Market Analysis of The Tesco Brand - Report Example

Market Analysis of The Tesco Brand Introduction Tesco is ranked as the fourth most valuable brand in the UK (Brand Direct, . The Tesco brand can be traced back to 1929 when Jack Cohen started a modest sales brand in London (Tesco PLC, History, 2013). The company grew over the years and became one of the largest in the UK and gained a significant presence around the world. Tesco now operates a chain of several supermarkets throughout the United Kingdom and around the world. This paper examines the Tesco brand by critiquing some important elements of the company. The first part would undertake an analysis of the external environment of Tesco. The second part would go on to identify the marketing mix used by Tesco to achieve its status as market leader. The final part of the paper would involve recommendations on how to improve Tescos brand and offering to the public. Part 1: Macro-environmental Analysis of Tesco The macro-environmental analysis of a company can be carried out if the researcher examines the external environment and this can be done through the use of strategic management tools like PESTEL (Johnson, Scholes and Whittington, 2009) and Industry analysis models like Porters Five Forces. PESTEL Analysis of Tesco PESTEL Analysis involves the examination of important elements and aspects of a given entity and this includes, the Political, Economic, Social, Technological and Law-Related Matters. Most of these ideas are not mutually exclusive. So they can only be discussed in an inter-connected manner. In relation to the TESCO brand, the following elements are relevant. Political & Legal Politically, the UKs legal system has come under serious control and regulation as a result of policies. The most common policy analysis and system that has affected the UKs political system include the new legal additions that the Labour Government of 1997 put in place and this has affected numerous aspects of business like environmentalist laws that relate to food hygiene, genetically modified foods and other rules like animal safety have caused Tesco to remain humane and compliant with various policies (Manning, 2011). Also, a significant political change that has occurred in the UK relates to the introduction of European Union Laws and directives (Patterson, 2012). The main intervening areas of these new laws and codes include the requirement to implement minimum targets of providing equal opportunities to Eastern European migrants from Member States. This has considerably changed the way employment is carried out in Tesco. Economic According to important commentators, the UK economy expanded by 1% in 2012 (Levy, 2013). Most of this account is attributed to the London Olympics which led to the improvement of the British Economy due to the injection of capital by tourists and other foreigners who came to London to watch the games. This marks an end of the economic downturn which marked the British economy between 2007 and 2011. Tesco is therefore opened to a more prosperous UK public. This allows Tesco to expand its markets and operations and enhances the ability of the company to make more money. This is because the disposable income of people in the UK is higher now and Tesco can make more money by changing the different arrangements and operations of the company and the brand. Social and Environmental The focus of UK consumers has shifted from quantity to quality (Avery, 2009). This means that the UK consumers are more focused on eating healthier foods and living longer than just spending on more food. The UK consumer base is therefore more conscious of the quality and content of the food that they eat and not just filling their plates. Also, the Office of National Statistics indicated in 2011 that 16.5% of people in the UK are above the age 65, this shows that the UK is more or less an ageing nation, thus, it is important for firms like Tesco to focus on providing important services to these older people. Also, Tesco has a bigger obligation to provide healthy foods and healthy services to consumers than they did in the past. Technological The UK has evolved from being a very conservative society to one that is influenced by technology and science. Technology means that there are more options in production and electronic systems are used for the ordering of products by companies and also for the checking out and taking payments at the counter of companies. Tesco is no exception and now they use various kinds of just in time systems to detect order levels and send them to producers. Also, Tesco uses electronic methods of scanning and recording payments that are made at the counter. Secondly, the UK is currently influenced significantly by the internet revolution. There is a major focus on e-commerce and e-business. This has made it propitious to companies to use technology to sell and conduct business. Tesco currently provides its services over the Internet and customers can buy things online. Industry Analysis The supermarket industry of the UK is made up of major companies which include ASDA, Sainsbury, Morrison and others. The data and information given by Euromonitor in 2010 shows that the following percentages represent the market share of companies in the supermarket industry: Company Percentage of Market Share Tesco 30.60% ASDA 16.60% Sainsbury 16.30% Morrisons 11.10% Others 25.40% Table 1: Market Share of Competitors in the UK Supermarket Industry Tesco is a market leader in the supermarket industry and it is followed closely by the other contenders and competitors. However, according to Porters Five forces, there are five main threats that determine trends in a given industry (Jefferson, 2009). 