The Macro Environment of Tesco along with Its Competitive Environment in the United Kingdom - Research Paper Example

1. Executive Summary: This report is regarding the current marketing programs elements and how has Tesco dealt with the threats and weaknesses in themarket to enhance its profitability and market share. This report focuses upon the macro and competitive environment of Tesco along with the current marketing programme elements. Contents 1. Executive Summary: 1 2. Objective of the Project 3 3. Part I: Tesco’s Macro and Competitive Environment 4 4. Part II: Tesco’s Current Marketing Programme Elements and SWOT Analysis 12 5. Part III: Recommendations 17 List of References 18 2. Objective of the Project The objective of the project is to identify the macro environment of Tesco along with its competitive environment in United Kingdom. In order to further gain information regarding this particular retail brand, the marketing elements and SWOT analysis which are currently employed at the company would be explored and evaluated. Furthermore, recommendation would be provided so that the company can enhance its profitability and customer’s satisfaction level in United Kingdom. 3. Part I: Tesco’s Macro and Competitive Environment With an aim to identify the Macro environment of the retail brand selected i.e. Tesco, PESTLE analysis would be conducted. PESTLE Analysis Each of the factors in PESTLE would be separately evaluated in order to gain a clear insight regarding the business macro-environment. Political It has been observed that with the passage of time, the VAT had increased to 20 percent in UK (TMF Group, 2010). This increase in VAT rate will eventually impact the performance of the retail brands in the market. Inflation being another element has also affected the performance of the business. It was reported by the National Statistics office of UK that the inflation rate shifted from 2.2 percent in 2012 to 2.7 in 2013 (BBC News, 2012). With such an increase in the inflation rate, the price of commodities has sharply increased, creating less value for the money possessed by the customers. With Tesco expanding its operations globally, it has to meet the regulations and laws passed by the government to enhance its performance. Economic With the recession that the country faced in 2008 still has its impact on the economic situation of UK. In previous years, recession had weakened the economic situation of the country but it was observed that the unemployment rate dropped to 7.7 percent from 7.8 percent. UK making progress to strengthen its economy once again, it was reported that 37,000 remained unemployed in the year 2012 whereas; the number of unemployed people was quite greater as compared to 2012 (Inman, 2013). (Allen and Mead, 2012) The recession can be of positive help for retail brands such as Tesco as due to the recession many customers prefer to eat at home rather than at restaurants and cafes. This can provide the retail brand i.e. Tesco, with enormous opportunities to increase its output. After holding some control over the recessionary period, it was recorded that the UK housing spending increased by 3pc month-on-month (The Telegraph, 2012). With advancing job market in UK, the disposable incomes are predicted to boost the economy in UK. With such advancement in the disposable income, opportunities for Tesco in the UK have greatly increased. Socio-cultural The change in the consumer behaviour is yet another challenge for Tesco. Despite the recovery from the recessionary period, it was observed that the GfK index of consumer confidence fell to -30 (Reuben, 2012). This indicates that how worse the people feel regarding the situation that they faced in the earlier year. On the other hand, the changing consumer buying behaviour is also another major element that could influence the performance of brands in UK. It was observed that after having grip on the recessionary period, people in UK are focusing more on clothing rather than food. This might provide Tesco with an opportunity to enhance it sales as Tesco in more into such non food items than food items. It was recorded that the people are spending £9.60 more on clothing and shoes a week than 2007 (Wallop, 2012). Technological Advancing technology is another element that is quite in favour of the retail brand i.e. Tesco. By introducing technology in the daily operation of the company, the retail brand was able to enhance the customer satisfaction. With self-checkout counters, Tesco was able to eliminate the waiting in lines query for customers which was considered an element that was influencing the customer’s satisfaction level (NCR, 2011). It was recorded by the National Statistics office in UK that the subscription to the internet has increased substantially by over 50 percent due to which Tesco has shifted from the traditional medium to digital technology to enhance the customer to purchase from the retail brand rather than any other competitor in the market. As the CEO of the company reported that the retail brand i.e. Tesco, aims to lead the revolution rather than becoming the victim of the revolution (Roberts, 2012). Legal Due to the increase in VAT from 17.5 percent to 20 percent in the year 2012-13, it was predicted that such an increase can negatively influence the retail brand in the non-food sector. The clothing and other such sectors could be influenced due to the legal regulations imposed by the government. Environmental Tesco considers the environmental factor quite important for its growth and success in the retail market due to which the company provides its customers with environmental friendly