Tesco and Sainsbury's - Report Example

Tesco and Sainsbury’s Tesco and Sainsbury’s Introduction The corporate world depends on the performance of the sales of each ofthe companies involved. Such a statement means that the profitability of a firm relies on its market performance assessed in terms of quality of products and the prices. Many consumers of conventional products will always compare the prices of their preferred retailers against the rest in the market, which is why pricing of products is one of the focal points of this work. This report will compare two retailers in the UK, Tesco and Sainsbury’s, in terms of their strategies and market performance. Amid the recent changes in their pricing policies, both firms struggle to find the best prices that will attract the highest sales volume. It is necessary to note that the two have not been the cheapest supermarkets in England but have been among the leading quality product providers. As such, there has been a struggle to balance between their prices and the quality of products offered to customers. Therefore, this essay involves a succinct analysis of the marketing orientation of the two companies, their external audit by use of the PESTLE analysis, compare their marketing mix, and make recommendations. Tesco’s stock is at 2.77% unlike its rival Sainsbury’s which shows an increase up to 28.05%. The trend implies that the latter supermarket has commendable performance (Butler, 2014). Marketing Management Orientation The marketing strategies of any business form the basis of their performance against their competitors. The two companies compare in terms of how they approach their marketing plans (Ahmed, 2014). For instance, both Tesco and Sainsbury’s have branding strategies that latter influence the prices at which they offer products to their customers. It means that the two have been competing against each other for branded goods in terms of prices. In the recent past, Sainsbury’s, however, has stopped comparing its prices for branded products against Tesco. The former supermarket now compares it prices to the lowest providers in the market, Asda. At such point, it is noteworthy that Sainsbury’s lowered its prices and kept them relatively smaller than Tesco, which has the effect of attracting more customers using the law of demand. Customers in the UK can now find the same quality in the products that they buy at Sainsbury at prices lower than the previous times. Prices play an essential role in determining the volume of sales because most people look at the lowest prices on the market. Sainsbury’s now has two strengths to bank hopes on; the first is the fact that it sells high-quality products to the customers. The second fact is that the supermarket offers the high-quality products at relatively lowered prices. Sainsbury’s decision to drop Tesco in the Brand Match Scheme means that the supermarket will now position itself well in the ever-changing grocery landscape. The grocery business in the UK is one characterized by continuous price falls, which leaves companies that cannot suit the changes in the danger of losing their customers (Butler, 2014). Sainsbury’s plans to adopt the same pricing and advertising that Asda uses, which will ensure that the entire public understands the current trends in their prices. As such, the Corporation will adopt the mass media tools that will help communicate the price changes to the consumers. Such a message will work in the same way as a price war against Tesco. Sainsbury’s has the intention of simplifying its prices to the customers, dropping references to percentages and fractions, making shelf-edge price labels easier to understand, and moving to round number strategy of pricing. The supermarket has a bold move that the firm has taken towards sensitizing its customers on the new pricing strategies, mainly through coupons (Clear, 2013). External Audit for Both Tesco and Sainsbury’s The performance of a supermarket relies on how it manages its external environment, which manifest in the PESTLE analyzes of the two firms in question. The analysis will discuss the adaptability of the two businesses to their external environments in terms of economic, political, social, legal, technological, and environmental factors. PESTLE Analysis of Sainsbury’s A number of political factors in the country have an effect on the way that Sainsbury’s operates its business. For instance, there are high government and consumer debts, which affect the attitudes of consumers and puts pressure on the businesses. Sainsbury’s has to operate under such conditions and at the same time ensure the continuity of its businesses. As much as the political factors in the environment may look difficult, the supermarket has since adapted and continued to offer a wide range of branded products at low prices (Clear, 2013). The economic factors have a fundamental impact on the nature of business operations. Such factors have an influence on the prices, costs, demand, and the profitability of business activities. Among the most influential factors that constitute the economic environment of the supermarket are rampant rates of unemployment and the high prices of consumer goods and services. Such factors affect the customer abilities to buy Sainsbury’s products. As a result, the supermarket has strategies that seek to reduce the prices of the goods and services while maintaining quality (Ficenec, 2014). One-stop shopping is one of the social issues that affect the nature of businesses especially in the retailing industry. As such, Sainsbury’s has introduced products that customers may need under one roof, which makes it have the customer appeal. There is also the rising demand for female workers especially in the cooking line of business, which makes the supermarket respond by hiring a considerable number of such staff. The outcome is