External and Internal Analysis of the Company and Reasons behind Success of Tesco - Case Study Example

Strategy Management Table of Contents Task 3 Internal Analysis 3 External Analysis 5 Task 2 8 Market Objectives and Implementation of Change Strategies 10 Product Development: Diversification 10 Market development: Partnerships 11 References 12 Task 1 In UK, drink and food retail experience large share in the market which provides employment in retailing, initial production and manufacturing for about 3 million people. Tesco Plc. has experienced success on strategic performance relative to other firms in the industry. Tesco is the UK’s largest retailer and one of the largest in the world. Tesco employing more than 320,000 people and also has 2,318 stores operating around the world. The largest market share of Tesco is in UK where it operates under four banners of Express, Extra, Metro and Superstore. The research below provides the external and internal analysis of the company and reasons behind success of the company Tesco. Internal Analysis Strengths The market share of Tesco is increasing gradually all around the world. In UK, Tesco holds 13% of market share. Due to the strong brand name in UK market, other parts of the world believed Tesco as the well-known brand. At late 2002 in UK, the deal between Tesco and convenience store group of T&S has helped Tesco to turn into second largest convenience store. After securing number one in the year 1996, Tesco planned to increase market share globally and developed multi-format strategy which helped to accelerate the market share (Aaker and McLoughlin, 2010, p.127). Tesco offers effective online service to the customer who wants to buy products online. Online process helped effectively to generate revenue Weakness Complete reliance on the UK market can lead to downfall. Internationally Tesco is growing gradually but it is dependent on the UK market where 73% of the revenue generated on year 2003. Reduction on debt is quite minimal for Tesco. As company has large capital expenditure which is mainly due to the fact investing heavily on spaces for the creation of new stores. Being one of the largest retailer companies and having vast range of products on food and non-food retail sectors there is a danger of becoming serial acquirer. Opportunities Tesco should implement cost leadership and differentiation strategy as the market demand is shifting towards high quality and low priced differentiated products. The organization should continue with its online business strategy as it will help to gain more competitive advantages. The organization should implement aggressive marketing strategies in BRICK countries to increase its global market share. Threats Intense industry competition and economic downturn can affect the business performance of Tesco. Tesco requires huge marketing and investment to sustain in the international market. Overseas market revenue may reduce due to competition or economic conditions. Price war between the competitors can affect the profitability and large client base of Tesco. External Analysis PESTEL Analysis Political factors The market revenue and performance of Tesco depends upon the legislative and political conditions and European Union of these named countries. For employment in the country, government supports foreign retailer companies to provide jobs from lower paid, and flexible to high paid and highly skilled jobs to the students and other workers. Economical factors Economic factors can largely influence the cost, profits and demand. High rate of unemployment level is the vital factor for economy. Unemployment rate would significantly decrease the demand of goods and also influence the demand required to produce the goods. Tesco highest market share is in UK, if in case of slowdown of UK market would affect badly on the company. Social factors Current trends for customer are now bulk and one-stop shopping. The amount of non-food products to be sold is increased by Tesco. UK retailers such as Tesco is giving attention towards the services and value-added items because due growth of female works and ageing population. Technological factors The development of many Tesco products has been influenced by technology. The introduction of the new technology would create customer satisfaction because products can be easily available. New technology would help customer and as well as the company. Environmental factors The way to reduce environmental issues is to approach in the way which is socially responsible. The corporate social responsibility of Tesco is mainly concerned due to the fact when organization surpasses least obligation towards the stakeholders through corporate governance. Legal Factors The performance of Tesco is affected by government policies and legislatives. There are many policies of government to reduce buyer power for control of monopoly such as reducing the access of raw materials. Porter’s Five Force Analysis Threat of new entrants Tesco, Asda, Safeway and Sainsbury’s dominate the UK grocery market of about 70% market share. So it becomes use disadvantages for any new company to entry in to the grocery segment which is dominated by these companies. It also becomes very difficult for new companies to entry in o the market due to highly developed supply chain of other companies. This introduction of new technologies by Tesco made more difficult for new company. Bargaining power of suppliers Tesco can get better promotional prices of products from the suppliers. And other small chain supplier cannot match that. Due to the competitive rivalry, the profit between suppliers and supermarket chains decreases. Bargaining power of Buyers The introduction of loyalty card by Tesco has become more popular towards the customer because of its customer retention strategy. With customizing good service, ensuring to give customer what they needs, ensuring lower prices and constant flow of promotion has helped supermarkets like Tesco to create huge customer base. Threat of substitutes Substitute can change customer to move towards the alternatives because it can reduce the demand of particular product. In the grocery market segment, substitute can be product for product or it can be substitute of need. Tesco have come up with a strategy to cope up the situation it to acquire new small scale operations and used to open new Express and Metro stores. And these stores are mainly opened in small towns and cities. Industry Rivalry The grocery environment significantly has been changed with large spaces and store sizes and using new range of formats and also increases in retail concentration. In the world where customers are demanding and market growth of this sector is difficult large companies like Tesco used to acquire information of every customer available so that it can help to communicate with customer. The grocery market is highly competitive and to sustain in the market