Tescos Competitive Marketing Strategy - Essay Example

Introduction Tesco is the globe’s leading retailers having more than 6700 stores in 13 countries, employing more than 5, 00,000 people and offering services to millions of customers in each week. Tesco is consistently earning revenues since 1999. As of 2009, Tesco controlled a market share of 31% in UK’s grocery Market. Tesco commenced its trading activities in 1924in UK and as on date, it is having more than 2979 stores in UK, and it earned net revenue of £43 billion in 2012 with UKs net profit being £ 2.5 billion in 2012. In UK, Tesco is the leading supermarket and about one-third of UK’s selling space and 66% of total sales all the supermarkets in UK are catered by Tesco. Tesco is having hypermarkets, convenience stores and superstores. Started in 1999, Tesco has chalked out many core marketing strategies to attain the above feats to remain as one of the world-leading retailers as of today and this research essay will analyse the Tesco’s core marketing strategies in detail and how it employed these core marketing strategies to become one of the globe’s retailer.( Pitt & Koufopolos :124). “Tesco’s Core Business Strategies” Tesco’s core strategies are as follows: to concentrate more on the UK’s core ; to become the world leading retailer in online sales and stores; Tesco is a market leader in food items and wants to be stronger in other products also; to concentrate to develop the retail services in all our markets; to develop and own high-value brands. (Tesco’s Annual Report 2012:3). Tesco is having its operations in the following countries viz. USA, Europe –Turkey, Czech Republic , Poland ,Hungary, Slovakia and Republic of Ireland, Asia – India , China , South Korea , Malaysia and Thailand. (Tesco’s Annual Report 2012:1). In the last two decades, Tesco had witnessed teething issues in its aggressive marketing plans. Tesco witnessed a fall in sales due to well structured and impregnated supermarkets in the UK, a lot of impediments in getting plan approval for its large superstores, witnessed cutthroat competition from Safeway, Asda & Sainsbury. In the last decade, it held a number two position lagging behind Sainsbury but as of date, it pushed aside Sainsbury and become number one retailer in UK. (Aaker & McLaughlin 2010:127). Tesco’ growth and success over the past three decades rest upon its transformation of image and strategy. Tesco has to change its marketing strategy to sell various kinds of customers namely lower, middle and upper class consumers with an inclusive offer stratagem, and their market strategy is to sell high quality products at a realistic price. In 1998, it introduced the finest range of premium products and was followed by the introduction of Tesco’s Organic range, which was introduced in 2006. Later, it introduced Tesco’s Healthy Living “range of products and in 2008, it introduced “Value “range products to attract the price-conscious clients, mainly to meet the confronts thrown by the recent economic recession. Tesco is able to attain high revenues by developing a vast range of own brands. Tesco has shifted its core business strategy to maximise the customer’s value from that of maximising shareholders’ value. (Aaker & McLaughlin 2010:128). Tesco has evolved a diversification strategy footed upon on four core areas: expanding and innovating in the main UK grocery market and diversify into segments like convinient stores; expanding into non-food businesses like health, clothing , beauty , DVDs , CDs and diversified into developing into its own non-food Value and Finest ranges; diversified into retail service provinces like personal finance for utilities and telecoms by signing joint ventures with local players ; it concentrated into its international expansion, which successfully accounted for one-fourth of its sales in the year 2008-09 . (Aaker & McLaughlin 2010:128). Global Positioning According to Sheth, a company’s marketing strategies should be fine-tuned in the phase of globalisation and to spotlight on core competences instead of focusing more on domestic market together with a portfolio of brands and business. He urges that there is a strong need for different approaches to deliver higher shareholder value. (Hooley & Graham 2008:71). Thanks to its foresight, Tesco’s global positioning helped it to perform competitively as the trading profits rose higher by 18% in its international division or 22% before the brunt of crisis tax introduced by Hungary’s government. Tesco has seen sound progress in their well-founded businesses in South Korea, Central Europe and Thailand and its new and fast growing businesses like Fresh & Easy in the USA and Tesco Malaysia. (Tesco’s Annual Report 2012:5). Tesco’s Success Story in their International Operation. Tesco’s Republic of Ireland and South Korea operations have posted the profit particularly in online grocery business. During the year 2012, Tesco launched dotcom in the Czech Republic and planning to start in Warsaw in 2013. Since ,1990, Tesco has opened more than 3200 stores in the international segment which yielded more than £1 billion by way of revenue in the year 2012. (Tesco’s Annual Report 2012:15). Tesco considers his China’s operation is presently confronting due to consumer environment but in long-run it expects for further growth. Tesco’s strategy in China is to spotlight on structuring scale in three provinces, which altogether have more than 600 million populations. Tesco’s China operation offers huge complexity and diversity and hence , it needs a thorough comprehension of provincial ,regional and city level differences and it has to exert its global know-how and systems so as to build scale in China. (Tesco’s Annual Report 2012:17). Tesco’s Fresh and Easy business concentrates on fresh, wholesome and high-rated food items in the centre of the neighbourhood. Some of the very famous brands that are introduced in Fresh and Easy in USA have been recently introduced in South Korea and UK. Tesco is using its international experience by exchanging the best practices into its each and every operation. Positioning Strategy According to Sheth, strength for a company emanates from a brand identity that connects all parts of the business. Thus, the basic strength of Toyota and Honda as contrasted with the more than 