Customer Retention of TESCO Company - Case Study Example

Introduction Customer Retention is the defined as the sequence of the processes followed to attain longevity of the relationship with its customers. In this report we will identify the actions involved to improve customer relationship through effective strategies with the objective to retain profitable customers and promotion of customer loyalty schemes. The retail market is diverse with segmentation, involving a lot of complex challenges and has more reach in the market through globalization. In this report we will focus on the complex issues that retail organisations face at a strategic level focussing on customer retention trait in detail. The entire report will focus on TESCO retail segment and discuss on the strategic focus of TESCO in the customer retention domain Literature review on Strategic Marketing Planning of Retail segment            Strategic marketing planning is defined as an organization based planning designed in a way to understand the market opportunities, correlate the opportunities with the external environment and target audiences. While planning for strategic marketing the expected decision must be focused on the vision, mission, resources available and internal strengths of the company.(Hanna an 1992; Kotler & Andresen 1996; Andresen & Kotler 2003; Meek & Meek 2003). It is also evident that the strategic marketing planning is regarded as sub process in the context of corporate planning. (Gardner & Thomas 1985; Schendel 1985; Hanna an 1992; Meek & Meek 2003). Corporate management is a process of directing an organization either by deploying or manipulating resources to achieve higher rates of profit and also customer satisfaction. The above strategies and values of strategic planning are analyzed to identify the Strength, Weakness, Opportunity and Threats (SWOT Analysis) of the company with respect to the competitors. Interpretation of analysis reveals that the entire organization in involved and work together as a big task forces to achieve the goals of strategic planning. Apart from investigating the weakness and strengths of the company, strategic positioning is also an integral aspect of strategic marketing planning (Kotler & Andersen 1996; Hooley et al. 1998; 2001) for customer retention.  According to Chew (2003), strategic positioning is regarded as the differentiation in the level of positioning from the others who belong to the same society. It is justified that strategic positioning allows organizations to have a competitive advantage over their opponents. One of the disadvantages of competitive advantage does not ensure the continued success of the organization. The retail marketing firm focus on the sustainability in order to create a competitive edge among the similar opponents projecting themselves one step ahead as compared to the competitors. (Porter 1985).  According to Proctor (2000), the concept of competitive edge is important since it influences the success of a business venture to a greater extent. Proctor reiterated that competition not only involves production and distribution of products but also focuses on the level of customer satisfaction and retention achieved by addressing the needs of the customer. Effective Market Positioning, choice of target base, promotional activities will enable the company to sustain in business arena.  Therefore, it is very critical to get an insight on the factors influencing the customer perception with respect to the company’s products and services. One of the proven methods to identify the critical facts is to implement a PEST analysis. PEST stands for political, economic, socio-cultural and technological forces. These factors affect business to a greater extent through the customers and are highly reliable in shaping up the perception of the customer and create an influential increase in the purchasing power of the target customer base. Competitive analysis can be effectively done using Porter’s Five Force and SWOT analysis to understand the competition. The objective of the SWOT analysis is to determine the presence of factors favouring the business in achieving its goals as well as factors hampering its improvement in both internal and external environment. By doing the SWOT analysis, the company will be able to analyze the pros and cons of the existing system by matching their resources and competencies in a competitive scenario.   On the other hand, Porter’s Five Forces Model states that strategic planning in business is influenced by five coercive forces namely power of supplier, threat of substitutes, buyer power, barriers to entry and rivalry. This model also provides more insight on the relevance of business approach and the marketing concepts adopted for feasible operation. Porter’s five principles determine the competition level and also identify the occurrence of potential threats proactively like discounting a customer or change in customer preferences or loyalty for planning effective contingency management. Recommended practices to achieve Customer Retention The references from various customer retention strategy sources reveal certain important recommendations for retailers in order to retain the customers. The specific recommendations are listed below. It is advisable to use carrot as approach rather than sticks to encourage more sustainability in the market scenario. It is very important to influence the purchasing power of the customers by using powerful strategies involving mass dynamic change and build the building blocks of customer loyalty Educate consumers on the availability of various options through effective communication channels and ensure that there is simplicity in the communication and it is wise to use visual media for more clarity on the message. The prime objective of the retail chain is to ensure consistency in performance and deliver goods and services on time with a quest for customer satisfaction Help people by providing them with the information they need to encourage ‘green’ behaviours which greatly influence customer satisfaction: To devise strategy on customer retention considering