Marketing Strategies and analyzing two Businesses Current Situation - Essay Example

Marketing Strategies and analyzing two Businesses’ Current Situation Business marketing management orientation Tesco is a British multinational Company that has it’s headquarter located in Hertfordshire, UK (Lynch, 2013). In January, the Company’s management announced a decision to close many of the under-performing and out-of-town stores in an effort to re-launch the supermarket. Currently, Tesco is in favor of more profitable local outlets, and this decision has had a positive and immediate effect on its share price. The recent performance results released show that the company is in an even bigger mess than feared before by investors. The company’s results lay bare the chaotic state of the UK stores, and Tesco’s sales are dwindlingseverely in the face of competition from Lidl and Aldi. Tesco’s market performance wounds are self-inflicted. In the past 18 months, the range of products sold by the company has grown by 31pc while the number of staff employed in the stores has fallen incredibly (PLC, 2015). These are staggering facts since Tesco should have been doing the opposite in their marketing strategies. Tesco operates with an unlimited range of products, and their strategies have driven up the prices and reduced their performance status. Also, Tesco’s strategies are also more unwieldy since they have managed to build over 32 different offices within the UK, disregarding their poor performance. Currently, there are plans to adopt the initial “brand archaeology” strategy used several years back by previous bosses to revolutionize the poor performance exhibited by Tesco. On the other hand, Aldi has a clear business philosophy and various guiding principles that have enabled the company achieve the present success stories (Brandes & Brandes, 2012). The company produces top quality products at incredibly low but guaranteed prices. Aldi is run under five main ideologies including reliance on huge savings, outstanding value, excellent quality, confidence buying, and superb special buys. Aldi is also considered to be a mix of Sales Oriented and Market Oriented organization. The mix is what has made Aldi successful in the grocery retail market despite competition from other companies in the same industry. Aldi’s market orientation consists of the 4P’s of marketing – product, price, place and promotion. The company specializes in the production of their own-branded labels instead of using branded labels from other companies (Strauss, 2008). Through such efforts, the company can control the production processes and costs involved in keeping the company running despite any economic downturns. Aldi also stocks non-food items such as health and beauty products, clothes, stationery, electronic products, household goods, and soft tools. The pricing strategy used involves keeping a high bargaining power over the suppliers. Aldi has got a physical presence around America and Europe, and its online presence makes Aldi visible to customers the world over. Lastly, Aldi invests very little money on promotions and marketing and has very little budgets for these two departments. Macro and micro environmental factors Tesco Global political factors such as tax rates, legislation, and the stability of the UK government have greatly influenced the performance of Tesco. Recently, the UK government adopted a new tax measure that affected Tesco’s returns (Fernie & Corporation, 2005). It increased the VAT rate from the normal 17.5 percent to 20 percent with an aim of increasing government revenue by about £13 billion each year. Sales revenue is an important source of income for the organization and holds substantial effects on the profits achieved each year. Economic factors are most likely to leverage the demand, costs, prices, and profits achieved by Tesco. The UK economy shows positive signs to recover from financial crises, and this is a good sign for Tesco too (Britain, Parliament, Lords, & Committee, 2011). Economic growth results in the growth of the supermarket industry, which is a niche that Tesco has invested much of its efforts. Due to a number of social changes, trends in the preference of UK customers affect the production decisions made by Tesco. The baby boom generation has resulted in an increase in the number of elderly people (Wister, 2005). The decision by Tesco to adopt an online shopping platform for grocery products is useful in considering the mobility issues faced by the elderly people. Technology is also a critical element in Tesco’s supply chain management. Tesco needs to be more attentive to such technological advancements since they may be an opportunity for the firm to gain back its previous market share. There are also a number of laws that influence Tesco since the company deals in a wide variety of products and services. For instance, the UK government is reforming the agricultural policy that touches on agricultural products produced by Tesco. The government is also revising ways in which subsidies will be allocated to the farmers. Micro environmental factors affecting Tesco include customers, suppliers, employees, competitors, and the media (Analyst, 2014). The company provides different services to the UK residents as well as people from USA, France, China, Japan, and Hungary. These countries form part of the Tesco’s customer base. Apart from the customers, the company has different suppliers the world over who bring about the diversification in the products offered. Each of the branches has adequate employees, with the total number estimated to be close to 444,000. Tesco’s competitors in the