Brand Development Strategies of Wal-Mart and Tesco

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Executive Summary

The retail industry has increased its market presence in recent years. The US-based Wal-Mart is the leading retailer in the world that deals with all sorts of retail products including apparel, food and beverage products and many more. In their attempt to stump their international market presence, the two top retail chains adopted expansion strategies and invested heavily in the market share to build their respective brands. However, Wal-Mart has proved more successful in its strategies. With a strong effective operational strategy, Wal-Mart has managed to penetrate both the local US market and International market with ease. In this aspect, the company developed a strong infrastructural market before venturing into the international market. Tesco on the other hand did not strengthen its local UK market, hence entering the international market before strengthening its local market perception. It is also observed that the company’s image is what builds its perception. Wal-Mart used this strategy so well at the beginning of its operations that in a long run it did not have to use a lot of public relations later. Its brand was built on a low-price strategy, a perception that has been instilled in the minds of its customers to date. For Tesco to make an impact, it needs to strengthen its public relations and brand-building strategies. Tesco also needs to improve on its human capital development.

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Introduction

A clear observation of the existing companies will easily show that some specific brands are more superior to others, either globally or regionally. According to Corstjens & Lal (2000), brand image is all about perception, and not reality as one may think. This, therefore, means that brands only exist in the minds of the customers, and that management of brands is basically management of perception (Corstjens & Lal, 2000, p.282). Some scholars have argued that the failure of some specific brands is associated with their inability to distinguish between operational effectiveness and strategy, thus creating an array of confusion in the execution of brand management (Porter & Lunde, 2002). In a nutshell, there are specific theories that have been applied to explain or guide brand management or brand superiority. These theories allude to the fact that without good strategic plans, it is quite difficult for any industry to weather the market challenges, no matter how big it is in terms of market shares and capital.

It is noticeable how the retail industry has increased its market presence in recent years. The industry has seen its growth in the global market share represented by the increased number of outlets and surge in new entrants. The US-based Wal-Mart is the leading retailer in the world that deals with all sorts of retail products including apparel, food and beverage products, and many more. In fact, Wal-Mart is not only considered the largest retailer in the world but also fits the bill of the largest company in the world ever (Elliot & Percy, 2007). Another global retailer is Tesco, a UK-based retail chain with a presence all over the world. To foster the strength of the Tesco brand, the retail company adopted the internationalization of their products, through the expansion of products range and outlets (Osborne, 1999). However, with Wal-Mart’s approximate net revenue of over US$400 billion compared to Tesco’s US$60 billion, it is evident that the former is the stronger brand. What makes Wal-Mart a powerful brand than Tesco? Some specific theories have been devised to explain the phenomenon. This paper critically analyzes the theories behind Wal-Mart’s successful brand-building strategies in relation to its global competitor, Tesco (Burt & Sparks, 2008). After the evaluation of the two brands, specific recommendations are made at the end to help Tesco rise to the status of Wal-Mart.

Channel strategies and tactics

Building a strong brand would mean making strategic decisions that are meant to ensure sustained growth in a market full of competitors (Clarke & Rimmer, 1997). According to Porter & Lunde (2002), business decisions would be considered strategic if some aspects of innovations are involved in the management of business units. Varley (2005) observe that some aspects of innovations were seen in the retail industry when retailers adopted the discounting approaches to sales to their customers in the 1940s. Although almost all the retail shops adopted the discounting method, just a few survived the wave of competition from new market entrants that followed later (Vida, 2000; Varley, 2005).

It is observed that a combined and effective operational strategy lies in the superiority of performance, which is considered a basic aim of any organization that is interested in success. Wrigley (2002) says that a firm can only do better than its competitors if it manages to operate differently as compared to its competitors. A lot of emphasis has been put on some positioning strategies based on needs and access. Wal-Mart adopted a strategy where shoppers were offered the cheapest prices in their stores, to wage off competitors and selling in volumes (Fernie & Arnold, 2002). After realizing that this strategy could be adopted easily by other competitors, Wal-Mart shifted its attention to the acquisition of some small retail shops to increase its strategy to expand to a wider global market (Fernie & Arnold, 2002).

Brand extensions

Analysis of Wal-Mart’s strength revealed that it has a unique reputation in terms of product value, how employees commit themselves to the company, money value, provisions of a variety of products to its customers (Dragun & Howard, 2003). With the brand identity of cheap price, the company is expanding this identity at an alarming rate, through its international forays in merging and acquiring small unit stores and expanding them to the local context (Currah & Wrigley, 2003). This effort is emphasized due to the increased threat from other international competitors like Tesco.

