The Vitality of Competitor Analysis: The of Tesco - Case Study Example

Competitor Analysis (TESCO) Introduction: Competition by definition means 'a test of skill or ability'. Indeed, it is true for any individual as wellas for any organization that competition encourages one to do more. At times it leads to some untoward incidents between two rivals as well, but overall, competition isn't necessarily bad. Coke has Pepsi. Toyota has Nissan. Tesco has Asda. Procter & Gamble has Unilever. No business proliferates in isolation, the business demands employees, customers and a supply and distribution chain. And if there happen to be more than one organization into the business of similar kind or offering similar products and similar segments of customers, there's competition. Well, one must keep in mind that the competitor is also there to tap the market for making profit and growing his business. Also, from the buyer's/ consumer's point of view, competition can be defined as the best bargain offer grabbed by the customer. Competition in general can be categorized as; Perfect Competition: This is an extreme case and is more of a concept in which each competitor offers or seeks exactly a similar thing, as do the others. There's nothing to differentiate one from the other and depending upon price one can be substituted with the other. Imperfect Competition: The practical types of competition take place in the form of monopoly vs monopsony or oligopoly vs oligopsony. The prerequisite of effective competition are; (i). Ready substitution of one product for another. (ii). General availability of essential information. (iii). Presence of several sellers. (iv). Preservation of conditions which keep alive the basis of potential competition. (v). Substantial independence of action. Need for Competitor Analysis From the strategic planning point of view, competitor analysis is very important for any company's long-term survival. There was a time couple of decades ago when the management of one company used to make it sure that there be no mention of its rival during discussions as it would give unnecessary mileage to its rival. No more. Now the trend has reversed and companies do much more research in understanding the rival and take pride in listing the advantages that their product has over the rival's. Competitor analysis has several important roles in strategic planning; To help understand the management their relative competitive advantages as compared to rivals. To generate understanding of competitors. To plan strategies for future. To help forecast the Return on Investments. In making SWOT analysis of the company. If the company is planning to enter a new business, then barriers to entry into this field. Frederick the Great said, "It is pardonable to be defeated, but never to be surprised."1 This effectively meant - go to war fully prepared i.e. know the competitor well. Therefore, by knowing our Competitors we may be able to predict their next moves, exploit their weaknesses and respond to their strengths. We have selected TESCO as the company for our analysis because Tesco is UK's largest retailer, having around 1800 stores in UK alone and more than 2300 stores worldwide, with group sales crossing m 37,070 worldwide at the end of financial year 2005. An international retailer of food, non-food and retailing services, Tesco currently operates in the China, Czech Republic, France, Hungary, Japan, Malaysia, Poland, Republic of Ireland, Slovakia, South Korea, Taiwan, Thailand, Turkey and the UK. Recent figures from market research group TNS showed the group had boosted its share of the UK grocery market by 1.5% to 30.5%. One in every 8 is now spent in this supermarket giant, and it's rising. Asda was second, with a 16.7% market share and Sainsbury's third with 16.2%. The group is on a progressive path and some more announcements are due in the coming months with Next Annual Report Due in May - 2006 and Next AGM on July 7th. Tesco is securing itself a position in the top echelon of an elite group of international retail organizations identified by Professor Neil Wrigley of the University of Southampton in his research into the globalising nature of the retail industry. Wal-Mart is the pre-eminent leader of these global retail giants with 3,600 stores worldwide, employing 1.5 million staff with revenue in excess of $250 billion. French company Carrefour is the second biggest with a presence in 32 countries while German Metro has stores in 27 countries. Tesco's international operations account for 41 per cent of its operating space and nearly 20 per cent of its revenue. Eleven per cent comes from mainland Europe and eight per cent from Asia. Tesco has a long term strategy for growth, based on four key parts: Growth in the Core UK business, To expand by growing internationally, To be as strong in non-food as in food and To follow customers into new retailing services. Therefore, analyzing the competitors regularly and planning for future accordingly is very crucial for a company like Tesco. Tesco employs over 360,000 people in its businesses around the world and aims to deliver a consistently strong customer offer on every visit and every transaction by focusing on the Group's core purpose: to create value for customers to earn their lifetime loyalty. This core purpose is delivered through the Tesco values: no-one tries harder for customers and treat people how we like to be treated. There are four stages in monitoring competitors - the four "C"s:2 Collecting the information: Information can be collected from within the organization as well as from outside using the sales network, media network, Internet or research reports. Converting information into Intelligence; Collate and catalogue it, Interpret it and Analyse it: The data collected is then sorted, sifted, studied and analyzed. The relevance and importance of each piece of information is interpreted and analysed. This is where