Integrated Strategy: Tesco - Case Study Example

Integrated Strategy: Tesco Executive Summary The case study of Tesco Plc. is an exemplary example where application of marketing theory significantly improved the performance outcome. The visionary outlook of its CEOs has been major ingredient of its success. Tesco is Britain's number one food outlet. They constantly outperform their competitors. Tesco has conscientiously adopted up a number of strategic changes since 2004. The leading food supermarket has seen transformation in its basic format by not only introducing a whole lot of new products lines including non food items, clothes, home appliances, electronic goods etc. but stores in new formats like Tesco superstore, Tesco Metro, Tesco Express, Tesco Extra were also opened to meet all segment of the society. Situation analysis and SWOT analysis are important tools to identify areas which can be exploited for strategic gain in the highly competitive industry. Tesco, with the widely distributed resources has been able to incorporate the changing environment and maintain a competitive edge over their rivals. 1. Introduction The fast changing socio-economic paradigms and advancing technology has tremendously changed the dynamics of market strategies. ‘Organizations must change because their environments change’ (Bateman, 1990). In the contemporary times, the customer has become much more informed and technology has provided him with more options within the similar product lines, but produced by different companies. The case study of Tesco Plc. is an exemplary example where application of marketing theory significantly improved the performance outcome. The visionary outlook of its CEOs has been major ingredient of its success. Tesco is Britain's number one food outlet. They constantly outperform their competitors and have been voted the best in the business. It boasts annual profits of £22bn. Since 2004 a number of strategic changes have taken place. The report would carry out situation and SWOT analysis of Tesco post 2004 and discuss strategic actions that would help it to maintain competitive advantage in the current recessive trend. 2. Situation analysis Tesco has conscientiously adopted up a number of strategic changes since 2004. It has expanded its business in 12 different countries with further expansion in the pipeline (Tesco). It has also introduced new product lines and significantly widened its consumer base. The leading food supermarket has seen transformation in its basic format by not only introducing a whole lot of new products lines including non food items, clothes, home appliances, electronic goods etc. but stores in new formats like Tesco superstore, Tesco Metro, Tesco Express, Tesco Extra were also opened to meet all segment of the society. Tesco superstores were characterized by huge space and were designed to attract customers of all strata. It was followed by an intensive drive to make committed customers as members through clubcard so that they could offer their customer extra benefits. 2.1 Internal Situation Tesco is highly customer focused. Tesco believes in ‘creating value for customers, to earn their lifetime loyalty’ (Rix, 2005). This as been Tesco’s mission statement which has been implemented through sound corporate strategy. 2.1.1 Target market Tesco’s increased product line caters to all segment of society. Tesco has introduced different product line for its different target group. From toys for the children to the fashion garment and fast food segment, it has something for everybody in its store. Tesco also makes special efforts to ensure that its elderly customers are able to meet their requirement timely and efficiently. E-business played a vital part in rejuvenating the core business activities of Tesco and helped it to rebuild the trust amongst its customers. When home delivery was introduced via phone, fax and online, the concept was new and radical because firstly the home delivery was a new concept which appealed to the working class as it saved their time. 2.1.2 Consumer behaviour and consumer trend The technology and e-business played a vital part in rejuvenating the core business activities of Tesco and helped it to rebuild the trust amongst its customers. Since marketing primarily deals into products and services that benefit people in some way or the other, people become the most important factor in the market strategies. Tesco also used its online customer base to analyze the changing habits of the public and accordingly made changes in its business activities resulting in Tesco diversifying its core business activities to include new areas like insurance, counselling, personal finance, petrol pumps with attached Tesco convenient stores in the format of Tesco Express etc. Tesco’s market strategy was totally focused on the needs and requirements of the people and made continuous efforts to update its products line with that of the changing public demands. This was reflected on its continuously changing website which became increasingly people-centric. The huge success of Tesco website could be gauged from the fact that it has maintained its positions of being one of the four major ecommerce site and the top online grocery store in UK for the last ten years, in a row. Tesco was highly innovative in its marketing strategy. Its online recipe book was designed to tempt the housewives to try new and exotic dishes and indirectly made them shop for new products. It was also quick to realize that special events may require demands for specific products and therefore incorporated ideas for those events like Christmas, birthdays, barbeques etc. giving details of the products that would meet the needs of the customers. In same way, it made sure that the regular customers, under ‘my favourite’ have a list of all the recently bought products thus, making it simple for Tesco to maintain good relationship with its customers and their requirements. 