the nature of model and desired brand and deciding on appropriate promotional activities influencing customer interest and loyalty towards the retail segment The primary focus of the retail segment is to engage, communicate and demonstrate key customer objectives which are planned by the customer A significant change can be brought in the retail segment by working together and also based on collaboration between retailers themselves and other key stakeholders (like sustainability experts, government and the media) .These retailer act as the key determinant for establishing a change. Case Study on TESCO Company profile www.transnationale.org/companies/tesco.php TESCO is a known player for grocery multiple chains focusing on organic food sales in UK and Central Europe has a leading stock of about 1000 to 1500 organic lines. TESCO has partnered with many leading suppliers as a measure to increase demand and supply. TESCO has close affiliations with wide range of organizations to improve CR performance, share data, knowledge and ideas and deliver specific programme. They include: British Retail Consortium Business in the Community Cancer Research UK Carbon Disclosure Project The Climate Group Confederation of British Industry Objective of the company The schematic diagram represents the primary objectives of supply chain management for a company like TESCO. Betancourt, R. & Gautschi, D. (1988) The economics of retail firms, Managerial and Decision Economics, 9, June, 133–142 Key objectives of TESCO focus on two primary goals namely Business Value Goals, Customer Value Goals and both are correlated to each other and the effective traits and effective methods are involved in creating the balance between the business perspective and customer centric goals .The methods include Business processes designed for better output, Effective coordination, Effective distribution network and responsiveness and accountability to customers. Key strategic issues faced by TESCO http://digg.com/business_finance/Tesco_SWOT_Analysis TESCO had strategic issues identified on the basis of SWOT analysis .The strength factors include Brand name ,Customer base ,scale economies and variety of store.The predicted weaknesses are higher degree of diversity ,huge capital expenditures and negative impact on media .TESCO always has its opportunities open for worthy strategic alliances and explore avenues to introduce new market segments.However there are an air of threat involved because of the weakening economy and monopolies board. Other ice breakers focused by TESCO for more planned strategic focus are Customer retention Elimination of waste and increase in savings Effectiveness of Distribution network. Strategic Management approach Betancourt, R. & Gautschi, D. (1988) The economics of retail firms, Managerial and Decision Economics, 9, June, 133–142 Important strategy adopted by TESCO is to focus towards higher quality and increasing safe product based on the expected standards set by suppliers. Some of the Key strategies implemented by TESCO in terms of achieving excellence in customer retention are To design a baseline method to gain insight on average customer retention based on the current scenario. Key observation required for this strategic focus is Examine target customer base and their retention percentage Examine and understand the customer retention pattern using market segmentation strategy for a more detailed analysis on the strength and weaknesses corresponding to customer retention. To analyze on the customer profitability scenarios based on different time lines for better understanding of customer expectations. Some of the key findings include Calculation of the acquisition costs and service costs to calculate the average customer revenue for a given time period. Average customer revenue is calculated by subtracting the acquired cost from the total cost. This will also provide an insight in the time taken for a new customer to emerge as a profitable customer over a period of time. Set a target retention rate for effective management of customer satisfaction It is observed that the longer it takes to become profitable, the higher the retention rate needs to be. Establishing and monitoring retention KPI (to be defined by management) and correlate retention directly to business performance. Define methods to review the marketing tactics for improving retention If the current retention percentage is not satisfactory then the company focused on series of tactics to identify the root cause and implement corrective action. If current retention does not comply with the set targets, action plan for improving retention as a key business objective should be devised with process owners and review dates for improving customer retention. The increase in customer retention percentage can be calculated based on the same. Engage a statistician for doing data analysis to and interpret the key factors correlating to long-time customers or customers who attrite. Then, establish effective marketing and customer service practices and campaigns that specifically focus on encouraging the factors that are correlated with long-term customers. It is important to measure the results consistently and accurately.. Re-evaluation of retention rate in analyzing the extent of customer retention To implement the tactical approach encouraging the metrics to correlate with long term customers. TESCO- Customer centric strategies and their outcome www.tesco.com TESCO supermarket chain is regarded as pioneer in retailing because of its effective planning strategies aiming at customer retention. Some of the important strategic decisions influencing the customer retention in an indirect mode are listed below Usage of supply chain management to overcome the advantage of expensive logistics and to improve the leverage ratio of weak suppliers. Effective supply chain management facilitates customer retention as it ensures right products in the right place complying with all the quality parameters like quantity, cost and adherence to demand supply time lines. With lean logistics, companies can eliminate waste along with huge