Marketing Strategy Adopted By Tesco - Essay Example

Marketing Strategy at Tesco plc Table of Contents Table of Contents ii Introduction Part One: Literature Review Conundrum Focus 2 Market Choices 2 Value Proposition 3 Key Relationships 3 Part Two: Analysis of Tesco plc 4 Customer Conundrum: Getting Loyalty and Satisfaction 5 Laser-Like Customer Focus 5 Market Choices: Crafting a Business Strategy 6 Value Proposition: Clear, Concrete, and Concise 6 Managing Key Relationships Well 7 Conclusion 8 Reference List 9 Fig. 1: Tesco's Steering Wheel 12 Introduction This paper critically analyses the marketing strategy at Tesco plc and evaluates the extent to which the firm accepts and adopts Piercy's concepts of managing customer satisfaction and the strategic marketing pathway. The analysis will have two parts. The first is a concise review and critical analysis of the literature on the concepts used such as the customer conundrum, customer focus and market sensing, market choices, the value proposition, and managing key relationships. The second applies the analysis to specific situations of how Tesco plc "goes to market" and provides illustrations and relevant examples. Part One: Literature Review Customer Conundrum Piercy's analysis of the customer loyalty versus satisfaction matrix (Fig. 2.1, p. 29) builds on studies showing that loyal behaviour does not proceed from satisfied attitudes. Berry and Parasuraman (1997; with Zeithaml, 1996) noted that Quality Service sustains customer faith essential for maintaining competitive advantage and affecting particular behaviour, and can indicate whether customers will remain loyal or leave. Superior service quality leads to favourable behavioural intentions, customer retention, a constant revenue stream, increased spending, willingness to pay price premiums, and word-of-mouth advertising and customer capture. Verbalising good intentions is merely the first step in creating a positive attitude of satisfaction, but the second more important one is delivering on the good intentions. Kotler (1977) emphasised that a market-orientated business must focus not only on selling but on customer satisfaction but failed to emphasise the disconnection between the two. Zemke and Schaaf (1990, 53) argue that the really useful, specific, directly applicable information comes from talking to customers, constantly and often at length, to determine what the company is doing that makes them happy or not. Cronin and Taylor (1994) focus on performance measures of service quality rather than customer expectations. Customer Focus Piercy's (2002) customer relationship sliding scale (Fig. 7.1, p.344) is more complicated than the matrix used by Reinartz and Kumar (2000) to determine which types of customers are worth keeping and for whom the company must spend marketing resources to achieve retention. Its justification came from research that "it can cost five times more to get a new customer than to keep an existing one" (Weinstein et al., 1999, p. 119), following Reicheld (1994) who asserted that a 5 percent increase in loyalty can lead to a 25 to 85% increase in profitability. Pine (1993) talked of mass customisation and one-to-one marketing, echoing Hamel and Prahalad (1989) who warned of convergence of producers and customers with the Internet, which empower customers to become active co-creators of products, services, and value. Businesses have to show greater sensitivity to customer wants. Market Choices The simplified market choice diagram (Piercy, 2002, Fig. 8.1, p. 410) builds on the complex market analysis models proposed by academics such as the product-customer matrix (Piercy, 2002, Fig. 8.2, p. 412). These models build on studies made by management science academics as Freeman (1984) who proposed that the company must satisfy all of its stakeholders, quite an impossible task even for the best managers. Bartlett and Ghoshal (1994) argued for strategic choice, related to the purpose for the existence of the business. Hamel and Prahalad (1989, 75) suggested that businesses define their strategic intent, a set of long-term objectives that would help them prioritise what it could do given its limited resources. Companies cannot aim to satisfy everyone; otherwise they would end up doing a bad job, so it must define those areas where it could create the highest value for customers and employees in comparison with what its competitors can do, and it would be to the company's best advantage to focus on that. Value Proposition The value proposition diagram (Piercy, 2002, Fig. 9.1, p. 438) highlights the critical insight that what is important for the company is to know what value means to its customers. Drucker (1955, p.34-35) proposed that the purpose of a business is to create value for its customers, employees, shareholders, and community members, which includes suppliers. The effort of the business to define how it will create value and sustain it is the object of corporate strategy and basis of competitive advantage (Porter, 1985, p. 61). Defining this set of values is contained in the value proposition, which Kaplan and Norton (2001, p. 97) define as the most important single step in developing a strategy map that allow the business to focus its resources and internal processes. Such definitions of the value proposition go beyond customer focus but tie in to the concept of Piercy who makes the formulation of the value proposition a key starting part of the strategic pathway. Key Relationships The key relationships diagram (Fig. 10.1, p. 487) highlight Piercy's emphasis on managing the network of relationships that begins inside the company. Whilst many studies on marketing highlight the need for retention efforts to be set in place once a business acquires a new customer, and that the organisation must learn what customer's