12 brands owned by General Motors. (Hooley & Graham 2008:71). Positioning strategy is to offer more priority to marketing program elements into coordinated actions intended to accomplish the positioning objective. The positioning strategy is normally focussed on a single brand or multi-brand products for a particular market target. For instance, marketing strategies of P&G, Johnson & Johnson and Sara Lee spotlighted on positioning of their multi brands whereas Caterpillar, General Electric, Nike and IBM used their corporate name to position their product-portfolio and the product line. (Cravens 2010:180). One of the business strategies of Tesco is to create high valued brands. Tesco is re-examining and reviving their entire range of more than 8000 products by relaunching of Tesco Value as Everyday Value with improvement in quality in more than thousands of its brands. For instance, Everyday Value introduced by Tesco in the April 2012, and this brand had the sales turnover of more than £ 1 billion in UK in 2012. In the year 2012, Tesco launched new ranges like Venture brands both in the Europe and in the UK which offered Tesco’s customers’ premium quality at grand prices. Tesco gives priority to brand positioning as it is aware that it is an area of major growing strategic significance as it acknowledges the role that its brand play in inducing its customer, and Tesco has started to leverage their expertise in managing its brand across its markets. (Tesco’s Annual Report 2012:17). “Breakthrough Technology -Online Shopping” New technology will buttress every part of the marketing process. For instance, “smart toilet “is a new product introduced in Japan and user of this product is to just sit in and the machine will carry out the rest. The speciality of the product is that it releases a report of diagnosis of waste output, the user’s body temperature and his blood pressure. It is to be remembered that Japan has a high rate ageing population with probable medical issues and inadequate hospital facilities in remote places. For just $ 600, a Japanese home will have a first line of medical diagnosis, which may act as a life saver for many aged people in Japan. (Hooley & Graham 2008:71). For its direct online business, Tesco has perused “bricks and clicks” stratagem thereby integrating the potency of its chain of stores with internet oriented order booking. Tesco customer is able to choose groceries that are available to his nearest Tesco store through a web page, and products are picked up manually from the same store and delivered to the customer at a short interval. This facilitates elimination of any additional storage capacity or picking-up facility. Thus, TESCO is now leveraging its online client’s base to market an increasing range of high-margin non-food products from apparel to fresh flowers and financial services too. Tesco is the first ever retailer who introduced online grocery as early in 1999 and today, it is the globe’s largest and most profitable online grocery marketer with annual sales of more than £ 2 billion. (Cravens 2010:38). At present, Tesco is able to serve about 80% of London orders from their dotcom-only stores, offering its customers with their aggregate food range. Tesco has upgraded its Tesco Direct website, and now it can be accessed through mobile phone also. During Christmas, Tesco has added direct range to 200000 products teamed with convinient stores’ collection points and Clubcard points. (Tesco’s Annual Report 2012:14). “Tesco’s Business Model” Five forces framework developed by Porter can assist businesses to evaluate the profit potential and the attractiveness of their industry by evaluating the relative effect of each of the five forces on their industry construction. By formulating suitable strategy, businesses can reap advantages of the drivers of the industry setup which relies upon their status in relation to the five forces. For instance, Tesco competes in many different industries like consumer electronics, food items, and financial services among others. (Henry 2008:80). Tesco’s Business model has been constructed on the following models. Its core activities include insight, buy, move and sell. Tesco’s virtuous volume circle includes developing economies of scale, buying for less, selling for less and selling more. Tesco’s enablers are structuring Tesco’s brands, leveraging Tesco groups’ scale and skill, developing Tesco’s employees and suppliers, to function more responsively and to innovate their offer. Thus, Tesco’s core aim is to create value for its clients and to earn their lifetime loyalty. (Tesco’s Annual Report 2012:14). Competitor’s Strategy UK Based Super marketer’s Competitor’s Strategy as of April 2013 Asda (Wal-Mart), Sainsbury, Tesco and the other major supermarket service providers in UK offer the same varieties of products and merchandises. It is really arduous to contrast from the competitors on the footing upon their merchandise as whatever Tesco can offer, will also be offered by its competitors. Here comes, the customer service, which is the focus of the major thrust to distinguish Tesco from that of its competitors. The in-house training team offers adequate training to their newly recruited and existing staff thereby implanting a logical culture of customer orientation. Thus, more focus is given on the staff extrapolative instead of standardisation often known as McDonalisation. Employing customer service panels, customer satisfaction is often frequently monitored. Thus, customer relationship is an important area that successfully bricks the retailers as in case of Tesco, it is used to derive major control over its competitors. (Dennis, Merrilees & Fenech 2005) Customer Loyalty One of the main missions of the Tesco is to establish a value to its customers to earn their life time loyalty. Tesco is of the view that customer loyalty scheme is the main key to gain the customer’s preference. Thus, club card is to serve two ways –one to encourage the customers to buy more and to reward the customer for their loyalty with Tesco. It also extended to other target groups of buyers like kids (Toddlers and Kids Club) and to the first-time mothers (Baby Club). Due to introduction of club cards, the strength of loyal customers doubled between 1996 and 2005 and likewise, their average weekly spending