Market Segmentation of Tesco - Report Example

MARKET SEGMENTATION OF TESCO al Affiliation) Introduction The biggest retail market in the United Kingdom (UK) is owned by the food and drink industry, which in turn provides employment for over 3 million citizens. This impressive trend has been attributed by similar food and drink industries shifting their strategies and embracing technology such as Tesco’s Club card, which has had a welcoming reception among shoppers in the UK and beyond. In 2010, the retail sector contributed 11% of the gross domestic product (Fraser & Debenhams (n.d.). Many families have found solace in such corporations as employees in retail, primary production and manufacturing sectors. In the past decade, supermarkets have been under deep scrutiny with regard to how they treat suppliers of own-label products even though this strategy has been in play for a while now. This report examines the rise and rise of Tesco supermarket that has developed robust strategies to book its name on the top cream of the most efficient supermarkets in the UK and worldwide. It focusses on three main sections namely: strategic analysis, strategic development and implementation. Throughout the past two decades, Tesco has catapulted its way to the top of the food chain as the most popular grocery supermarket in the UK and always among the top five in a global perspective. In Tesco’s quest to build a strong foundation in information technology, this has perfectly matched their customers’ wants and needs (Fraser & Debenhams, n.d.) TESCO’s Market Segmentation Using the Clubcard Program Tesco’s insight into customer relationship management started way back in 1990s when the firm began working with a marketing service firm called Dunnhumby and led in late 1994 to the introductory test launch of a loyalty card scheme in six stores. The strategy was motivated partially by a mindfulness of this sort of initiative in various regions of the world. After a thorough analysis of this initiative, TESCO realized that most of their stores, the buying behaviors of the top 100 customers were worth as much with regard to sales as the bottom 4000. Additionally, the top 5% of the firm’s customers accounted for 20% of sales, as the lowermost 25% accounted for just 2%. The structure, which was supported with a major take-off to the staff and the of 140,000 informative videos, is centered on the Tesco Clubcard which recompenses customers by giving them one loyalty point for every single pound spent with the business. These points were redeemable for products in the company’s stores or in various organizations such as restaurants, museums, hotels, zoos, travel firms and leisure attractions (Felsted & Andrea, 2010). Segmentation is basically the identification of subsections of buyers in a market who share analogous needs and who exhibit buyer behaviors that are similar to each other. By means of segmentation analysis, Tesco PLC was able to deduce on their prospective marketing strategy and to evaluate their competitive powers. The company recognized the necessities for effective segmentation and that it must be differentiable, substantial, measurable, accessible and actionable. In order to measure the size, purchasing muscle and features of each sector, Tesco came up with the Club card program, by providing discounts to cardholders in exchange for the relevant personal information of the customers which include: name, address and extra personal info and possible questions such as the household sizes, the ages of their children and nutritional inclinations (Barnes, R., 2011). This data became very essential to record customer reactions and feedbacks which permitted Tesco to do more study on their consumers with regard to segmentation on their buying behavior consequential to their lifestyle. This differentiability was very crucial for an effective segmentation and this led to the company’s decision to offer diverse benefits to the same program of Clubcard with reference to demo & psychographic summary of every segment In order to have a sustainable segmentation, TESCO ensured that their target was consistent and covered a large region so that it becomes profitable enough in the long run enough to serve its customers. The data that was collected by the Clubcard initiative was analyzed and the company eventually grouped its customers the customers into segments agreeing with their analogous needs and benefits. This made it easy for grouping the customers in TESCO’s database with reference to their purchasing habits. TESCO focused on reaching out to each segment by all imaginable means since the accessibility of segment is indispensable during segmentation, and all the programs used was attractive and served the segment to make the segmentation actionable (Goodwin &Christopher, 2009). Forms of Segmentation with the Clubcard Strategy Geographical Segmentation The company focused on the buying habits of the customers by looking into their addresses and the size of their households. This helped in assessing the kind of products they are inclined to and grouped them according to their tastes and preferences. Tesco has three main stores located strategically and geographically located, which include Tesco Metro, Tesco Express and One Stop. From their positioning, it is evident that most of the company’s stores are positioned in urban and sub urban area, making it easy to deduce that TESCO