packaging. Tesco aims to enhance its role in protecting the environment due to which the company introduced its Greener living scheme. By introducing such scheme, the retail brand was able to provide its customers with advices regarding the environmental issues such as reduction of food waste and carbon footprints when preparing the meal. In addition, the customers that the retail brand feel are working towards safer and greener environment are provided with reward points. Tesco’s Competitive Environment New Entrants The threat of new entrants in the retail market is quite low in UK. The retail brands like Tesco, ASDA and some others dominate the retail market in UK. With such a market share in the retail market Tesco has enabled itself to enhance its operating systems, suppliers and marketing mix to remain ahead of others in the retail market over the years (Delaney-Klinger, Boyer, & Frohlich, 2003). Supplier’s Power The supplier’s bargaining power in the retail industry is moderate. Tesco has diverse range of suppliers to provide its customers with products at the right time to meet their requirements. With extensive range of suppliers, Tesco has reduced the bargaining power of suppliers and over the years have taken the advantage of such extensive supplier’s range to gain discount and other facilities. Buyer’s Power In retail business, the bargaining power of buyers is very high in the market. Such high buyer’s power is backed by presence of other retail brands in the market that provides similar services to attract the buyers towards their brand. In order to effectively manage the customer, the retail brand i.e. Tesco, has always focused on providing the customers with the right product at the right time. Threat of Substitute Being a retail brand, Tesco’s threat of substitute is very high. In retail market, there are retailers that are able to provide the customers with the same products that are being offered by Tesco. ASDA is one of the major retail brands that provides the customers with the same products and is the closest rival of Tesco. In order to effectively manage the threat, Tesco has focused on acquisition strategy. Competitors In retail market, Tesco’s closest competitors are ASDA, Sansburry and Carrefour. As these retail brands provide the customers with the same product in the market, the competition in such market is cut throat. With such competition in the retail market, the growth opportunities are quite few. For the retailers to remain in the retail business, the retailers have to constantly innovate and provide the customers with new products so that the brand can survive another year in the market. SWOT Analysis of Tesco’s Competitive Analysis Strengths The retail brand i.e. Tesco, enjoys its position in Top 25 most valuable retail brand. The company was ranked as the second most valuable brand in 2011 and fourth most valuable brand in 2012 (Brand Finance, 2012). With such an extensive retail history of the company, Tesco had broad knowledge of its customers along with their requirements. Due to their efficient top management, the company has taken bold strategic steps in earlier years to make the brand retail leader in UK. With its extensive suppliers, the retail brand has enabled itself to provide the customers with the product they require at the right time. This has eventually helped the retail brand to enhance the customer’s loyalty and commitment towards the retail brand over the years. According to the Euromonitor (2010), Tesco was able to hold around 31 percent market share in UK’s retail industry. The retail brand has witnessed such growth in the earlier years due to constant innovation and introduction of technology in the processes. Weaknesses The major weakness that was observed in the earlier years was the negative impact on brand image in the retail industry. The company had to recall some of its products in the earlier years which negatively influenced the brand image of Tesco. On the other hand, the major market of Tesco is UK. The sales outside UK are comparably less in other countries due to which the company faces huge setbacks in other countries that the brand operates in. The geographic diversification of the retail brand is another major weakness of Tesco (Turner & Wilson, 2006). With the retail brand constantly focusing on acquisition of smaller retail brands in the market, Tesco has significantly reduced its profit margin as compared to earlier years. Opportunities With Tesco’s geographic diversification, the retail brand can improve its economies of scale to great extent. The company has various options to geographically expand in other countries to provide the customers with the required products. With the introduction of an online shopping medium, the retail brand can easily convince and attract majority of the customers in the market. It was observed that the company’s portal gained a lot of popularity in the earlier years. The company gained over 1 million customers through its online portal (Rowley, 2005). The prediction regarding the growth in food retail market segment is yet another opportunity for the retail brand to provide its customers with variety of products as per the customer’s demand. The Euromonitor (2010) forecasted that the food retail market segment would rise to £145 billion by the end of 2014. Threats The major threat for Tesco is the increase in cut-throat competition from the toughest retail brands in UK. Due to such an intensified competition, the growth is yet another threat. With such variety of retailers in the UK retail market, the retail brand is facing price war to encourage the customers to purchase from their