2.1.3 Supplier chain Effective supply chain has been a key strategy of Tesco. It has implemented this strategy through joint ventures with major players in the sector that they want to operate with. The partnership has been mutually satisfying as Tesco has been able to contribute to the growth of its customer base as well as brand strengths. This has been done exceptionally well since Tesco were able to ‘follow customer’ by offering a wide range of products/services to not just the existing customers but to new ones also (Tesco). Indeed, with Tesco.com sale grossing nearly £1 billion pounds and the telecom is serving over half a million customers, the results have been very encouraging. The overseas expansion of Tesco first took place in 2004 when it expended into Central Europe and the Far East. Central Europe and the Far East was a good choice to start off with because it allowed them to use the best practice suitable for them for developing stores efficiently and at minimum cost. It also allowed them build the store as soon as possible since ‘a range of store formats that can be rolled out quickly as required’ (Tesco). Tesco is now operating in 12 different countries with further expansion going on in Western Europe and in USA. Tesco’s expansion strategy has been consistent in its 6-step: flexible approach; multi-format store; customer focused; relationship building; brand building; and capability building. 2.1.4 Resource capability Resources and capability are major player in business environment. In the UK the bargaining power buyers is strong especially for supermarkets because of the availability of several alternatives. The switching cost from one to the other is low because if a customer is not happy he/she can go to the other supermarkets. While it may be true for Asda, Morrisons and Sainsbury, this is definitely not true for Tesco. Tesco is able to satisfy its customers by having different stores Express, Metro etc and having a huge product line which cater to different customer segment ranging from housewives to high end customers (Hawkins, 2006). Tesco has been able to maintain its competitive advantage because of its effective supply chain and its continuous efforts to expand its business across regions. As supermarkets operate on very low profit margins, Tesco can continue to increase its brands and also create new products under its own brand. This kind of internal competition keeps customers the inflow of customers and promotes sales. Franklin (2001) asserts that regional analysis helps in the identification of regional markets such as cities, town, and metropolitan areas in which to locate new stores. The retailers’ main concern is with regional variations in demand for retail goods, services and variety in the level of retail competition. The retailer compares regional demand and supply and then ranks regional areas according to their potential for supporting new outlets. Tesco is able to ensure that it remains highly competitive by carrying out such audit regularly. Tesco’s strategy to give quality products at competitive price, while introducing low cost quality product through new lines is a visionary step that is designed to capture the interests of the customers. Diamond (2007) emphasizes that promotions have been seen as the reverse of rewarding loyalty. The various products like loyalty cards and schemes like discounts, vouchers etc. help Tesco to continue to remain competitive. 2.2 External Situation The fast changing socio economic dynamics have created a fiercely competitive business environment. Changing environment of technological advancement has made it imperative for one to evolve new marketing strategy in order to maintain an edge over their rivals. The changing business strategies to cope with the fast transforming socio-economical paradigms of the times have become crucial factors that enable the businesses to compete against their rivals. The external factors are often the major proponents that necessitate organizational changes. 2.2.1 Competitive situation and competitors in the industry Tesco’s major competitors in the industry are Sainsbury, Morrison, Wal-Mart, Asda etc. in UK. The entry of foreign supermarket chain like Lidl of Germany has further tightened the market giving more power to the customers. The company has been able to maintain its market position through effective market strategy that is people-centric. Building customer relationship is thus, the priority area of Tesco management. Using technology as intrinsic part of integrated marketing communication, Tesco was able to maintain a competitive edge over its rivals. The CEOs of Tesco were highly professional and had the foresight to envisage a highly potential online market which they created by developing a website which was not only aesthetically appealing but efforts were made to make it simple and user friendly so that even a novice could use it without any difficulty. Concerted efforts were made by Tesco to get feedback by the online and offline customers and public so that appropriate improvements and improvisation in the site as well in the value addition to the products could be made. 2.2.2 Macro environment The macro environment factors have significant impact on the market strategies of the products, thus making it essential for the organizations to incorporate the vagaries of those environment elements into its marketing strategy. There are six major macro environment factors that indirectly influence the performance outcome of the organization: economic; demographic trend; changing socio-cultural paradigm; developing new environmental compulsions; advancing technology; and political environment of the region. 2.2.2.1 Economic Economic environment is a major consideration for all businesses. Consumer buying decisions are greatly influenced by the buying power of the consumers and the regional and global economic environment. The new recessive trend and the burgeoning unemployment has considerably reduced the spending power the consumers. In such scenario, Tesco has been able to hold on to its position by introducing quality products at competitive prices. 