agricultural industry include Wal-Mart, Carrefour, and ASDA. Moreover, the company uses different online channels to market their products and services to a wide customer base. Aldi Based on the use of a PEST analysis, it is possible to recognize the core environmental influences on Aldi (Harrison, 2013). First, it is known that, global recession is the major economic factor that resulted in the housing bubble in the US from 2005 to 2008. Such financial occurrences have strongly motivated customers to consider purchasing high-quality products at an inexpensive price. Through this, Aldi can attract a lot of customers without the need for advertising or doing sales promotion activities. Also, the company no longer needs to conduct new strategies in order to attract a new customer base. Global recession can result in the increase of product costs, and there is much doubt whether Aldi will manage to sell high-quality products at a low cost. Thus, Aldi should consider such a possibility in order to ensure future growth. Social factors that have an impact on Aldi include the change in customer taste, health concerns, and changes in lifestyle (Dawson, Larke, & Mukoyama, 2006). In recent years, more and more customers are changing their taste. One such example is the ban on genetically modified foods, and the increasing demand to consume organic foods. Aldi should put much consideration on this factor since it may impact on the development of its future production strategies. Aldi should invest more of their efforts in enhancing the online platform and delivery of quality services since some lifestyle changes are likely to increase online shopping (Zentes, Morschett, & Schramm-Klein, 2007). Health concerns have also become an important issue around the world, and consumers tend to purchase health products without much worry over the price. To sum up, there seems to be no adequate technological and political factors in the environment that need to be considered by Aldi. The main micro environmental factors that control Aldi include the marketing channel, publics, and financial intermediaries (Vostal, 2004). The marketing channel includes the distribution channel, sales representatives, the outlets, and market research companies. Publics constitute a group of people that have an interest in the organization and have an influence on the capability of the organization to achieve its objectives. Common publics that are constantly in touch with Aldi include the media, citizens, and the government. Lastly, financial intermediaries include the external auditors, credit rating agencies, and banks. Marketing Mixes (4P’s) Price The pricing strategy used by Tesco is developed according to the business strategy of the company. Thus, its pricing strategy contributes immensely to the development of its competitive advantage (Ruskin-Brown & svetovalec, 2006). Specifically, the pricing strategy used is based on the “Every Little Helps” marketing message. The management team at Tesco aims at reducing the purchase and operational costs through the economies of scale. Its main brand value is to pass the cost advantage to its customers. On the other hand, Aldi uses competitive pricing as a key strategy for winning a wider customer base. The company has the ability to offer its customers quality products at very low prices since it buys its products in huge volumes. The fact that the company buys products in large quantities allows much room for negotiating the best prices with the suppliers. The strategy is at times referred to as the economies of scale. Buying large quantities of products allows the company to pass the saving behavior to its customers. Product The range of products and services that is offered by Tesco has been expanded consistently during the last few years. The company now offers a wide range of products and services within the clothing, food, consumer electronics, and financial services industry (Lamb, Hair, & McDaniel, 2009). In order to achieve an adequate balance of the quality and price of the products, Tesco aims at achieving the competitive advantage of other companies offering the same products. Conversely, Aldi’s focus is offering the best quality of products at the lowest and affordable prices. Every buyer transacting with Aldi is an expert in their field, right from electronics to vegetables and meats. Aldi looks for products from around the world, and this enables them to provide customers with the finest quality. Regardless of where some products are outsourced from, Aldi enhances its product brand by labelling them under the Aldi brand. Place The Place element in the marketing mix refers to the locations where the customers purchase products and services as well as distribution of products to the same locations (Young, 2005). Tesco uses two channels to sell products and services – Online and offline. The online sales channel is referred to as Tesco Direct and relates closely to the official site– www.tesco.com. Meanwhile, offline sales channels relate to four different formats of stores including Tesco Metro, Tesco Express, Tesco Superstore, and Tesco Compact. On the other side of the coin, Aldi keeps the layouts of its store simple to limit any wastes and keep the costs down. Thus, Aldi can focus much of its efforts on offering customers with the lowest possible prices for the products. Aldi takes into account a number of factors before setting up a new store for its products. First is the number of people that are visiting an area and the total demographic of an area. For instance, an area has to have more than 30,000 people for Aldi to consider setting up a store. Secondly, the