information starts to become intelligence. Communicating the intelligence: Competitor intelligence needs to be evaluated and selectively communicated to all who need to make decisions based on what customers, suppliers, or other companies in the market are doing or are likely to do. Countering any adverse competitor actions: Having identified what competitors are doing, battle can be entered. Sometimes the battle will be vicious - especially when two competitors have been slogging it out for years, as is the case with Tesco and Asda. Porters fives forces model is an excellent model to use for analyzing a particular environment of an industry. According to Porter the five forces are; 1) Competitive Rivalry 2) Power of suppliers 3) Power of buyers 4) Threats of substitutes 5) Threat of new entrants. The above five main factors are key factors that influence industry performance. Hence it is common sense and practical to find out about these factors before a company enters the arena. A starting point to analyse the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will in all probability be high. If it is easy for customers to move to substitute products then again rivalry will be high e.g. in finance and insurance fields besides Tesco and Asda there are a number of companies. This gives rise to cut-throat competition. Of course it all works to the advantage of customers only. Generally competitive rivalry will be high if: There is little or no differentiation between the products on offer. Competitors are approximately the same size of each other. Competitors adopt similar strategies and believe in the game of one upmanship. It is costly to leave the industry i.e. stakes are such that it is difficult to exit. Competitors Required Can we for a moment assume a situation where there are no competitors for a company, say, Tesco. Then can we have those lucrative discounts spread all over the city store and online store Answer is a resounding no. What keeps the company on tenterhooks is the presence of likes of Asda. On the other hand it is equally true that since there are enough customers, therefore there are more companies enticing the customer. That means, existence of a competitor indicates the existence of paying customers. It is therefore a wise move on the part of a wiser company to choose its competitors and plan accordingly. Barksdale, once the CEO of Netscape, used to say that the best approach to find a competitor is to find who is "big and dumb". His logic - targeting so-called "dumb" competitors is obvious, since nobody really wants to compete with smart people from the very beginning. Tackling a big competitor is the best way to make sure that the product or service has a real market to be pursued. Presence of more than one competitor in the market place depends on Fragmentation of market/ customers and the product differentiation. At one extreme, alternative or substitute products of a competitor may affect demand and force a business to lower its prices. A business with knowledge of its rival's technology, plant capacity, and operating policies is able to estimate its competitors' costs, which is valuable information in setting prices. At the other extreme, a business without a rival in a given situation can set higher prices. Competition spans international borders. Hence, costs and pricing decisions are also affected by fluctuations in the exchange rates of different countries' currencies. Strategies are accordingly formulated by the company, to match its own capabilities with the opportunities in the marketplace, in order to accomplish its overall objectives. Many companies, particularly in the manufacturing business, view total quality management (TQM) as providing an important competitive edge, because a quality focus reduces costs and increases customer satisfaction. Quality improvement programs often result in substantial savings and higher revenues in the short run. Quality improvement also benefits a company's long-run performance. In the services sector, quality is immediately felt by the customer e.g. while taking round of the hyper store (of Tesco). For example, a quality focus creates expertise about products, processes and services that frequently leads to lower future costs, increased customer satisfaction, and higher future revenues. If competitors are improving quality, then a company that does not invest in quality improvement will likely suffer a decline in its market share, revenues, profit, and customer goodwill. Winners will invariably be those companies that are offering more value for the customer's money. The satisfaction level for a service or a product is crucial information for the producers of the product or service. The focus towards customer must also be equally matched by a focus towards the human resources within the company. Human resources, in case of a service providing company like Tesco are indeed very crucial because they are the real interface with customers. For a competitive edge the company must plan for its human resources as well, because a competitor will always be on the lookout for dissatisfied quality people from rival company/ies so that it can get a twofold advantage. Through headhunting, it gets competent people while depriving the rival company of their services. Human Resource Planning (HRP), i.e. a strategy for the acquisition, utilization, improvement and preservation of an enterprise's human resources, is a prerequisite for competitive edge. Satisfied workforce can only generate satisfied customers. Resources: 1. Tutor2u supporting teachers: inspiring students, strategy - competitor analysis [online] available from http://www.tutor2u.net/business/strategy/competitor_analysis.htm [accessed May, 23 2006] 2. Aware, competitor analysis - a brief guide, [online] available from http://dspace.dial.pipex.com/aware/competitor-analysis.shtml [accessed May 23, 2006]. 3. http://www.tesco.com 4. http://www.asda.co.uk Read More