1. Threat of Substitutes: The main substitutes for the many brands that Tesco offers include imports from outside the UK and the many smaller entities that sell in community shops and corner shops throughout the UK. This is medium because it is not likely that any such companies can gain grounds to become a major threat to Tesco. 2. Threat of New Entrants: This refers to the entry of new companies that can take over from Tesco. This risk is very low because the capitalisation requirements are high. The only logical way that this threat can stand in the way of Tesco is the entry of international companies like Macys from the USA to compete at the same level with Tesco. 3. Bargaining Power of Buyers: This refers to the threat or the possibility of buyers to horizontally integrate to become dominant enough to compete with Tesco and the other supermarkets. This includes the possibility of some companies which purchase from Tesco to become entities that can exert the same level of Tesco on the markets. This is not very likely because Tesco has enough power and authority in the markets and can be a major contender. This threat is however very low for Tesco. 4. Bargaining Power of Suppliers: The ability of suppliers of raw materials and brands to Tesco to become major competitors could change the market for Tesco. However, Tesco sources its products from small suppliers and this is not likely to become a major risk for Tesco in the UK markets 5. Competitive Rivalry: This refers to a situation whereby the top four competitors in the industry identified in Table 1 above can outwit Tesco on the market. This is a major risk and could change the position of Tesco within a short time. Part 2: Analysis of Tesco and their use of the Marketing Mix Tesco is a household brand in the UK. They have a major presence and everyone in Britain has some kind of connection or linkage to Tesco and its many brands. Tesco offers a wide range of products and people seem to grow a natural connection with Tesco as they grow up in the UK. However, Tescos brand is popular because of the way it utilises the principles of marketing. Tesco has a unique and distinct marketing mix system which makes it a little different from all the other brands and supermarkets in the UK. This is examined below. Target Market of Tesco Tesco is a general service provider to the British public. Tesco targets people from all backgrounds with a universalistic point of view (Hairifer, 2012). This is because Tesco provides various classes of services and tries to get all consumers to be interested in attaining this end. The method of doing this is through the use of various categorisation and product brands. Thus, in an average Tesco shop one enters, you notice that there are different levels of products and services that are segmented to provide appropriate offerings for all consumer classes. They have cheap products like their own house brands and they have expensive and luxury products that are mainly imported from overseas and destinations that they are known for. Price Theory & Tesco Tesco supports the idea and concept of pricing segregation to provide various levels of services for consumers. As identified above, the segmentation of products is done on the basis of quality and on the basis of functions. Thus, one might find a Tesco branded wine in their shops which goes for an incredibly low price. This is mainly because the product was produced in-house and they have a control over the pricing. Tesco also has imported wines from fairly cheaper sources like South Africa and South America that they offer at a medium price. They also have the high quality aged wine from France and other upmarket destinations. This allows the price segregation to enable them provide services for different people based on their earning and spending preferences. The 7Ps and Tesco PLC The Sevel Ps of Marketing provide an appropriate model for the examination and critique of various marketing campaigns and marketing plans. This include the provision of information about the Place, Price, Physical Existence, People, Processes, Promotion and Product (Martinson, 2011). Product Tesco provides basic necessities and other family and household products and services. The products of Tesco include the ordinary kind of products that an individual might expect to find in a normal grocery shop. Tesco has began expanding to include other services like travel cards and financial services. Tesco also has selected outlets where heavier equipments are produced and sold. Tesco products are mainly sourced from third party producers although there are some products that they manufacture in-house. Tesco produces other specialised items and they