped the company reduce on the operation cost hence maximizing profit while developing loyalty. This has enormously enhanced the popularity of the company making it thrive well in the market. Moreover, the Company has managed to maintain its products at a lesser cost than that of other retailers. Customers mainly go for the lesser costs hence such a condition makes their products be of preference to many. Such ideas like employing technology have reduced the Company’s operation cost. The salvaged cost aids in tumbling the cost of the products. Moreover, the Tesco utilizes a system of online sale, a model that is valuable in reducing costs and boosting services. A sustainable aspect of enduring taut competitions is outsourcing for new markets. This is an idea, which Tesco has extensively explored in its operations (Wood 6). The store has continuously opened stands in less competitive regions. Such critical venture is evident in its efforts to spread its activities to the international world. For instance, Tesco has lately extended its supplies to countries like China. China holds a large population and the vending forces are minimal hence it provides a potential market. New entrants Barrier to entry is a factor, which defines the state of competition in a certain sector. The barriers to new emerge are stipulated by various factors. They include the customers’ loyalty, preferences, capital, and access to distribution routes. Penetration of a stiff retail environment is associated with a number of difficulties (Henry 80). The risk of new entrances, which would challenge the company, is limited. Tesco is a large company with copious fully established stores in various parts, opening a channel that would meet the standards of the Tesco Company is awfully challenging. The venture would require a large capital that may be difficult to raise. The capital barrier hence counters new entries that would otherwise have brought about competitions. Tesco Company understands the implication surrounding difficulties in entry hence has adopted strategies that greatly discourage the establishment of new companies (Mark 13). One effective approach, which has realized a positive response, is the application of influential branding on its products. This targets retaining clients’ preference a move that ensures that the company maintains the market. This means introducing a novel brand in the market would not challenge Tesco’s activities since there are frequent customers of the stores’ goods who would hardly consume other brands. On realizing the advantage of customer loyalty, the company adopted strategies that would increase the extent of the condition. This is evident in the effort of issuing Clubcards to its customers. Clubcard owners would enjoy additional benefits on top of the normal package. This further complicates the novel entries by the virtual that, the concept entangles the Club-Card holders in the Tesco’s stores. This makes it difficult for the emerging companies to gather constructive sales out of the population. Additionally, Tesco is a large company, hence it is able to dominate the distribution feeds a strategy that creates a barrier to an emerging company due to supply challenges (Wood 31). Customer’s Bargaining Power Consumers present low pressures on the Tesco’s activities. High bargaining power is mainly established where the Company’s sales are defined by specific individuals or a certain target group. Moreover, the challenge is high when the Company supplies few clients or where the number of customers is low (Henry 7). This means, since such customers would be making purchases in hefty quantities from the Company, they notably influences the activities of the business. Nonetheless, the model presented by Tesco Company offer customers with low bargaining powers. Tesco makes its profits from the accumulation of numerous small sales (Mark 12). Therefore, explicit individuals who would actively engage the company in harsh negotiations do not necessarily control the company’s sales. Importantly, the Company supplies a large population raised from different parts of the globe. Moreover, government regulations have ensured health pricing a move, which is important in curtailing unsustainable competitions. However, customers may challenge the corporation by going for the cheaper products from other stores. Tesco stores understand this option clearly thus, the Company works aggressively in ensuring that their products’ prices remain competitive in the market. The retail commerce has undergone transformations and the customers are progressively apprehending the need for effective business operations (Wood 50). Therefore, the need of supplying safe products and utilizing good corporate ethics has become mandatory. Tesco has advocated for undertakings aimed at promoting such condition to maintain the Company’s reputation. Suppliers Bargaining Power Suppliers have a role of ensuring continuous delivery of goods to ensure that the store does not experience shortages. Where there are few suppliers in the production channel, the suppliers may engage the store strongly by dictating the price at which to deliver the goods. However, the presence of many suppliers engaged in rivalry their bargaining influence is considerably minimal. In the UK, suppliers bargaining power is challenged by the emergence of large retail stores (Henry 23). Tesco is a large and a well-established store. This means, every supplier will be willing to secure a contract with such a Company. This comes as an advantage to the Company by the sense that, the Company is able to dictate the price which it is prepared to pay. The suppliers are indebted into accepting the Company’s price; otherwise, they would lose the contract. Importantly, Tesco has the capability of importing products from foreign states at a less costly price. The firm can carry out own productions for simpler products. It is evident that the corporate does not entirely depend on specific suppliers, a condition which gives it a high control authority over the suppliers. The Company can comfortably switch suppliers hence the suppliers bargaining pressure has no reasonable impact on the Company’s operations (Mark 30). Threat of Substitutes The availability of substitute goods may lower the net sales of the Company since customers may shift to other alternatives. A condition of substitutes arrives in the market though various ways. A direct option comes because of the development of new products that can serve the purpose of old products. Additionally, there may be an emergence of goods of better quality or tastes than the older ones. This causes a situation where consumers run in favor of the new products. Importantly, a contest among businesses may lead to a condition of substitute products (Henry 15). This appears where one Company offers products at a reduced price than another. Therefore, Customers’ substitutes a certain Company’s product with those of another. Tesco utilizes this concept by providing relatively cheaper products. Importantly, conveniences in the accessibility of goods may create a condition of substitute goods. For instance, Customer at local areas buy from local retailers on the substitute of the large Companies which are mainly located in the urban centers. This is a condition, which has substantially challenged the activities of Tesco. To counter this impact, Tesco has exerted effort to open small stores in these local areas to ensure that their products are brought close to the customers (Woods 10). This ensures that the customers do not opt for substitute options hence continue buying from the Company. Therefore, comparatively the Company is able to effectively manage a threat of substitutes hence the pressures from this route are considerably minimal. In conclusion, Tesco stores employ strategic management in its operations. Effectual application of diverse facets of strategic management continues to fuel the Company to high levels. Tesco utilizes the concept in managing the Porter’s five forces a practice, which has seen the Company outshine its competitors. Any Company that needs to override the competition forces need to embrace ideas such as those adopted by Tesco stores. Since challenges are inevitable in the business field, strategic management is the only efficient method of handling these problems. Works Cited Henry, Anthony. Understanding Strategic Management. Oxford: Oxford University Press, 2008. Print. Mark, Palmer. "Retail Multinational Learning: A Case Study Of Tesco." International Journal Of Retail & Distribution Management, Vol 33. Issue 1 (n.d.), 2005: Emerald Full-text. Web. 18 Apr 2012. Woods, Margaret. "Linking Risk Management To Strategic Controls: A Case Study Of Tesco Plc." International Journal Of Risk Assessment & Management , 1074-1088. 2007. Business Source Complete. Web. 18 Apr. 2012 Appendixes Table 1 showing market share presented by four main retailers in the UK Supermarket Market share (December, 2009) Change from December, 2008 Tesco 30.5% + 0.1% Asda 16.9% +0.1% Sainsbury’s 16.3% 0.2% Morrison 12.3% +0.5% Source (Tesco plc 2012) Read More