in Tesco stores in the same period. (Ryans 2009). Cost Leadership Michael Porter advocated alternative strategies for companies to accomplish the aim of the growth by market penetration. He recommended that companies require structuring a competitive advantage by pursuing focus, differentiation, and costing leadership. Tesco adopted cost leadership as it is able to offer its product at a lower price as compared to its competitors and still able to post revenues. For instance, the Freeserve Part of Dixons which turned to be UKs largest internet service provider enrolled with more than 1.1 million customers within 240 days after the introduction their free service. Tesco also introduced small-format stores which substituted its bigger stores to cater the increasing consumer demands. These format stores are more cost effective thereby exploiting its present distribution networks, which require lesser capital. (David Browne et al 2001:149).Tesco used to price its products at marginal profit rate above the cost, mainly to excel its competitors. Product Differentiation A company can charge premium price for its products if it is able to differentiate its products from that of competitors’ .For instance, Nike’s baseball sportswear caps are always priced 200% higher than the ordinary caps available in the market. Tesco is the leader in the supermarket industry in UK is due to product differentiation like operation of stores like Express and Metro, high street convinient stores, offering Clubcard, a customer loyalty card which offers reward points on the customer’s purchases, operation of 24-hour shopping, home shopping and delivery to home through the internet, offering promotion schemes like “computer for schools” and retail banking. (David Browne et al 2001:149). Conclusion Tesco’s market strategy is to sell high quality products at a realistic price. Tesco is able to attain high revenues by developing a vast range of own brands. Tesco is using its international experience by exchanging the best practices into its each and every operation. Tesco gives priority to brand positioning as it is aware that it is an area of major growing strategic significance as it acknowledges the role that its brand play in inducing its customer, and Tesco has started to leverage their expertise in managing its brand across its markets. TESCO is now leveraging its online client’s base to market an increasing range of high-margin non-food products from apparel to fresh flowers and financial services too. By formulating suitable strategy, businesses can reap advantages of the drivers of the industry setup which relies upon their status in relation to the five forces. For instance, Tesco competes in many different industries like consumer electronics, food items, and financial services among others. Tesco is the leader in the supermarket industry in UK is due to product differentiation like operation of stores like Express and Metro, high street convinient stores, offering Clubcard, a customer loyalty card which offers reward points on the customer’s purchases, operation of 24-hour shopping, home shopping and delivery to home through the internet, offering promotion schemes like “computer for schools” and retail banking. Thus, Tesco is now the world leader of supermarket service providers, and this is possible to be accomplished due to its customer relationship best practices. The concept of introducing of loyalty card which is branded as Club Card was introduced as early in 1995 and this has brought many more customers into Tesco’s fold from its competitors. Best customer relationship and customer loyalty has been achieved through a strategic marketing plan by the Tesco’s management. One another strategic marketing plan perused by the Tesco’s management is to expand in the international market. As of today , Tesco operates in 13 nations, and Tesco has achieved not only marvellous successful internationality but also become a multi-channel retailer in whatever nation they operate thereby delivering on the probable of retail services by applying group’s scale and skill and delivering higher returns to the group.(Palmer 2005:14). For instance, Tesco’s international operation yielded strong performance with the trading revenues up by 18% in the year 2012 thereby offsetting the UK operations’ poor performance. (Tesco’s Annual Report 2012:5). By perusing strategic localisation, Tesco in South Korea is able to intensify its connections with the host society and economy. Due to its strategic localisation, Tesco in Korea has become now the most triumphant retailers since its entry into South Korea in 1999. (Coe & Lee 2013: 328). In China, Tesco is successful in offering live turtle, fish, meat and other famous products like noodles, which is contrary to its European products’ range. Tesco adopted strategic localisation by offering the local products in its hypermarkets in China thereby blending its own style with that of Chinese customs. (Samiee, Yip & Luk 2004:248). The only one nation in which Tesco is not able to succeed in its penetration efforts is Japan. Tesco’s management decided to leave the Japan’s operation in 2012. (Tesco’s Annual Report 2012:5). Tesco has employed the social media as a platform to build confidence and trust of its business. Tesco has made technical arrangements to listen to its customer’s grievances and taking necessary actions on their comments. Social media like Facebook facilitates it to have communication with its customers at any time on any issues. In UK alone, Tesco has more than 680,000 likes on its Facebook page. Social media also facilitates Tesco to exchange the best practices and to enjoy the success and Tesco is using it for exchanging messages and requesting for feedback. (Tesco’s Annual Report 2012:15). Thus , by practising core marketing strategies like Global positioning thereby expanding into global operations , adopting positioning strategy , having introduced break-through technology like online shopping , by carefully studying the competitor’s strategies , by recognising the customer’s loyalty , by maintaining cost leadership , by adhering product differentiation , Tesco is able to remain one of the world’s largest supermarket operator as of date. Samiee S, LSC Yip & STK Luk. 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