needs are, making sure to respond quickly when needed, ensuring the customer feels cared for, and resolving complaints quickly can be achieved if co-workers are satisfied and loyal. One such example is Cohen et al. (2000) who observed that attempting to satisfy customers with a single approach to service quality would be disadvantageous, burdening it with inefficiency and lower levels of service. Deshpande and Webster (1989) defined the marketing concept as the most relevant aspect of organisational culture from a market perspective and include a fundamental shared set of beliefs and values that puts the customer in the centre of the firm's thinking about strategy and operations. Undoubtedly, firms must customise their service to satisfy each customer's individual needs, but it should not stop there. From amongst the key relationships, any company would be confused where to decide to start, but the answer is to start with employees. As Bitner et al. (1994) noted, most employees have a true customer orientation, understand customer needs, and possess empathy and respect for customers. This implies that companies can succeed in creating customer value by creating value for their employees. Doing otherwise would be counterproductive because no matter how great the strategic marketing intentions are, these would fall flat if those implementing - the employees - do not agree. Part Two: Analysis of Tesco plc How good is Tesco at going to market by addressing the five concepts laid out by Piercy as key components of the strategic marketing pathway Customer Conundrum: Getting Loyalty and Satisfaction Tesco plc has a four-part strategy that is clear and easy to understand for all of its stakeholders since its formulation in 1997, and that has been the basis of top management efforts to focus resources and internal processes such that by 2006 its new growth businesses in non-food, retailing, and international stores had contributed as much profit as the entire business was making when the strategy was initially formulated (Tesco, 2006, p.2). Tesco has accomplished this because it knows how to deliver customer satisfaction and gain customer loyalty in the way it manages the strategic marketing pathway, thus addressing the customer conundrum. It can recover quickly from occasional lapses (Times, 2004) by being successful in knowing and delivering what customers want. Laser-Like Customer Focus Tesco's mission statement (Tesco, 2006) is reflected in its core purpose. The core purpose guides Tesco to deliver a unique shopping experience for customers consistently. Its marketing department has put together an Insight Unit and developed the "steering wheel" system (Figure 1) to measure business success (Matthewman et al., 2005). This steering wheel system, based on the Balanced Scorecard Method of Kaplan et al. (1992/1996a/1996b), is an important part of the strategy to transform Tesco from a financially-driven business into a mission-driven organisation. Tesco's customer focus and market sensing capabilities work around the ability of its marketing unit to break down its customers into healthy, gourmet, convenient, family living, cost conscious, mid- or up-market segments, amongst many others, and to tailor their communications to each. By relevantly targeting and treating customers according to individual behaviours, needs, and desires, Tesco profitably reaches the right person in the right way with a tailored message. So despite offering Club Card members with redemption coupons, its cost per redemption has gone down and sales have increased and are growing above the industry average (Wylie, 2005). Tesco did the same with its new market formats and new offerings such as broadband and personal finance. Market Choices: Crafting a Business Strategy Tesco developed a business strategy focused on improving service to customers to gain loyalty and developed success factors to measure this (Tesco, 2006): 1) make their customers' shopping trip as easy as possible by identifying convenience as a customer need; 2) constantly reduce prices to help customers spend less; 3) offer the convenience of either large or small stores; and 4) bring simplicity and value to complicated markets. Its use of technology and customer relationship management systems allows Tesco to go to market with new products and services successfully and profitably. Value Proposition: Clear, Concrete, and Concise Tesco identified six key performance indicators (KPIs): 1) earn lifetime loyalty, 2) aisles are clear; 3) I can get what I want; 4) the prices are good; 5) I don't queue; and 6) the staffs are great. These define value to the customer. Tesco's Club Card increased customer loyalty, generating 10 million active members representing 85% of weekly sales by dealing with each member uniquely, using multidimensional segmentation and tailored communications. Customers see Tesco as a "local grocer" and not some giant corporation. Tesco's mailings are tailored to the needs and interests of Club Card members (Wylie, 2005). The value proposition extends to its employees, as the Tesco steering wheel is proof of a people-based and values-driven organisation that considers employees and customers as the focus of the whole management process. A sign of the quality of Tesco's marketing management system is its capacity to motivate each of its employees to give their best to surprise, satisfy, and keep customers coming back. Managing Key Relationships Well When Tesco opened its first store in Thailand in 1998, it learned from employees that it should open at precisely 9:09 a.m., because customers and employees believe these numbers signify luck and prosperity, just one detail of how it puts importance to what its people say, think and believe in, even if these beliefs seem illogical (Tesco, 2006, p. 13). Tesco