2.2.2.2 Demographic The demographic imperatives have huge impact on the market. The demographic changes vis-à-vis population size, age distribution, gender ratio, income group etc. have powerful impact on the economy and consumption behavior of the consumer. Kotler et al (2007) assert demographic compulsions significantly impact market position. Tesco uses its customer database to identify the changing market trend and upgrades its products accordingly. 2.2.2.3 Cultural The world is moving towards a multicultural society that is an amalgamation of people from different countries, races and religion. The rapid globalization has created a pluralistic society which has diverse needs and requirement. McCarthy et al (1997) emphasize that socio-cultural imperatives are decisive factor in the pattern of consumer. Tesco has successfully considered the needs of the changing pluralistic society. 2.2.2.4 Natural In the contemporary environment of advancing technology and growing population statistics, sustainable development has become one of the most crucial factors of the time. Tesco uses green technology and promotes sustainable development in its business strategy. 2.2.2.5 Technology Speed and flexibility have become extremely important ingredients for the products so that the organizations can timely and efficiently meet the fast changing preferences of the customers. Tesco has effectively utilized new technology like computer and internet services in promoting its business interest. The vast database of internet users would help the company to significantly gain market position. 2.2.2.6 Political These macro environment elements have direct and indirect impact on the overall performance and operation of the firm. ‘These are characterized by 4Is: issues, institutions, interests and information’ (Baron, 1995, p2). Broadly they are the socio-political environment within which the firm has to operate. The company needs to plan its market strategy within the socio-political and legal framework of the country and make efforts to conform to the wider objectives of globalization and diversity. 2.3 SWOT Analysis SWOT analysis is important part of strategic planning. Awareness of strengths and weaknesses in the company’s resources facilitate and match the opportunities and threats so as to provide a competitive edge to their rivals. SWOT analysis is an important tool to up grade internal strengths of the company to meet the external opportunities and exploit them in a manner that would provide the companies with cutting edge advantage over their rivals. Strengths Weaknesses 1. 1. Wide knowledge of retail industry 2.2. Competent top management and rank & file for operation and maintenance 3. 3. Existing customer base 4. 4. Financial investment backing. 5.  Strong IT returns through internet shopping 1.  1. Low supervision on international market 2. 2. High turnover of employee 3. 3. Require local partner Opportunities Threats 1. 1. Expansion of target market 2. 2. Healthy market environment 3. Increasing detraction of small retail businesses 1.1. Economic restructuring 2.2. Intensified competition 3. Government regulation 3. Priority Strategic actions that need to be taken Resource based strategy is knowledge based and inherently includes all tangible and intangible assets that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness and therefore gives it the necessary advantage (Lynch, 2003). Indeed, the widely distributed resources enable the organization to incorporate the changing environment and maintain a competitive edge over their rivals. The value chain is vital ingredient in retailing decision-making. Understanding the linkages between activities can lead to optimal buying and selling decisions that can result in either a cost advantage or a differentiation advantage. In the case of Tesco, the business should be observed and evaluated for the service delivery processes that strengthen as well as weaken the business. This will significantly help provide the management with options to eliminate the liabilities that adversely impact the business. It may also lead to development and focus on some vital aspects of the operations. The opportunity existing for Tesco is further product introduction, i.e. more opticians and pharmacies into the stores. There are also opportunities for Tesco to expand and increase market share. Since Tesco is very popular in the UK they should turn their focus towards the international market. The acquisition or merger of a competitor would provide synergy in terms of cost reduction, improved productivity, expanded range of products, although it may well be that because of Tesco's dominant position in the market already the commission may not be agreeable to other party and may scupper a possible deal. 4. Conclusion One can therefore, conclude that it is important to realize that the compulsions of globally competitive business environment is having an effective managerial leadership that encourages innovative business strategies and creative practices to overcome the challenges of fast changing technologies and dynamics of economy. The SWOT analysis has helped company to maintain its competitive edge. The working within the organizational climate with well defined parameters and values would promote and facilitate the organization to strive for its long term mission with short term goals and objectives. (2524) Reference Bateman, Thomas S., and Carl P. Zeithaml. Management: Function and Strategy. Homewood, IL: Irwin, 1990. Baron, David E. (1995). Integrated Strategy: Market and Non Market components. California Management Review. Vol.37(2). Diamond, D, 2007, Wall of Values, :__doLinkPostBack('detaiProgressive Grocer, 86(15): 34-36. Franklin, Andrew W. (2001). 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