are known and identified by the Tesco brand of the blue and red stripes with the Tesco inscription. Price The 2011 Annual Reports of Tesco announced that the core strength of Tesco is the ability to become a cost leader in the supermarket industry. Tesco offers very competitive prices and they have carefully segmented their products and services to allow consumers form all backgrounds to find options that fit their distinctive needs and requirements. Tesco maintains its competitive strenght by building on the theory of economies of scale and purchases through small scale suppliers scattered around the globe. Through this, Tesco keeps costs of production down and this way, they can flex and vary the prices of their goods to suit the various seasons through promotions, discounts and their loyalty card system. Promotion Tesco is involved in various campaigns which they use to promote their brands and services. Tesco advertises in the British media and they undertake various marketing campaigns through the Internet and other online entities and systems. Tesco distributes leaflets and brochures to various households to remind them of new offers and new arrangements. Tesco also promotes its products and services by giving out Tesco branded plastic bags which are popular around the world. Tesco also focuses on telling the world about their corporate social responsibility drives to draw on public sympathy. Place Tesco operates chain shops throughout the UK. They have a major presence and are so conspicuous in the UK. Tesco opened approximately 200 new stores in 200 and 2011. This provide Tesco with more opportunities to reach more and more people. Tesco shops show the signage of the company and the Tesco brand is known and displaced conspicuously throughout the places that they operate. Tesco malls and shops are designed according to standard and this allows Tesco to reach all and sundry through their shops. Process Tesco operates diverse outlets throughout the UK and allows people to acquire things from these spots. Tesco has various classes of shopping centres which allows consumers to get a convenient outlet for purchases. Tesco customers can shop with their trolleys and when they get to the counter, they can check out with either their cards or cash. Tesco has smaller shopping centres that are skewed towards local opportunities and local expectations. Tesco has a major online sales outlet which allows consumers to shop online and pay with any of the major credit cards. People According to the 2011 Annual Reports, Tesco has over 492,00 employees and they serve millions of customers in the UK and beyond. The report indicated that a vast majority of the employees are motivated through high salaries and other fringe benefits which allows the employees to serve the customers in a satisfied way and manner. Tesco PLC continues to motivate and support their employees in their various betterment and individual improvement guides. Employees are dressed in blue to enable them to provide quick services for consumers Physical Existence. The blue and red Tesco signage is very popular in the UK. It is exposed clearly in points where consumers can identify and create some kind of affinity or brand equity with. Tesco brands are also displayed in the shops and shop layout allows clear visibility of the Tesco brand and Tesco services and offerings are made conspicuous to consumers. Part 3 Recommendation of the Increase of Tescos Marketing Position There are different views and opinions that can be carried out to improve the market position of Tesco as a brand. The following core ideas and concepts are recommended for further improvement of the market position of Tesco. 1. Further diversification of Tescos portfolio. 2. Continuous review of the marketing strategy in a proactive manner. 3. Improvement of communication 4. Regular internal audit of marketing services and positions 5. Risk management of marketing matters and factors 6. Improvement of customer relations. Tescos strengths include the fact that they have a large customer base and they have strong managers and skilled employees. Tesco also has a strong asset and resource base and they cover the whole UK with their large geographical reach. On the other hand, Tesco has some risks which include the nationalisation of their products which causes them to lose sight of local conditions and offers. Tesco also has an uneven terrain to operate in because the wealth spread in the UK varies and there are different positions and income levels in the different towns and cities in the UK. Specific Recommendations. 1. Diversification to Improve Market Control: In order to become more powerful and more competent on the UK market, Tesco would have to diversify their portfolio. This is because there are many different customers throughout the UK and if they continue to increase their quest for diversification, they can provide more offering and penetrate deeper into the markets. Tesco can also become more sensitive to local conditions and offerings and improve their offerings to attract more local expectations. 