brand rather than others in the market. Due to such competition, the profit margin has to be reduced to provide the customers with the product they want. 4. Part II: Tesco’s Current Marketing Programme Elements and SWOT Analysis Product Being the largest retailer in the UK, the retail brand offers variety of products to its customers. The company aims to provide its customers with all kinds of products under one roof due to which the retail brand offers its customers with non-food items along with electronic items and food items. The company has always worked towards achieving the customer’s confidence. Tesco has created confidence among the customer regarding the brand by providing the customers with its own label brands. Such brands have been appreciated by the customers due to their high quality. Along with the quality, the company provides such brands at comparably lower cost as compared to others in the market. The products offered at Tesco are of fine quality. This is one of the major reasons for the constant success of Tesco in UK and the rest of the world. To remain competitive in the retail business, the company has promised its customers regarding a better range of products to meet their daily requirements. The company aims to introduce its Everyday Value brand that would provide the customers with better quality and total satisfaction. To do so, these brands would have no MSG, hydrogenated fats, genetically modified ingredients and no artificial flavour or colour that could harm the customer’s health (Turner & Wilson, 2006). Price The current marketing programs regarding the element; Price, are as follows; To encourage and attract the customers in UK and other countries that Tesco operates in, the brand aims to reduce the prices of its products offered to the customers. By the introduction of loyalty cards, the company has set its plan to further push the cost down. The company pricing strategy is to focus on providing the customers with competitive pricing. With greater number of suppliers and cut-throat competition in the market, the company has set its price competitive to that of market otherwise; the customers might shift to other brands available in the market that are providing the same product comparably cheaper than Tesco. In order to encourage the customers to purchase the products offered at Tesco, the retail brand constantly provides the customers with an opportunity to gain discount. This has constantly encouraged a lot of customers to purchase the products. Another pricing strategy of Tesco regarding their own brand is that the company charges comparably less for its own label brand. Even the quality of the Tesco’s own brand is greater than that of other brands that are offered at Tesco. Place Regarding the place, it was observed that the company is now much focused on growing its business further in UK. As UK is the largest region that provides the business with great sales and revenues, the retail brand will improve the way it operates in UK. The company currently operates in more than 10 countries with over 25,000 stores. This facility has attracted much of the potential customers over the last few years as due to the recessionary period, most of the retail stores were shutting down and the products were not meeting the demands of the customers. Providing the customers with more than 25,000 stores at accessible location, the company was able to gain attention of its target customers and provided the customers with the product they desire at the right cost and time (Turner & Wilson, 2006). Changing the interior of the stores is another tactic used by Tesco in order to attract customers. Through the use of Refresh programme, the company aims to enhance customer’s engagement by providing them with warmer look and feel. In order to further expand the business globally, the company has introduced its own online shopping website. This introduction of company’s website gained a lot of popularity in the following years and it was recorded that more than 1 million customers were using such innovative shopping website. Promotion In order to promote the retail brand, Tesco has introduced Loyalty cards to encourage the customers to purchase more of Tesco’s brand and in return, the customers would be provided with loyalty points. The company even provides the customers with gift hampers to those customers that have somehow worked positively to protect the environment (Turner & Wilson, 2006). Along with loyalty cards, the retail brand has provided the customers with discount offering from time to time. This factor has gained a lot of attraction and has been appreciated by the customers. Despite such competitive market, the company has shifted its focus from traditional shopping to online shopping. The company has introduced its own online shopping site and with the passage of time, the online portal has gained a lot of clients. It was recorded in 2009-2010 that over 1 million customers were using the online shopping website introduced by Tesco. To further expand the plan, the company invested 150 million pounds so that the customers can enhance their shopping experience at Tesco. SWOT Analysis of Tesco’s Current Marketing Programme Elements The SWOT analysis of the current marketing plan of Tesco is as follows Strengths Product With such an extensive product offering at Tesco, the retail brand has enabled itself to provide the customers with their required products under one roof. Even the company’s own label brands have gained a lot of popularity and appreciation over the last few years due to their lower price and higher quality as compared to other products offered