TESCO'S Corporate Strategy - Dissertation Example

TESCOS Corporate Strategy ment of Objectives: To study the overall corporate strategy of TESCO To identify and explain the reason driving the success of TESCO To study the role ‘marketing concepts’ played in the process Introduction It was in the year 1919 that Jack Cohen founded Tesco, when he began to sell surplus groceries from a stall in the East End of London. In those days his first day’s profit was £1 and total sales of £4. The name comes from the initials of TE Stockwell, who was a partner in the firm of tea suppliers, and CO from Jack’s surname. It was in year 1929 that Jack Cohen opened his first Tesco store in Burnt Oak, Edgware, North London. And the journey continues, there’s no looking back since then. Tesco has a long term strategy for growth, based on four key parts: i. Growth in the Core UK ii. To expand by growing internationally iii. To be as strong in non-food as in food iv. To follow customers into new retailing services Preliminary Literature Review Tesco, the super-market chain is in the business of retailing for nearly 90 years now. All this while the company has been in constant touch with customers. The customer’s reaction to the product/ services is largely based on the customer’s feelings, which are subjective in nature. Relationship management, the very basis of running a retail store, asks for earning the loyalty of customer. Grabbing customer attention is not a big deal but retaining customer loyalty requires sound thinking at the top. A satisfied customer often takes pride in becoming a goodwill ambassador for the company. Beckett-Camarata et al. (1998) present a conceptual overview of relationship management in a rapidly changing global environment: “In a global economy, all system members are interdependent and are customers. Companies are restructuring (i.e. downsizing) to fund only those core competencies that are key to their profitability and long-term survival. Managing relationships with their customers - especially with employees, channel partners, and strategic alliance partners - is critical to the firm’s long-term success” (p71) This in a nutshell summarizes the art and science of a successful strategy. Subjective feelings of the individuals/ customers are seldom expressed in unsolicited manner. Thus, it becomes imperative to capture and quantify the customer’s feelings leading to measurement of the satisfaction level. If a company can take good care of environmental factors and align its business in line with the market influences it can very well cope with threats and subsequently take advantage of the opportunities. Mission and Objective The very core purpose of any business, besides sustenance and profitability, happens to create and keep adding value for the customers. A supermarket chain in particular needs to take into account the changing needs and requirements of the customers, depending upon the changing environment, food habits, time management, availability of alternates in the market, increasing awareness about environmentally friendly goods and services etc. This way they can earn the loyalty of the customer while successfully attracting more customers. Success of a retail business depends upon the people and how the company treats the people within the organisation as well as the customers. Therefore it is very important for any company to state the mission and objectives of its business and faithfully take a course of action which leads towards fulfilling this course of action. Tesco has expressed its mission and objectives (Tesco, 2006) basically in the two key values: i. No-one tries harder for customers ii. Treat people as we like to be treated Retail Business requires managing a broad range of retail skills in the areas of customer sales and service, promotion & advertising, store layout, visual merchandising, economics & accounting, marketing, buying from suppliers, inventory control, and human resource management. The mission and objective statement must encompass all such fields and activities. Marketing strategies Marketing decision variables play a central role in the retailing company’s overall strategy. There was a time when branding, advertising, sales promotions, trade shows etc. must’ve been quite unknown in the marketing parlance, but in the 21st century, amidst a cut-throat competitive environ, these terms have become an integral part of the marketing mix and overall corporate strategy of a company. The components of marketing mix itself have undergone many evolutionary changes over the years. starting from the 4 P’s today we see a number of additions to this list. In general for a superstore chain like Tesco, the marketing mix comprises; Product – this includes the quality levels, production costs, the packaging, the range of products and the product differentiation. Price – this includes appropriate pricing for the target markets, quality considerations depending upon the pricing and an attacking pricing (e.g penetration) or a defensive pricing Place – depending upon the location of a superstore it is also called a convenience store, therefore the location is very important to reach to the targeted segments. Promotion – we are today living in a media-savvy world. The power of being seen in print or TV or being heard on radio can make or break a brand. Integrating the promotion publicity campaign with the marketing mix therefore becomes very crucial for gaining loyal customers. People – interface between Tesco and the customers are the people manning the counters and providing technical support and after-sales services. Therefore a friendly, uniformed, well informed and well behaved person at the counter can help in gaining widening the customer base. HR friendly policies help in attracting and retaining good human resources. Processes – how Tesco manages its front office, back office, system support, online services etc. will definitely help it in earning a good reputation amongst the customers. Physicals – this includes the premises, support vehicles, uniforms and the looks of corporate signature. Service – last, but certainly not the least, is the services part. In fact the retailing business has become more of service oriented now a days. Were all the functions and techniques of using a particular gadget/ equipment told to the customer before the purchase, how the customer felt after buying a new TV set, did it malfunction, did he feel any difficulty in switching it on and tuning it – are some of the issues which can only be known if Tesco has a good mechanism of taking feedback from its customers. Market segmentation is to be carried out accordingly. Depending upon the business situation, the most effective segmentation strategy may need to integrate a range of factors depending upon market demographics, needs, behaviors, beliefs and attitudes. Opportunity Prioritization For a retail business the top priority is of course to remain in the good books of the customer. But there are a range of priorities for the superstore, which need to prioritized according to the business philosophy of the business. In fact, market segmentation and opportunity prioritization go hand in hand. An effective and elaborate market segmentation is supposed to achieve the following: Opportunities represented by each segment are clearly measurable and substantial Segments are accessible and identifiable for the company Meaningful differences exist between segments that will lead members to respond differently to elements of the marketing mix Segmentation is strongly linked to the business mission, goals, and identifies opportunities that fit well with resources and capabilities of the company. At times it is not possible for the superstore to cater to all segments in equal measure, therefore all such business opportunities need be prioritized for providing better service to the customers. Inventory Management Strategy Inventory management happens to be an integral part of corporate strategy of a retail store. The concept of Just-in time delivery, shipping & receiving, selecting and managing suppliers, planning and purchase decisions are all part of inventory control and inventory management. For service organisations which are not highly labour intensive, inventories assume more importance. Operations management focuses on conversion of inputs and outputs of goods or services. The fundamental reason for carrying inventories (Everett E. Adam et.al, 1995) is that it is physically impossible and economically impractical for each stock item to arrive exactly where it is needed and exactly when it is needed. Other reasons for managing the inventories effectively are; Return on Investment and Turnover: Inventory should be viewed as an investment and should compete for funds with other investment opportunities. Financial principles say that a company should invest in those opportunities where return is greater than capital costs to borrow. Buffer Stock: For a variable demand, the company requires some protection against the prospects of high stock-out costs. Inventory can be used to buffer against such uncertainties. Similarly the ‘lead time’ i.e. the time between ordering and receiving goods, is not always constant. Therefore, buffer stocks can be used to protect against stock-outs from uncertain demand during lead time. Decoupling: An effective inventory management helps in decoupling different yet related operations. The operations can be broken down in such a manner that one operations’ supply becomes independent of another’s supply. This way two purposes are served. First, decoupled operations means that the breakdowns, shortages at one stage of operation do not cause later stage operations to shut down. Secondly, one organizational unit can schedule its operations independently of another. Bulk Purchases: With bulk purchases, quantity discounts can be arranged that means a cost advantage of goods inventories is realized. Supply Chain Management For a superstore the supply chain provided the oxygen for its survival. This chain is a network of facilities and distribution options that performs the functions of procurement of goods and materials for the superstore for further distribution to the customers. Supply chains exist in both service and manufacturing organizations, but the composition and complexity of the chain varies greatly from industry to industry and company to company. Strategic suppliers also need encouragement and an active partnership for long-term growth. Supply chain skills are better applied for managing improved forecasting and closer supply integration. The last minute fire fighting often results in delivery glitches. There has been a marked shift in the treatment of a supply chain over the last couple of decades, especially in retail and grocery markets. It is widely accepted that the most influential members of marketing channels for FMCGs are now the retail supermarkets (Stem and El-Ansary, 1992). Several factors have contributed to this state of affairs in the UK: the abolition of resale price maintenance, the concentration of sales through the limited number of supermarket chains, the use of IT and online methods to inform decision making, consumers’ growing need for convenience, and increasing sales of retailer own brands, something that is also occurring across Europe (Fernie, 1994). Supply chain management includes; Location: The geographic placement of stocking points and sourcing points is the natural first step in creating a supply chain. As a first step towards a long-term plan the location of facilities provides the commitment of resources. Once the size, number, and location of these stocking and sourcing points are determined, so are the possible routes by which the product flows through to the final customer. Transportation: The mode of transport for supplying the goods/ products deteremines how effectively inventory can be managed by the superstore. Fresh vegetables and fruits for example have a very short