2. Proactive Review of Market Strategy: The markets always change. It is dynamic and nothing remains as it is. As identified in Part 1, the supermarket and grocery market is very dynamic and there are many factors in place. Tesco needs to get a very proactive philosophy to examine the trends and changes that occur in the demand of consumers and adjust to meet all those changes. Also, Tesco can identify the moves of their competitors in a timely manner and adjust to meet them in a much more timely manner. 3. Improvement of Communication: Tesco needs to improve the communication within the company. This must enable them to get information from the external environment and process it quickly to allow their internal system and structures to change quickly enough to take opportunities and act on market intelligence. This would allow the company to use an emergent strategy to adjust to meet the demands of consumers better. 4. Regular Internal Audit and Risk Management: In order to remain competitive and responsive to changes, the board of directors of Tesco need to set up internal auditing systems and structures and ensure that they continuously monitor the changes in the economy and ensure that all the instructions and targets of people working for Tesco are compliant with the top level managements vision at all points in time. This will allow Tesco to supervise and remain proactive in the examination of risks and make changes to respond appropriately to the vision and views of management. 5. Improvement of Customer Relations and Customer Support: There should be a critical approach in the improvement of customer relations and customer support. This will enable the company to maintain a high level of customer satisfaction and allow customers to improve their loyalty. Customer relations systems should be connected to the overall strategy setting body of the company and this will enable them to learn about what customers want and improve according to emergent strategic principles. 6. Forward Integration: Tesco can expand by expanding and acquiring other entities that are in the industry. This would allow Tesco to remain more dominant and this will enable Tesco to maintain a strong control over the market. Forward Integration will allow Tesco to acquire different entities in the UK and the market in order to increase their dominace. 7. Market Penetration: Tesco can expand and go into new markets in the UK. This can be done through the identification of different product offerings that they can master and begin to enter the new niches. This would reduce the risk of relying on one product and service and remaining focused on a small niche. 8. Market Development: Some products that are not in good demand should be redeveloped and new markets can be found. This could include rebranding and improving the different offerings of the various products that they have. Tesco can improve their markets and increase the services that a given product offers to reflect new trends and changes in society. Conclusions Tesco is a major supermarket company in the UK. Tesco produces the best quality products and uses the principles of market leadership and cost leadership to remain at the top of the UKs supermarket industry. Tesco is one of the biggest entities and it is affected by political changes in the UK like new laws on health and safety. Tesco is also heavily influenced by EU laws. Tescos position is boosted by the growth in the UK economy. There is also the need to change to meet the social tendency of British customers for better products and also accommodate the changes in British demography and technological advancement. The paper recommends that Tesco should use the principles of diversification to expand into different markets and products and this should lead to market penetration and market development. Tesco must also institute an emergent strategy that would allow them to link up with their consumers and strive to improve customer satisfaction. References Avery, J. (2009) Social Trends in British Consumption Sussex: Edward Elgar Publishing. Brand Direct (2013) Best Global Brands – UK Top 50, 2012 [Online] Available at: http://brandirectory.com/league_tables/table/uk-top-50-2012/ Accessed: February 18, 2012. Euromonitor (2010), ‘Industry Profile – Food retailing’, Euromonitor International, 2010 Haerifar, P (2012) Knowledge Management in Tesco Berlin: GRIN Verlag Humby, C., (2008) Tesco Loyalty Program System London: SAGE Publications. Jefferson, D. (2009) Strategic Management London: FT Press. Johnson Gerry, Scholes Kevan & Whittington Richard (2005). Exploring Corporate Strategy. London: Financial Times Prentice Hall. Levy, E. (2013) Economy of the UK after the Olympics International Journal of Business and Macroeconomics Cape Town: UCT Press. Manning, C. (2011) UK Legal and Policy Changes 1997 to Present London: SAGE Publications. Martinson, F. (2011) Fundamentals of Marketing London: Hodder Education. Office of National Statistics (2012) UK Population London: The Stationery Office. Patterson, J. S. (2012) European Union Law and Policy London: Polity Press. Tesco Annual Reports (2011) Annual Report & Financial Statements 2011 London: Tesco PLC Tesco PLC (2012) Our History Available online at: http://www.tescoplc.com/about-tesco/our-history/ Accessed: 21st February, 2012 Read More