To establish itself at the top, Wal-Mart adopted the brand extension theory by encouraging its managers to work hard to compete effectively in the international market. To successfully extend Wal-Mart’s brand of low cost, the retail store encouraged its store managers to maintain its vision of “zero waste status and strive to reach one hundred percent sustainable business process” (Burt & Sparks, 2008, pp.1463). Despite knowing the fact that imitation can boost profit margin and supply, the company has avoided the approach as it tends to throw the reputation of the company through the window and spoil the customer relationship (Carson, et al., 2001). According to Chang (1995), Tesco’s entry into the international market was full of imitation, trying to adopt what other firms had adopted earlier. He states that such tactics definitely generate a mixed response from their loyal consumers, and eventually degrading the reputation of the leading company (Chang, 1995, p.384). It can therefore be compared with substituting the brand identity of the company, which subsequently increases the shift from what the firm is known for.

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Globalization strategies

While Wal-Mart has been very successful in its acquisition strategy to go global, Tesco did not manage to establish the strategy as a cutting age in its attempt to establish the competitive advantage. Through the acquisition, Wal-Mart managed to acquire and operate well over 4000 retail facilities in the global market (Burt & Sparks, 2008). Tesco’s first attempt to go into the global market through France and Ireland was not successful as expected. They acquired 51% of Albert Gubay’s in Ireland was considered immature as the company was considered insufficient in terms of infrastructural capacity and its relative weakness in the local market (Riera, 2000). In fact, some observers argued that Tesco’s early forays into the international market did not go hand in hand with their local market expansion goal, hence jeopardizing their chance of dominating the domestic market (Riera, 2000).

Wal-Mart on the other hand employed a unique expansion strategy that basically proved very effective in shoving off competitors. The company built its brand name through the strengthening of its domestic market in the United States, before venturing into the international market, creating widespread name recognition as well as customer satisfaction (Arnold, 2002). According to analysts, Wal-Mart dwells mainly on 3 main generic strategies “to build its brand that is comprised of Focus Strategy, the Differentiation Strategy and overall cost leadership” (Arnold, 2002, p.564). In this perspective, managers of Wal-Mart applied a strategy to make the organization unique, distinct, and drive consumers to flock to their stores to purchase their products (Clarke & Rimmer, 2007). It is therefore important to acknowledge that the firm’s success was based on its specific resources.

Brand Personality

The key brand personality that drives Wal-Mart’s success is built on three theoretical building blocks with three supporting themes: personality, expression of self, and congruence between brand personality and consumer self (Dawson, 2001). The personality constructs are derived from the cognitive theory of social psychology explaining human personality (Dawson, 2001). Consumers’ attempts to constructs their identity with a brand are widely studied in the field of consumer behavior, and also borrows from the field of psychology as concerns the construction of identity. Brand-self congruence is adopted from social psychology and is based on the social identification process that consumers engage in with the brands they consume (Evans, Lane & O’Grady, 2002). These three supporting themes can be used to support Wal-Mart’s brand expansion and building, which eventually established the theory of brand personality.

One important side of brand personality is based on the construct of what consumers actually feel about the brand. One would consider what brand is more appealing, hence motivates the consumption, which comes with the symbolic benefit of its use (Evans, Lane & O’Grady, 2002). Some studies have strived to focus on the categorization of human personalities from the psychological of brand perception. Dawson (2001) made an extensive investigation with the aim of identifying which personality traits people associate with a wide range of brands. He concluded that it is possible to transfer the idea of personality dimensions from “human personality psychology to brands and brand management” (Dawson, 2001, p.254). In this way, consumers view brand personality as one that can be unlocked by exploring what they (consumers) associate with the brand. From the company’s perspective, the brand personality can be uncovered by analyzing the product-related attributes such as brand name, logo, communication style, price, distribution, etc (Dawson, 2001, p.255). Both the perspective of a consumer and a company add up to the brand personality. Other than more product-specific attributes associated with brand personality, it is also reflected on the traits attributed to the brand and in the associations, symbolic values as well as emotional responses that the brand receives (Quinn & Alexander, 2002). Sparks (1996) found out that for a brand personality to be successful, it must show a lot of consistency and durability. This could explain why the consistency and durability of the Wal-Mart brand continue to lure consumers because they feel personally associated with the brand personality.

The idea of brand personality is also strengthened by the fact that Wal-Mart is a producer in itself. Through extensive use of technology, the company collects and tracks a lot of information about their products’ demand than Tesco does. This is done by the use of bar codes as well as inventories of a network of computers. Once they get information about the product size that is popular with the customer at what time of the year or month, they proceed to define the production in this factual information.

Brand Building and Perception

As stated earlier, the perception of the brand is very important once instilled into the minds of the consumers, with persistence and consistency. One of the weaknesses that have been in Tesco’s operations is its inability to dominate the city center marketplace, despite its prominent stores in this region (O’Grady & Lane, 2006). This has caused a perception that it has no universal presence, despite investing heavily in its global expansion strategies. According to O’Grady & Lane (2006), this kind of perception lowers the brand identity of the supermarket chain.

