Strategic Purpose and Industry Analysis in Tesco Company - Essay Example

Tesco case study Contents Contents 1 Introduction 3 Strategic Purpose 3 Industry Analysis 5 Poter’s 5 forces 5 PESTLE Analysis 7 Resources and Capabilities 8 Porter’s value chain 8 Critical Success Factor 10 Business and Corporate strategies 10 The strategy clock 10 Cost advantage strategies 12 Conclusion 12 References 13 Introduction The Supermarket industry of UK is dominated by few players. This industry has around 63million customers in UK and feeds more than 26 million households. The supermarket of this country is worth of £174.5 billion in 2014. It is expected that the supermarket industry will have a value of £ 203 billion in 2019. An increase of 16.3% is expected for this industry. In supermarket large format shops sell a wide range of grocery items, non food items etc. The performance of this industry depends on its customer’s income and their urge to spend. The large supermarket buys products at a cheap price and is able to sell those items at a low margin. After the recession of 2008 the revenue of this industry grew every year. This industry of UK helped many small and big retailers to solve their problems. One of the big players of UK supermarket industry is Tesco. It is a multinational company having it’s headquarter in Cheshunt of UK. In1919 Tesco was founded by Jack Cohen. It opened its first store in 1929 and from that time the firm expanded its business rapidly. In UK Tesco has 28% of market share in supermarket industry. Strategic Purpose Tesco is experiencing success for a long time. The company has a strong focus on its business and strategies. The vision of the company is to remain constant but changing its business practices and strategies according to the changing world. The firm has major seven types of business strategies which help it to achieve its success. It vision includes to become most valuable business by serving customers and communities with the help of committed and loyal staff and shareholders (Tesco Inc, 2014). It vision also describes that Tesco wants to expand all around the world by using all the opportunities. It believes in innovation of modern ideas. The mission of Tesco is to become a full formed maintenance company from AMSS Company. The firm’s mission aims to be a wide ranged company providing tubular service. It has a mission of selling mechanized product along with different other products. The values of Tesco contribute a lot in its success and to hold its position in the competitive market. Its business value is to look after the benefit of the customers and treat everyone of them equally. The company’s value is involved in every level of its business. Its values let the employees of Tesco know what type of business the company is into and helps its customers to build their expectations. The strategies of Tesco help in utilizing the resources of the company and achieving its goal. Its short term and long term growth is based on the company’s strategies (IBISWorld, 2014). Tesco’s strategy involves in building the company as a high valued brand. For this propose the company develops its own label brands. The firm wants to achieve the position of outstanding international retailer both in stores and online. The new strategies of Tesco helped to develop many new stores of the company. Industry Analysis Poter’s 5 forces Threat of New Entrance UK supermarket industry is dominated by Safeway, Asda, Sainsbury and Tesco. So the threat of new entrance in this market is low for the dominance of these giant players. In the recent time the supermarket of UK has expanded into hypermarket. But still then the new business have to invest a huge capital for its establishment and have to do something innovative to attract customers (Coriolis Research Limited, 2004). Threat of substitute Tesco faces moderate threat of substitute product in supermarket industry. Three big companies are present in the UK market who offers almost same products like Tesco. But the price of Tesco’s product is very low along with good quality which attracts more customers. The clothing business of the company faces high threat of substitute product. Bargaining power of the buyer In the supermarket industry the bargaining power of the buyer is high. Customers can easily change the companies when they found a slight difference in quality, standardization, and cost of the product. For this reason Tesco maintains a loyalty card which helps to retain its customers. Bargaining power of the suppliers This industry experiences a low bargaining power of the suppliers. Big retail companies like Tesco have a strong position in the market. This helps the company to negotiate with the suppliers to purchase products at a lowest price (Ruddick, 2014). Moreover there are many suppliers present in the UK market which lowers the suppliers bargaining power. Market Competition Tesco faces high competitive rivalry in the supermarket industry. There are three other big firms present in the UK market who are the strong competitor of Tesco. These companies are competing with each other on price, product, promotion etc. PESTLE Analysis Political The political policies have encouraged Tesco to establish many joint companies in China. For globalisation the company is getting benefit in promoting and expanding its business outside UK. The performance of the company is highly influenced by legislative and political situation of the countries (Manunphattr and Denny and Thomas, 2014). Economic The economic factor of this industry creates an impact on the demand, supply, cost and profit of the products. These issues influence the marketing mix of Tesco. The company is highly dependent on the UK economy. Employment in UK has a direct relation with the profitability of the company. Social UK market has more number of retired people than young. The aged people tend to eat less which is becoming a negative factor for Tesco. They don’t have so much of internet literacy and are less likely to go to supermarket. These social issues create a bad effect on Tesco’s business. Legal The prediction of increase of VAT to 20% by the Government of UK will affect Tesco mainly its non food section like clothing. The company can have an increase in its operating cost as according to the legal rules minimum wages of the employee have to be increased by 15.5%. (Ruddick, 2014). Technological The technological advancement helped in the operation of Tesco. Through internet the company expanded its supermarket business through online. The company introduced loyalty program through IT which helps to retain customers from switching companies. Online retail business of Tesco has increased its popularity for the increase of broadband usage. Environmental UK Government has introduced environment friendly packing. This helps Tesco in reducing its overall cost of packing (Geller, 