an increased performance of the business line and the profitability of Sainsbury’s (Ficenec, 2014). Advancements in the levels of technologies that businesses use have a considerable influence on the levels of their output. For example, Sainsbury’s embraces the continued influence of online business in terms of advertising, which helps the supermarket to widen its market and to increase its volume of sales. The impact of their online business strategies caused the firm to realize a 25% increase in the volume of sales. There is heightened pressure on companies that exist in the UK to act in a socially responsible manner through the protection of the environment. As such, Sainsbury’s falls under the control of the Environmental Act that requires it to keep the environment safe for the rest of the community. The firm has since adopted the Reduce, Reuse, Recycle approach that communicates its commitment to managing the environment. The last set of factors that constitute the external environment is the legal factors such as the new tax laws on advertising of fatty and highly processed foods. Such a law caused the supermarket to comply with the legislative requisitions and modify its nature of the business to lie in line with such laws. PESTLE Analysis of Tesco The supermarket operates in the same political environment as Sainsbury’s, which has the consumer and government debts as the main factors. The latter is the cause for the government’s move to increase the taxes charged on commodities in the country. The move targets to increase government revenues but has the effect of reducing the consumers’ purchasing power. The situation calls for a reduction by firms in the prices of their commodities. In this case analysis, there is a need to realize that the supermarket has tried a number of price cuts in the past with the target of improving its sales. However, the recent move that compares it with Sainsbury’s means that the supermarket’s products are among the highest in the market. As a result, the supermarket realizes a drastic fall in its market performance against its competitors. The resurrecting economic performance of the country means that the levels of unemployment in the country will start to reduce (Codita, 2011). Such a factor is one of the economic indicators that affect the performance of all businesses because it determines the power of consumers to purchase products. While the economy was underperforming, the biggest challenge that faced the firm was competitive pricing, which meant that many customers went for the cheapest retailers such as Asda. The main advantage that Tesco had a number of its competitors was its dedication to offering products of high quality. The social factors that relate to the nature of the business that Tesco engages in doing are the consumer purchasing habits as well as the demographics of the country. A majority of the consumers prefer one-stop shopping, which they consider as a strategy to save time. Therefore, like Sainsbury, Tesco has responded to such demanding factors by the introduction of one-stop shopping centers. It means that the customers of the firm can find all their products under one roof. The changing demographic patterns in the UK indicate that a larger part of the population is old people, which have a number of influences on the types of commodities that they purchase (Fernie & Moore, 2013). The technological implications of the environment on the nature of business of Tesco Plc. affect the supply chain of the supermarket. The supermarket has created a supply chain management system that attains competitive advantages as well as enhancing cost efficiency. For this case, the supermarket has adopted technological features that help to continue its core values and competencies. For example, the supermarket utilized mobile technology in the distribution services, which allowed customers to choose their preferred products easily. Tesco Plc. has a number of strategies that put it in line with the commitment to meet the environmental management requirements. For example, the supermarket shows a commitment towards the reduction of energy consumption and the reduction of greenhouse gasses. The legal framework in which Tesco operates is the same as that in which its competitors operate. It, therefore, means that the supermarket has the obligation of observing the new tax laws on advertising of fatty and highly processed foods. The Marketing Mix of the Two Companies The mix consists of four elements: product, price, place, and promotion. Product Tesco offers a wide choice of products to its customers, which ranges from consumer food to non-food products that satisfy the shopping needs of an average shopper in the country. For instance, the supermarket offers items such as kitchenware, clothing, mobile phones, and electronics accessories among other products. Additionally, the supermarket chain offers products under its brand. Recently, the firm embarked on the increase of product portfolio through its online businesses that enabled it to sell to many customers. Sainsbury’s offers the same advantages to their clients by way of giving them a wide range of products, which ensures satisfaction. The supermarket also uses loyalty cards that help it to fetch information and gain intelligence concerning the marketing needs, which raises their relevance to their customers. Price Average consumers within the UK are price sensitive because of the little differentiation of the products, which allows them to switch between suppliers with the main determinant being the prices (Fernie & Moore, 2013). Both companies discussed in this work employ competitive pricing strategies, which imply that they both prices as methods of retaining their old customers and attracting new ones. Initially, Tesco played the role of the market leader, but things have since changed