like other similar companies claim that its people are its most important asset. What makes Tesco different is that they have been more successful than others in delivering on that promise. It has identified (correctly) the importance of looking after its people so they can look after customers. Its steering wheel system, very similar to Piercy's Key Relationships Diagram (Fig. 10.1), empowers employees to be part of the customer loyalty and satisfaction process. Tesco trains employees to achieve business objectives, a difficult task without trusting the skills and commitment of employees encouraged at all levels to make their fullest contribution to business success. This is how it solves the conundrum: customers know the company is listening because they get the service they expect, increasing their loyalty (Womack and Jones, 2005; Humby et al., 2003; Schiffman et al., 2004). People strategy and business strategy are closely intertwined in the over-all organisational plan to manage the value proposition of giving the customer a unique shopping experience. Conclusion The experience of Tesco plc in managing its strategic marketing pathway leads to business growth. Managing the customer conundrum, the company gives control back to the customer, understanding their unique needs, treating them as individuals, and letting them tell Tesco what they care about. The company organised itself to enhance the value proposition and make customers feel empowered, thus gaining their loyalty. Tesco's business is centred on its customers and employees: this, simply said, is the secret of their success. As long as Tesco succeeds in the way it goes to market, customers will continue shopping at Tesco. Reference List Bartlett, C.A. and Ghoshal, S. (1994) Changing role of top management: Beyond strategy to purpose. Harvard Business Review, Nov-Dec, p. 79-88. Berry, L. L. & Parasuraman, A. (1997) Listening to the customer - the concept of a service-quality information system. Sloan Management Review, 38, p. 65-76. Bitner, M. J., Booms, B.H., and Mohr, L. A. (1994) Critical service encounters: The employee's viewpoint. Journal of Marketing, 58, p. 95-106. Cohen, M. A., Cull, C., Lee, H. L. and Willen, D.(2000) Saturn's Supply-Chain Innovation: High Value After-Sales. Sloan Management Review, 41, p. 93-105. Deshpande, R. and Webster, F.E. (1989) Organizational culture and marketing: Defining the research agenda. Journal of Marketing, 53 (Jan), p. 3-15. Drucker, P. (1955) The practice of management. New York: Harper and Row. Freeman, R. E. (1984) Strategic management: A stakeholder approach. Boston: Pitman. Hamel, G. and Prahalad, C.K. (1989) Strategic intent. Harvard Business Review, May-Jun, p. 63-76. Humby, C., Hunt, T. and Phillips, T. (2003) Scoring points: How Tesco is winning customer loyalty. London: Kogan Page. Kaplan, R.S. (2002) Building strategy-focused organizations with the balanced scorecard. Perspectives on performance, 2 (1), p. 4-7. Kaplan, R.S. and Norton, D.P. (2001) The strategy-focused organization: How balanced scorecard companies thrive in the new business environment. Boston, MA: Harvard Business School Press. Kaplan, R. and Norton, D. P. (1992) The balanced scorecard - measures that drive performance. Harvard Business Review, Jan-Feb, p. 71-79. Kaplan, R. and Norton, D.P. (1996a) The balanced scorecard as a strategic management system. Harvard Business Review, Jan-Feb, p. 78-85. Kaplan, R. and Norton, D.P. (1996b) The Balanced Scorecard: Translating Strategy into Action. Boston: HBS Press. Kotler, P. (1977) From sales obsession to marketing effectiveness. Harvard Business Review 55 (Nov-Dec), p. 67-75. Matthewman, J. and Matignon, F. (2005) Human capital reporting: An internal perspective. London: CIPD. Parasuraman, V.A., Zeithaml, A. and Berry, L.L. (1985) A conceptual model of service quality and its implications for future research. Journal of Marketing, 49, (4), p. 41-50. Piercy, N.F. (2002) Market-led strategic change: A guide to transforming the process of going to market (3rd Ed.). London: Butterworth. Pine, B.J. (1993) Mass customization: The new frontier in business competition. Boston, MA: Harvard University Press. Porter, M.E. (1985) Competitive advantage: Creating and sustaining superior performance. New York: Free Press. Reicheld, F.F. (1994) Loyalty and the renaissance of marketing. Marketing Management, 2 (4), p. 10-21. Reinartz, W. J. and Kumar, V. (2000) On the profitability of long-life customers in a non-contractual setting: An empirical investigation and implications for marketing. Journal of Marketing, 64 (4), p. 17-35. Schiffman, L.G. and Kanuk, L.L. (2004) Consumer behaviour, 8th international ed. London: Pearson. Tesco plc (2005). Annual Report 2005. Hertfordshire: Tesco plc. Tesco plc (2006). Annual Report 2006. Hertfordshire: Tesco plc. Times (2004) "Revealed: the secret of Tesco's 'phoney price war'" [online]. Sunday Times, 19 September 2004. Available from: [Accessed 26 February 2007]. Weinstein, A. and Johnson, W. C. (1999). Designing and delivering superior customer value: concepts, cases, and applications. Boca Raton: CRC Press LLC. Womach, J.P. and Jones, D.T. (2005) Lean solutions: How companies and customers can create value and wealth together. New York: Free Press. Wylie, D. (2005) "CRM case study no. 14: How Tesco, the U.K.'s largest retailer, became a corner shop." [online]. Seklemian/Newell: International Marketing Consultants. Available from: [Accessed 26 February 2007]. Zeithaml, V. A., Berry, L. L. and Parasuraman, A. (1996) The behavioural consequences of service quality. Journal of Marketing, 60, p. 31-46. Zemke, R. and Schaaf, D. (1990) The service edge: 101 companies that profit from customer care. New York: Plume. Fig. 1: Tesco's Steering Wheel [Source: Matthewman and Matignon, 2005, p. 70] Read More