2014). The consumers of UK are very much aware of carbon footprint of the company. For this reason Tesco included carbon foot prints on potatoes, dairy products, orange juice etc. Resources and Capabilities Porter’s value chain The value chain of Tesco acts as a link between the value adding activities and their involvement with the support activities. Inbound Logistic The development of bar coding system and EDI of Tesco helps in maintaining low cost logistic. The company has also ungraded its ordering system, in store process, vendor list to increase effectiveness and efficiency in its logistic operations. Operation Management The company has implemented new technologies which help to manage customers and their expectation, support the process of procurement. Tesco digital program is an ERP solution of third generation which increase the profitability of its business (Spary, 2014). Outbound Logistic The types and format of the stores of Tesco are strategically built in such a way that it attracts maximum customers. The formats are Superstores, Express, Extra, Metro and Homeplus. They are segmented based on the population of the place. Sales and Marketing Various marketing strategies like Tesco Clubcard, Greener Living Scheme etc have been introduced by Tesco for attracting more customers and expanding its business. Services The company maintains dual strategies of differentiation and cost leadership which provided more importance to its customers. This dual service helps in the development of company’s promotions & direct marketing, financial service etc (Schrage, 2014). Critical Success Factor Tesco is very customer focused. The company develops personal integrity with its customers by building respect and trust. It gives every effort to achieve its goals. Tesco maintains positive relations among the employees by performing team works. The firms motivate and inspire its employees. Tesco analyse each and every decision very carefully (Ruddick, 2014). It manages the performance and changes very effectively. Business and Corporate strategies The strategy clock Tesco’s position in the competitive market can be well analysed through strategic clock. Low Price: Tesco maintains a very low price in all of its products to attract more customers. Hybrid: The main leadership skill of Tesco is selling products at a low price and takes measures in reinvesting in factors of low price. The firm gives immense effort to maintain the reinvestment cycle. Differentiation: Tesco’s differentiate itself from other companies by its low price factor. Its satisfactory service also adds value to the company. Focused differentiation: Main objectives of this company are to focus on its customers, improving relationship with them and maintaining high customer loyalty (Gilbert, 2014). The most important thing of Tesco is its performance in all departments of its business like non food products, financial sectors, telecommunication etc. Cost advantage strategies Tesco Company’s pricing strategies are made in such a way that it gains a competitive advantage. The main objective of the company is to become the best seller in the market having lowest price. The company in the supermarket industry covers all the segments with its low pricing strategies. Tesco emphasised on minimising its cost of business. The large scale business of this company helps it’s to offer standard products with little differentiation which are acceptable by maximum customers. The low cost leader Tesco allows maximum discount on its product which creates a major cost advantage in the competitive environment. The pricing strategies of this company help it to increase its market share. Conclusion All these analysis of Tesco shows that the company in operating in a very competitive environments. The supermarket industry of UK has some other giant companies but still Tesco is successful in holding its leadership position. The company’s different strategies help to create its customers base and adds value to the customers. The company’s value chain is successful in establishing product differentiation and cost leadership. Tesco’s competitive advantage and superior values helps it to achieve its goal. Tesco also motivates its employee and inspire them to delivery effective service. The company analyses its decision before implementing them. The strong cultural values make Tesco the leader of supermarket industry. References Coriolis Research Limited., 2004. Tesco: A case study in supermarket excellence. [online]. Available at http://www.coriolisresearch.com/pdfs/coriolis_tesco_study_in_excellence.pdf [accessed on 30th December 2014]. Geller, M., 2014. Changing British shopping habits help suppliers in supermarket talks. . [online]. Available at http://www.euronews.com/business-newswires/2785584-changing-british-shopping-habits-help-suppliers-in-supermarket-talks/ [accessed on 30th December 2014]. Gilbert, M., 2014. Being Tesco Stinks, but the Shopping Is Great. . [online]. Available at http://www.bloombergview.com/articles/2014-11-18/being-tesco-stinks-but-the-shopping-is-great [accessed on 30th December 2014]. IBISWorld., 2014. Supermarkets Market Research Report. [online]. Available at http://www.ibisworld.co.uk/market-research/supermarkets.html [accessed on 30th December 2014]. Manunphattr, D, and, Denny and Thomas. 2014. Tycoon Dhanin weighs buying back Tesco's $10 billion Thai unit. Available at http://uk.reuters.com/article/2014/11/18/uk-tesco-asia-idUKKCN0J22FI20141118 [accessed on 30th December 2014]. Ruddick, G., 2014. Why we must not gloat about the extraordinary downfall of Tesco. [online]. Available at http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11181783/Why-we-must-not-gloat-about-the-extraordinary-downfall-of-Tesco.html [accessed on 30th December 2014]. Ruddick, G., 2014. Tesco crisis: everything you need to know. [online]. Available at http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11181686/Tesco-crisis-what-you-need-to-know.html [accessed on 30th December 2014]. Ruddick, G., 2014. Supermarkets could start to close, warns Waitrose boss. [online]. Available at http://www.telegraph.co.uk/finance/11233635/Supermarkets-could-start-to-close-warns-Waitrose-boss.html [accessed on 30th December 2014]. Schrage, M., 2014. Tesco’s Downfall Is a Warning to Data-Driven Retailers. [online]. Available at https://hbr.org/2014/10/tescos-downfall-is-a-warning-to-data-driven-retailers/ [accessed on 30th December 2014]. Spary, S., 2014. Tesco invests in digital to become part of the 'rhythm' of shoppers' lives. [online]. Available at http://www.marketingmagazine.co.uk/article/1322653/tesco-invests-digital-become-part-rhythm-shoppers-lives [accessed on 30th December 2014]. Tesco Inc, 2014. Vision, mission and values. [online]. Available at http://www.tescocorp.com/bins/content_page.asp?cid=4-1167 [accessed on 30th December 2014]. Read More