shelf life therefore the way these items are treated during the transportation process can have a long term effect in giving these items more life. The best choice of transportation mode is of course often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. For example air shipments may be faster, safer and reliable, but the mode is very expansive. Basic components of Supply chain management are; Planning – This is the strategic portion of Supply chain management. A strategy is required for managing all the resources that go toward meeting customer demand for the product or service. A set of metrics is developed during this process to monitor the supply chain Source – Here the suppliers are chosen who can deliver the goods and services the superstore needs. A set of pricing, payment and delivery processes are developed. Processes like receiving shipments, verifying them, transferring them to you’re the superstore and subsequently authorizing the supplier payments are worked out in this phase. Packaging and logistics – Here the goods are given a brand identity after thorough testing, and thus the product is readied for deliver. Delivery: Here the product is put on the shelf for display and sale Return: Just in case the items received from supplier happen to be defective, or sometimes if the items received are in excess a network is created for sending back such items. If such items happen to be detected defective after being sold to customer then the superstore will have to make arrangement for receiving the defective products back from customers and replacing it with a new one. Brand Management Strategy In those good old days it was assumed that if sales are good then no effort is required towards brand building as such. But no more, now a superstore cannot take it for granted that if its sales are the highest in the month of December, then January will be equally good. Suppose a new retail store opens up in the vicinity, and it chokes all modes of broadcasting and communication with the publicity campaigns, then customers are bound to forget the ‘old’ brand and product. Therefore, customers are needed to be reminded regularly about the ‘brand’, they are using. Of late reputation has become simply a dimension of brand. A Balanced Brand brings the perspective that (John Foley, 2006) ‘brand and reputation are really two sides of the same coin – and represent the complete business.’ It is worthwhile here to mention that only publicity campaigns are not enough for building brand, it needs to be backed by good product range and reliable services. A strong brand is only the start of a Balanced Brand. Without the support provided by a strong reputation, it can be toppled easily. Therefore regular investments are required for building and retaining the brand. Brand maintenance efforts also require that the company avoid a adverse publicity which often result if a rift develops between the company’s values and interest come in clash with those of their stakeholders like customers, employees, shareholders, and community members. Often well-known and seemingly successful brands suffer from this kind of backlash. Brand Strength Reputation A brand generates real value for the consumer when the brand is perceived and projected in a differentiable, special and attractive manner from other rival brands. When brand value is generated for the consumer, benefits can be expected for the company that owns the brand. This creation of value has obvious benefits like, It results in generating greater loyalty from the customers by increasing the value offered to them It allows for a reduced vulnerability to strategic marketing moves by competitors and market crises It reduces the elasticity of demand facing a price increase as a result of the overprice a consumer is willing to pay for a brand that offers a greater value It helps generating trust and support from the distribution channels already stimulated to work with higher value brands. Now a days, in the market driven economy, consumers have different reactions before the actual purchase decision. He reacts differently to a known and unknown one. A real brand equity for a consumer is brought forward from the relevant knowledge of the brand with a set of favorable associations in a given purchase decision context Customer Relationship Management Strategy Curt W. Coffman and Gabriel Gonzalez-Molina say, "Great organizations know how to chart a course through the worldwide competitive maze to keep their customer relationships not only intact but also thriving. They do this by connecting to their customers on an emotional level"- (Warner Books, 2002). Companies are required to invest in Customer Relationship Management (CRM) systems and technologies in order to increase and improve customer engagement and communication. The communication itself could be through the publicity messages, front office dealings, after-sales services, paying attention to customer needs, soliciting feedback from the customers etc. Effective customer messages must have the following elements: Differentiation: The message must convey a brand promise that differentiates the companys products and services from its competitors. This promise must include an emotional component for the customer to understand. Excitement and Activation: The communication must be able to convey a compelling message that overcomes the consumer inertia, perceived risk, and "switching cost" barriers Connect: It must establish, re-establish or reinforce an emotional connection with target customers to serve as the foundation for an enduring customer relationship. With influential writers like Kotler (1992) stating that companies “must” move from a short-term transaction orientated goal to a long-term relationship-building goal, customer relationship management has already entered into the “rhetoric” of management. Saren and Tzokas (1997, p16) highlight the fact that relationship management is a dynamic process, the objective of which is to create a “relationship climate” which “sets the stage” for the nurturing of individual relations. Dialogue is of paramount importance to enable a strategic perspective to be taken of the enactment of the participants’ roles. In this way, they believe that “relationship management is capable of contributing genuinely to the strategic discourse of contemporary organisations”. As trade barriers fall and technology facilitates 24 X 7 operations, superstores are accessible to the customers round the clock. Companies now face a proliferation of competition and eroding margins. This presents an opportunity for companies ready to integrate technologies in their business, but for companies not recognizing the technological onslaught this becomes a threat and may result in creating a hectic business environment, unprepared sales reps and improperly managed sales cycles; inefficient customer services; and ineffective marketing campaigns. Reaching the customer using the internet has become more or less a necessity for the superstores now, creating room for E-CRM with customer as the central figure. If implemented optimally, customer centricity becomes a competitive strategy. This creates effective entry barriers for competitors, results in sustaining channels, and creating greater predictability and accuracy in business operations for the company. If implemented effectively, CRM results in better collaboration and coordination in sales and marketing teams with integrated campaigns that maximize the different roles – telephone, in-person sales calls, support operations, and Internet-based contact. Investor Relationship Management Strategy/ Stakeholder management The businesses operate within a complex system of interests and influences. While identifying the stakeholders the company must look beyond the formal structure of the organization. Therefore it is required to have a look at informal and indirect relationships too. The company management has to make a balancing assessment and evaluate all such external forces in order to adjust them with company’s objectives. While taking crucial corporate decisions, it is necessary to know about the expectations of different stakeholders and to determine the extent to which they could and would exert their influence. Johnson & Scholes define stakeholder as, “Stakeholders are groups or individuals who have a stake in, or expectation of, the organization’s performance.” Besides the owners the list includes various other groups, like employees, public interest groups like environmental organizations, strategic partners, journalists or public monitoring bodies. In case of a superstore like Tesco plc. it must take good care of the investors who have placed their faith in the company by investing into it. Realizing this importance, the best-managed companies are looking for more from their investor relations departments and demanding continuous improvements across this spectrum. Building on advances in technology as well as the learnings from disciplines such as marketing-focused customer relationship management (CRM) forms an essential component of investor management. The underlying principle is now ‘growth and profitability in the face of intensifying competition and discerning customers’. A superstore can achieve this by building loyalty amongst high value customers and investors. Besides rewarding investors with dividends and interests, companies can use what they learn from individual relationships to improve the focus of their shareholder marketing and retention efforts. As is the case with the most valuable customers, who deserve maximum attention for retaining him with the company, the person or group of persons holding the larger or largest stake in the company deserve the most attention. Therefore companies need to set priorities to determine the handling of such prospects. Every company should therefore develop and adopt its own unique set of investor relations strategies based on its own underlying competitive strengths and weaknesses. Corporate Social Responsibility Though business philanthropy definitely helps in building an brand but in general corporate social responsibility activities in most organisations are much more than a brand-building effort. CSR activities not only help in terms of building a positive image, it also encourages social involvement of employees, which in turn develops a sense of loyalty amongst them for the organisation. CSR activities help in building a bond amongst the employees and a team spirit is generated amongst them, which, in turn, helps in creating a dedicated workforce that is proud of its employer. Corporate social responsibility is needed for; Preserving the environment for a better tomorrow Encouraging the youth of the day to be an active partner in nation building and subsequently in building a global community. Allowing the underprivileged communities to be able to lead a life with respect and dignity. To make sure that the company is seen as a constructive companion in bridging different types of social divides. Keeping in touch with the community at large. This helps in fetching relevant feedback from the communities and the company can devise strategies accordingly. Methodology – an Outline Preparing a questionnaire for being asked to the telephonic interface between Tesco and outside world. Interview with the call handler – to know more about the CRM practice at Tesco Surfing through the annual reports of Tesco for the last 1-2 yrs Data collection about the company and its operations in different cities of UK and outside UK. SWOT analysis of Tesco Surfing through the survey reports on global retaining in general and UK retailing in particular The research will involve also involve observing/ studying the different signposts and stimuli placed inside the hall of the superstore by Tesco. Studying and analyzing the performance of Tesco in comparison with some of its competitors like Asda and Sainsbury. 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