companies should innovative to maintain the market share. Task 2 In UK, Tesco is market leader in food retail sector and also growing its influence on non-food retail sector. In this globalization era, with huge competition pressure Tesco adopted different marketing strategies which are growth and cost leadership. The research below critically analyse the ways adopted by Tesco to sustain its performance with relevant models and frameworks. Porter’s Generic Strategy Three Generic strategies are cost leadership, differentiation and focus strategy. To gain successful competitive advantage giant organization like Tesco should follow one of the Porter’s generic strategies. Cost Leadership Strategy Cost leadership of generic strategy is that in which Tesco can have the ability to control the cost in the industry. Tesco is globally renowned retailer company and to sustain globally cost leadership strategy is one of the most important. Low-cost competitive strategy is also one of the advantages of cost leadership. Cost leadership strategy aims to focus to broad mass market. Cost leadership strategy can help Tesco to control operating cost which can help to price products according to the market situation. Controlling operating cost would help to generate high revenue and provide huge competitive advantage. While focusing on low cost leadership, Tesco can charge average price for products and service which would help to reinvest extra revenue in to the business. Differentiation Strategy Another strategy that can be used by Tesco is differentiation strategy. Company can differentiate their product which helps them able to charge quality price for products and services. Better products performance and providing better service to the customers than that of other competitors are the example of differentiation strategy. Differentiation will able to provide Tesco better customer value by offering better products and services with unique feature. Unique features like Tesco club card which helped Tesco to create huge customer base by proving better service and providing customer according to their necessity (Piercy, 2012, p.17). Differentiation strategy employed by the company can incur extra cost. Extra cost is for extra advertisement and customer loyalty schemes. It can be extra cost but it would rather create huge customer base that company like Tesco requires to hold its top position from the huge competitive retail sector. Providing better customer service, technology and offering breadth of products are the application of differentiation strategy. This will help Tesco to create brand loyalty by applying differentiation strategy. Focus Strategy Focus strategy is the moderator of cost leadership and differentiation strategy. This strategy focus is aimed towards narrow market. Focus strategy can be used by company to focus on particular niche in the market and proving specialised products and services. Tesco can use differentiation or cost leadership approach with respect to focus strategy. When Tesco focuses on cost leadership strategy then Tesco would aim on creating internal efficiencies that would help to control external pressure. This will help Tesco to have frequent interactions between supplier sectors and government Cost focus approach used by the company would concentrate on cost advantage in the target segment rather not focusing on overall market. Tesco using differentiating focus approach would aim to focus on differentiation of small line of products in specific segment rather than overall market. This strategy provides Tesco to pursue differentiation or cost leadership strategy in specific market segment or in specific products. Market Objectives and Implementation of Change Strategies Market situation can be evaluated and assessed by the help of strategy frameworks. Creating alternative strategies would help companies to reduce risk. Explicit plans for future perspective and proper effective planning should be developed by Tesco. The main two market objective that needed to be focus by Tesco is product development by diversification and market development with the help of partnerships. Product Development: Diversification The changes in business environment world create need for new services and products. The strategy of product development must be considered by company when developing new products for existing market. It also necessary to focus on internal development of Tesco when new products are produces for existing market. The expanding and diversifying the product development of Tesco would help to create customer relationship. Tesco can create new product line depending upon the need of the customers. Tesco should consider focus on extent and nature of diversification. The company which provide better innovative service and products can have better competitive advantage. Therefore, Tesco product development should base on innovation. In UK, Tesco can create innovative ideas like by creating portfolio of different types of store format and creating different designs. Different design of store would create better shopping experience for customers. Tesco can create different design of stores in Eastern part of Europe where majority of outlets are hypermarkets. Due to this unique store Tesco can use premium prices. To sustain in this competitive market, Tesco should maintain optimum quality on their internal strengths by implementing technologically innovative outlets and retail stores. Market development: Partnerships The expansion of the market and to increase company’s revenue Tesco should enter into new markets like Japan and China. Survey shows that consumers in Asian markets have increased their spending and changing their trends towards retailing. This provides high opportunity for major supermarkets like Tesco. International alliance strategy should be used by Tesco. This can explained as entering in to the Asian markets by partnerships or joint venture. This will significantly provide huge market presence and large scale of economy. However, Tesco may feel it is high risk to be first mover depending upon the market complexity. But by creating local knowledge and adding own supply chain and with diversity of product development in the Asian market would rather create better shopping experience for customers. The success of joint venture and partnerships depends upon three criteria: feasibility, sustainability and acceptability. For Tesco, feasibility depends upon resources and ability to work on the strategy. And in case for sustainability, success depends upon the expansion of the market development strategy. For acceptability, successful partnership depends upon the risk level, expected return and reaction of the stakeholders. References Aaker, D., and McLoughlin, D., 2010. Strategic market Management: Global Perspectives. New Jersey: John Wiley & Sons. Piercy, N., 2012. Market-Led Strategic Change. London: Routledge. Read More