position of the store plays a significant role too. Aldi focuses much on the edge of the town center locations that have good visibility and with little competition. Also, the location should be easily accessible with reliable transport links, and adequate parking spaces should be available. Promotion The promotion strategy employed by Tesco is consistent with its overall cost advantage business strategy (Richter, 2012). Its promotion strategies include profit maximization in the short-term and long-term perspective. Also, the promotion aims at increasing the value brand image of Tesco through the use of media advertisements, point-of-sale strategies, sponsorship of events, and regular discounts. Tesco Clubcard can also be visualized as an effective promotional tool that contributes to its business strategy. The strategy contributes to high levels of customer loyalty through the discounts made on purchases. Clubcard is a useful tool used by Tesco to collect valuable information about the consumer behavior, and such information can be used to increase the value of the brand. For Aldi to achieve the objective of improving its market share, it has to ensure that its promotional activity demonstrates a balance in the marketing mix. In order to increase customer loyalty, the company regularly communicates its value and quality messages to the customers. Advertising uses a range of advertising methods such as radio, television, newspapers, and magazines to reach a wide customer base (Rafiq, 2014). One noticeable advert features on television for 20 seconds and is dubbed the ‘Like Brands’. Printed leaflets are also distributed to stores and to customers living in areas with these stores. In stores, posters are specifically used to highlight the ‘Swap and Save’ message. Changes and possible improvements Tesco needs to consider more recommendations in building a strategy that can help improve their sales for a long-term period. The worse-than-expected drop in sales was as a result of the underperformance of the company against its expectations (Mellahi, 2006). The company invested in very competitive prices that proved unbeneficial for the recorded period. Tesco deflated its prices at a half that of the market and backed off a greater percentage of the couponing and promotional activity at an early stage. The company has to look into these departments to make necessary improvements if it has to make it against competing companies. Tesco needs to go ahead with the plan to close the 43 unprofitable stores as part of the strategy to turn around the business platform in the United Kingdom (Goodley, 2015). Most of these stores should be turned to Express shops as proposed before. The management team should consider restructuring the central overheads, increasing working – hour flexibility, and simplifying the store management structures (PA, 2015). According to a forecast by Tesco, such a plan will deliver savings close to £250m every year. The grocer should also introduce a benefits package and a bonus scheme for the customers. Through this, the company will invest more in prices and branded products in order to fight back the market discounters. The company should listen to the recommendations made to them by their customers and structure them into profitable strategies. A broad-based improvement package should gradually build the country, leading it to a high trading performance in no time. In contrast, Aldi has fewer improvements to consider since their performance is wonderful at the moment. Though, their e-commerce platform is not performing optimally and has been considered unprofitable for a long time now (Plunkett & Plunkett, 2009). Aldi should consider moving into the online retailing industry in the UK, Germany, and other EU countries to counter the loopholes of the e-commerce platform. The United Kingdom is the best, and potential Launchpad for the online retailing platform since close to 5 percent of the grocery sales made through the Internet were in the UK, well ahead of the other European countries. Regardless of its importance, the online retailing platform is not an immediate focus for Aldi since the company is considered to have the best performing business model within the grocery sector. Aldi should keep up with the current strategy in order to expand rapidly and steal the market share from bellwethers such as Asda, Tesco, and Morrisons. According to a report by the consumer goods research group, online grocery sales are expected to double up extensively by 2016 in five major markets. The markets include Britain, Germany, France, Netherlands, and Switzerland. Also, Internet orders are expected to rise by more than 50 percent in the UK within the next five years (Publishing, 2013). Implementing such a strategy will allow Aldi to claim shoppers from all of its rivals and maintain an upward trend in its market performance. On the surface, the performance of Aldi can be seen as a reflection of the wider economy. Bibliography Analyst. (2014, October 6). Pestle Analysis. Retrieved from Peste Analysis: http://pestleanalysis.com/pestle-analysis-tesco/ Brandes, D., & Brandes, N. (2012). BARE ESSENTIALS The ALDI Way to Retail Success. New York: Norderstedt Books on Demand. Britain, G., Parliament, Lords, H. o., & Committee, E. U. (2011). The future of economic governance in the EU. London: House of Lords/The Stationary Office Limited. Dawson, J., Larke, R., & Mukoyama, M. (2006). Strategic Issues in International Retailing. New York: Routledge. Fernie, J., & Corporation, E. (2005). International retailing. Bradford: Emerald Group Publishing. 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