opportunities for savings while increasing the satisfaction of the end customer.At TESCO’s, with lean logistics system, The total throughput time, from the filling line at the supplier to the customer leaving the store with the cola, has declined from 20 days to 5 days. The number of inventory stocking points has been reduced from five to two, and The supplier’s distribution center for the items has disappeared. Changed product distribution methods to reduce labor costs and inventory levels. This plan facilitated easy access of TESCO products placed at close proximity to the customer’s place. There by enhancing the customer comfort and finally customer loyalty. Got suppliers to ship in smaller quantities, preconfigured for sales display thereby addressing the needs of customer preferences on small quantities of products. TESCO also satisfied its customers by reducing the total product “touches” from 150 to 50 an the throughput time from 20 days to 5 days enabling speed safe deliveries Loyalty programs for customer retention TESCO also focuses on direct strategies with the primary objective on customer retention by promoting customer loyalty schemes attracting more customers to scale up the business prospects. Due to the customer loyalty programs, TESCO has been successful in increasing the Target Customer base, achieving customer reliability and loyalty at a higher degree. Loyalty programs in general perspective To identify the profitable customers and reward them for their loyalty towards TESCO.This practice is one of the best example for acquiring customer relationship management Data mining tools and analytical software to facilitate easy purchasing of the customer by saving time by easy retrieval of customer information to avoid repetition. Most wanted Loyalty program–TESCO club card program http://www.loyalty.vg/pages/CRM/case_study_14_Tesco.htm TESCO has gained more momentum because of its club card program attracting customers and increasing the chances of customer retention and business enhancement. The Key focus areas for launching the customer club card program are Knowledge and understanding the customer’s and their individual requirements and preferences Relevant communication with customers with more simplicity and ambience. To provide extra ordinary customer satisfaction by managing the offerings so that the customer has a memorable, amicable shopping experience. TESCO decided to introduce a loyalty program based on the key focus areas. As a test run to gauge the momentum of the loyalty program, it decided to run the club card in three stores. In order to get more impressive results, TESCO teamed up with dunnhumby and conducted a test and learn approach in their global chain of 12 stores and then designed the TESCO club card program for profitable customers. Important features of TESCO club card program http://www.tesco.com/todayattesco/index.shtml Pricing: Investments of two billion dollar within 5 years lead to reduction of prices on significant items pertaining to groups belonging to various lifestyles Promotion The promotions are evaluated based on customer insights and minimize the overall costs involved in promotion .The various probing questions generated on the factors listed below can identify the customer insights and information are listed below    Shopper’s usage “Who uses them “ Shopper‘s liking of product “Who likes them”.    Is there any way to focus the promotion to the customers?    How they can take investment from promotions and utilize the same back to the business? The above promotional strategies facilitated 60% of less promotions .reduction in the management cost and re-investment of money for further business prospects facilitating price reduction and have a more effective and tailored promotions. Shared Insight TESCO’s has provided access to customer information which is gained from the club card program to good suppliers, media companies, researchers, space planners etc. Success story of TESCO club card programme TESCO’s Club card program has its widespread reach on 10 million active households and records a sales value of 85% of weekly sales. The success of the loyalty programme is because of the commitment of TESCO to treat customers as individuals focusing on key areas of multidimensional customer segmentation and tailored communications. Customer Segmentation is done on the basis of cost conscious, mid-market purchasing segments, and up-market purchasing segments, which are in turn are segmented again to have options like healthy, gourmet, convenient, family living, and so on. These sub segments are then segmented further and relevant communications are tailored to each. It is found that after the implementation of club card programme, there is 52% increase in sales and growth rate higher than the industry average within a period of 5 years .There is 150% increase in the business expansion and Store openings of TESCO which in turn has increased the number of outlets. Conclusion The entire report focuses on strategic approach of the complex issues faced by retail organizations face at a strategic level. TESCO is taken as case study and we have validated the conceptual element’s role in creating the value within the business .There is also application of market strategies like segmentation, positioning and SWOT analysis discussed in detail for more analysis and information pertaining to the advantages of customer retention in a business perspective. References 1. Berman, B. and Evans, J. (2006) Retail management. 10th ed., Prentice Hall. 2. Cox, R. and Brittain, P. (2004) Retailing – an introduction. 5th ed.,Pearson. 3. Dawson, J. (2006) Strategic issues in international retailing.London: Routledge. 4. Dawson, J. (2005) International retailing plans andstrategies in Asia. New York: Hadleigh. Finne, S. and Sivonen, H. (2009)The Retail Value Chain: How to Gain Competitive Advantage through Efficient Consumer Response (ECR) Strategies. London: Kogan Page Gilbert, D. (2003)Retail marketing management. 2nd ed., Harlow: Financial Times Prentice Hall. 5. Hugos, M. and Thomas, C. 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