allowing others such as Asda to be the leaders. The latter supermarket is currently one that offers the lowest prices for retail products. As such, Sainsbury sought to outdo Tesco through the comparison of its prices with Asda. As it stands, Sainsbury’s offers lower prices in comparison to Tesco for the same quality of products. Place In the context of the corporate world, place refers to the network of distribution as well as the strategic positioning of the networks. As such, retailers in the country, Tesco and Sainsbury’s inclusive must ensure that they locate their businesses as close as possible to their customers as they can. Tesco runs more than 1800 stores across the UK, which the supermarket has distributed over different geographical needs according to their niche. At the same time, Sainsbury runs about 934 stores in the entire UK, which translates to the notable fact that the former supermarket has a wider network of distribution (Fernie & Moore, 2013). In addition, both companies operate online stores, which contribute to their large volumes of sales. Promotional Tools for the Two Companies Promotional activities that the firms use include their choice of communication styles that arise the demand for their products in the market. The most prevalent method employed by the companies include sales promotion, direct sales, advertising, personal sales, and public relations. Tesco adopted a modified direct selling method, which uses the information fetched from the loyalty cards and contacting the specific customers. The store bunches up their customers according to their trends of shopping after which the firm contacts them through the post office or by e-mail (Huggins, 2014). The loyalty cards that the store uses target the specific market that the supermarket targets such as the kids, healthy living products, and others (Tesco PLC, 2013). On the other hand, Sainsbury’s employs a limited level of direct selling compared to Tesco. However, the firm also employs Nectar loyalty cards that help it to collect information from the customers on the best approaches to satisfying their needs. In the recent past, the firm revamped its advertising on television, radio and other media that had a theme welcoming customers to trying something new. As such, the method proofs its effectiveness in attracting a large volume of sales that raised the revenues from 15.9% in 2010 to 16.25% in 2015 (Woollacott, 2014). Conclusion and Recommendations Tesco needs to make a strategic choice of tradeoff that will identify it as a cost leader or a differentiated retailer (Chapman, 2014). The history of the supermarket and analysis of its external business environment indicate that it has a chance to reverse the current performance in terms of market sales. The supermarket should adopt another competitive strategy that will involve abandoning the price wars experienced in the past and concentrate on the provision of differentiated products. The products should target people of all social classes and give them the best quality in terms of the prices. The investor needs to invest more in research that will improve its private labels, which will help the corporation to realize high profitability (Fernie & Moore, 2013). The private labels should not compete with the ones that it has already offered, which will give the customers a variety of new products to choose. The business needs to revisit its product portfolio and kill the unsuccessful products while introducing new ones. On the contrary, Sainsbury’s should engage in constant quality rejuvenation exercises, which will ensure that Tesco does not rise to overtake it once again (Lamb, Hair & McDaniel, 2008). For this case, it should utilize the information that it fetches from its customers to find the best ways that will keep them attracted. There is also a realization that running low prices could mean that the supermarket may reduce its profit margins in the future or reduce the quality of its products. The reason for the first statement is the fact that low product costs require the production costs to be relatively lower than what they are now. Therefore, Sainsbury’s should find the best suppliers and diversify its product line to ensure that the pressure of offering the lowest prices does not affect their quality (Ruther, 2003). References Ahmed, K. (2014, October 1). Tesco, Sainsbury’s – the bad news just keeps coming. BBC. Retrieved April 13, 2015 from http://www.bbc.com/news/business-29444904 Butler, S. (2014, September 25). Sainsbury’s drops Tesco from Brand Match price comparison. The Guardian. Retrieved April 13, 2015 from http://www.theguardian.com/business/2014/sep/25/sainsburys-asda-brand-match-tesco-price-war Chapman, M. (2014, September 26). Analysis: Will Sainsburys new pricing strategy and Brand Match changes strengthen its position against Asda and the discounters? RetailWeek. Retrieved April 13, 2015 from http://www.retail-week.com/sectors/food/analysis-why-sainsburys-has-cut-prices-and-changed-brand-match/5064610.article Clear, M. (2013, October 23). 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Mason, Ohio: South-Western. Rüther, C. (2003). Are Customers loyal to the Tesco Superstore in Roundhay; London. Routledge. Sainsburys PLC (2015, January). Nectar at Sainsburys. Retrieved April 13, 2015 from http://www.sainsburys-live-well-for-less.co.uk/products-values/nectar/ Tesco PLC. (2013, March 6). Tesco rewards loyal customers with new TV service. Retrieved April 13, 2015 from http://www.tescoplc.com/index.asp?pageid=17&newsid=751 Woollacott, E. (2014, October 14). Sainsbury’s cuts prices - and drops Tesco from Brand Match scheme: Moves focus away from price promotions. AOL Money. Retrieved April 13, 2015 from http://money.aol.co.uk/2014/09/26/sainsburys-cuts-prices-and-drops-tesco-from-brand-match-schem/#!slide=aol_2448735 Read More