in the market. Price Due to its competitive pricing strategy, the company has attracted a lot of customers. It was observed that due to such pricing strategy, the company has gained a lot of loyal customers over the years. For this reason the customers prefer Tesco over other retailers in the retail market. Place With operation in over 14 countries, the retail brand has allowed itself to gain confidence of the customers. With operations in such countries, the retail brand has always tried to provide the customers with the products that are needed by the customers at the right time and at right price. Due to its 25,000 global stores, the company has attracted a lot of customers to prefer such retail brand over others in the market. Promotion To promote the brand, the company constantly uses internet as the primary source. This source has allowed the company to enhance its awareness level in the market; apart from this the discount that has attracted many customers over the years. Weaknesses The weakness of Tesco is its inability to predict the needs of the customers outside UK. With such weakness, the company has constantly failed in China and by such weakness; the company has lost several customers to shift from Tesco to other retailers in the market. Opportunities The opportunity that Tesco can rely on is constant innovation. It has been observed that through constant innovation in the products, the company can enhance the customer base in UK and other countries. 5. Part III: Recommendations For Tesco to regain its strength in the market, the retail brand should focus on the following recommendations. a) The company should enhance its products that are being offered to the customers. By enhancing the product line and variety of products, the company can further enhance its sales and revenues. The products that are being offered to the customers are of good quality but in order to attract the customers, Tesco should enhance its promotion and marketing activities. b) In order to reduce the competition in the market, the company should enhance its operations in other countries as well. The company should look for countries where the growth prospects are higher and the company could earn more than its investment. By expanding its operations in the global market, the company would be able to provide the customers with the product they require. In addition, the company should also enhance its own label brand production. c) By further promoting the products being offered by Tesco, the company can enhance the awareness level regarding the Tesco’s products offering. The company should just not focus on internet to spread the message, but it should also enhance its responsibilities towards the protection of environment. By doing so will attract lots of customers as most of the customers prefer shopping from retailers that returns the customers with something far greater; social corporate responsibility. List of References Allen, P., and Mead, N. (2012). Interactive: UK unemployment since 1984. The Guardian. Available from http://www.guardian.co.uk/business/interactive/2009/jun/22/unemployment-and-employment-statistics-recession [Accessed 13 February 2013] BBC News. (2012).UK inflation rate rises to 2.7% in October. Available from http://www.bbc.co.uk/news/business-20310102 [Accessed 13 February 2013] Brand Finance. (2012). The Best Retail Brands 2012. Available from http://www.rankingthebrands.com/PDF/Brand%20Finance%20Best%20Retail%20Brands%202012.pdf [Accessed 13 February 2013] Delaney-Klinger, K., Boyer, K. K., & Frohlich, M. (2003). The return of online grocery shopping: a comparative analysis of Webvan and Tesco’s operational methods. The TQM Magazine, vol. 15, no. 3, pp. 187-196. Euromonitor. (2010). Industry Profile - Food retailing. Euromonitor International Inman, P. (2013). UK unemployment rate falls to 7.7% but wage stagnate below inflation. The Guardian. Available from http://www.guardian.co.uk/business/2013/jan/23/unemployment-rate-fell [Accessed 13 February 2013] NCR. (2011). Tesco enhances shopper convenience with NCR self checkouts across central and eastern Europe. Available from http://www.ncr.com/newsroom/resources/tesco-enhances-shopper-convenience-with-ncr-self-checkouts-across-central-and-eastern-europe [Accessed 12 February 2013] Reuben, A. (2012). Shoppers facing new economic reality change behaviour. BBC News. Available from http://www.bbc.co.uk/news/business-20142143 [Accessed 14 February 2013] Roberts, N. (2012). Tesco CEO describes techtonic shift towards digital technology. Available from http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=20372956 [Accessed 13 February 2013] Rowley, J. (2005). Building brand webs: Customer relationship management through the Tesco Clubcard loyalty scheme. International Journal of Retail & Distribution Management, vol. 33, no. 3, pp. 194-206. The Telegraph. (2012). Consumer spending increases by 3pc. Available from http://www.telegraph.co.uk/finance/personalfinance/consumertips/household-bills/9588892/Consumer-spending-increases-by-3pc.html [Accessed 14 February 2013] TMF Group. (2010). UK VAT increases by 2.5% to 20%. Available from http://www.tmf-vat.com/tmf-in-the-media/uk-vat-increases-25-to-20.html [Accessed 13 February 2013] Turner, J. J., & Wilson, K. (2006). Grocery loyalty: Tesco Clubcard and its impact on loyalty. British Food Journal, vol. 108, no. 11, pp. 958-964. Wallop, H. (2012). Consumers spending less on food and more on clothes. The Telegraph. Available from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9095970/Consumers-spending-less-on-food-and-more-on-clothes.html [Accessed 12 February 2013] Read More