serve its customers centered on population density. This makes the clubcard strategy measurable with regard to the size, purchasing muscle and profiles on the segment. The Target market of Tesco has around 500,000 inhabitants and its average income higher than other suburban areas. In accessibility options, the Target market was easily accessed and served by the company. This was done through leaflets, television commercials, flyers, direct mail and mobile phone sms. The market segment is also huge and lucrative to serve making it substantially profitable. With the clubcard initiative, the market segments proved to be differentiable because the customers were able to conceptually respond differently to the marketing mix components and programs. TESCO used unique marketing mix elements to stretch to the entire market which presented lower price and its location that located in populous areas (Newman, R., n.d.) Demographic Segmentation The company was able to use the clubcard program to divide the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation and nationality. This help in grouping the customers according to their needs and wants as well as how often they use certain products with the help of the information collected in their cards. Demographic variables were the easiest to use other that the rest of the variables because the information about their buying behavior is instilled in the card and does not require much work to retrieve. Psychographic segmentation This was done by dividing the market into groups with regard to social class, standard of living or personality features and appearances. This made it possible to locate the potential customers by assessing their income levels, the location of their households, and the products they often buy. By pairing age and lifestyle, the company was able to the company was able to offer diverse products and use different marketing methods with regard to the age and life-cycle of the customers (Clark, T., 2014) Behavioral segmentation TESCO Company segmented its market into groups by dividing the market with reference to their awareness, knowledge, attitudes, uses or reactions to a particular product. This was done by narrowing down on the loyal customers who are frequent visitors. This operation was effectively done by grouping them according to instances when they have the idea to buy certain products and in fact go ahead and do the purchase, or use the acquired item. Markets could sometimes be divided into groups of first time users, potential users, nonusers, ex-users, first-time users, and frequent users of a product. Furthermore, the markets were divided into light, medium, and heavy product users (Freckleton, A. 2006) Positioning and Targeting The positioning statement that would best fit TESCO’s strategy is “Cheap by the Price, Expensive in Quality” Since the company targets to use the mass marketing strategy to focus on its target market, this has proved to be very successful because it ignores certain factors that don’t affect a certain target market and focus the rest of the factors on that market by the information gathered with the clubcard strategy. In other words, emphasizing their marketing strategies on the common factors in the needs of buyers rather than on what is not the same (Seth & Randall, 2008) Positioning is the designing the business’s offering as well as its image to conquer a unique place in the concentration of the target market. The objective is to fix the brand in the mind of customers to make the most of the potential benefits to the company. Tesco has excellently molded its positioning as a low price retailer by using the advertisement slogan “cheapest price every day” and this has proved successful. The company has attracted many customers that specifically buy these cheap products. Therefore in the perception of the customers, the idea that TESCO sells cheap products has been embedded in their minds (Friedlos & Dave, 2006) Also, Tesco has a loyalty platform that refunds the customers after definite periods of time. In this way, customers will gain the loyalty points based on the money they spend during purchase. After that, Tesco sends out the cash check worth the exact amount of points that he or she has accumulated. By using this strategy TESCO HAS positioned itself as a retailer that cares both for customer needs and discount them as the clienteles keep spending in Tesco. In conclusion, TESCO has built a brand that is successful and powerful since everyone has a chance to shop cheaply, get discounts and be loyal to the company. References Barnes, R., (2011). The great Tesco beauty gamble (the Tesco supermarket chains marketing strategy for breaking into the UK beauty services market). Strategic Direction. “Being Successful in International Markets-New CEO of Tesco is Model Example.” Accessed on 20 September 2010 http://blog.communicaid.com/cross-culturaltraining/ being-successful-in-international-markets-–-new-ceo-of-tesco-is-model-example/ Clark, T., (2014). A History of Tesco: The rise of Britains biggest supermarket - Telegraph. [Online] Telegraph.co.uk. Available at: http://www.telegraph.co.uk/finance/markets/2788089/A-history-of-Tesco-The-rise-of -Britains-biggest-supermarket.html [Accessed 2 Dec. 2014]. Felsted and Andrea, (2010). “Tesco expects US arm to break even,” Financial Times. 6 October 2010. 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