On the contrary, Wal-Mart has created a perception that its products are of “Always Low Price”, defining its business model and as well as fostering its slogan (Mellahi, Jackson & Sparks, 2002, p.15). The low price perception coupled with its concentration at the city center helps in the distribution of powerful brand image all over the world. Alexander (2007) observes that this normally establishes buying power of the company, hence establishing an edge over its competitors. He claims that competitors will not be able to compete but simply try to co-exist by accepting the business situations as created by Wal-Mart (Alexander, 2007). A study conducted by Hallsworth (2002) found out that in reality, Wal-Mart does not offer the lowest prices as claimed in their slogan, but has successfully driven this perception home until the consumers have accepted and believed in it. In fact, this study revealed that only 15% of the retail products offered by Wal-Mart are priced lower than competitors, the rest (85%) are more expensive than other retailers’ sales prices (Hallsworth, 2002, p.25).

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Product strategies and tactics

Wal-Mart’s rapid expansion and varied products are one of its strategic approaches to the management of the business. It is estimated that the supermarket chain has employed approximately 1.3 associates or shareholders (Burt & Sparks, 2008). It also engages customers in its product orientation through SAM’S Club (Burt & Sparks, 2008). In this approach, its customers are in a position to purchase at a much lower price and in bulk. Another approach to brand building is its widely and closely distributed supercenters with one-stop shopping destinations for consumers, who would not want to move from one place to another for different products (Burt & Sparks, 2008).

While Tesco concentrates on large and highly costly stores to establish its presence in the market, Wal-Mart adopted a different strategy where it involved its team of experts in establishing small stores in small towns, where the rental costs are low. In this aspect, Wal-Mart intended to set the cost of operations as low as possible in order to offer its products at local prices, merchandised with a brand name as seen in the local peoples’ perceptions (Arnold, 2002). In respect to this, the merchandising strategy is merged with the brand slogan of low prices, tailored in the local perspective (Arnold, 2002). With little advertising costs, the lowly fixed prices depend on the decision of the store management, who observes the nature of the market to ensure the fixed price is in tandem with the local market nature and competitors (Arnold, 2002). These factors determine Wal-Mart’s increased margins of profits through massive sales, which consequently raises the customers’ confidence in building a strong brand name.

Another key area that has boosted Wal-Mart’s logistical prowess in the retail market is its flexibility in the selection of suppliers. The retail store uses its large economy of scale and dominance to negotiate with suppliers, who are aware that Wal-Mart will only settle for the most competitive prices when choosing who to do business with. To further boost their business, Wal-Mart purchases in bulk hence making transportation of these products easier as there are no additional units to complicate the logistical aspects. This approach is alien to Tesco, which relies on small suppliers to fill their shelves.

To boost its continual low-cost strategy, Wal-Mart has moved to strengthen its private label. It’s advantageous to them since their customers are able to find consistent quality at the right time and place. With its own label, the company is targeting maximum profitability as a result of large traffic and low advertisement cost.

Recommendations Tesco

Research findings have indicated that international markets need proper communication between investors, consumers and retailers. In a particular study, it was revealed that Tesco had suffered improper relationships within the above-highlighted groups of people due to ineffectual and inconsistent communication within the market in the environment (Riera, 2000). Once bad rumors had occurred, the company did not take any serious initiative to address them effectively (Riera, 2000). It is therefore important for the company to initiate a way of addressing any issue that may interfere with its brand identity. This is to ensure that its brand credibility is built without interference. As has been observed, brand identity can be affected by any form of changes in assortments, how the store is laid out, and the pricing strategies. Varley (2005) observes that if any of the change occurs, the customers may find it relatively difficult to “achieve post-integration synergies, and even weaken comparable performance” (p.156).

Studies have indicated that for a retail chain to get access to the international market there is a need for it to strengthen its domestic market base first (Vida, 2000). If the company does not have a good reputation at the local level, it is virtually not possible for the good reputation to be established in the international market (Vida, 2000). As applied by Wal-Mart, Tesco needs to strengthen its domestic market, especially its network in Europe before venturing much into the international market.

Experience in human capital is needed for any form of success in the retail business, especially at the international level (Palmer & Quinn, 2003). Unluckily, studies have revealed that Tesco’s management greatly underestimated the management of human capital that was needed for global expansion (Osborne, 1999). Unlike Wal-Mart which has put a lot of emphasis on the human capital and welfare of its employees, Tesco has not emphasized this aspect as the company does not venture much on the issue. In their desire to make their presence felt in the global market, especially Europe, Tesco did attempt to expand their human resource base, even though this tended to deplete the management resource (Osborne, 1999). It, therefore, followed that the company had limited investments in their human resource. So how can a retailer like Tesco acquire experienced international human resources with little cost? Palmer & Quinn (2003) state that one way of acquiring good experienced human capital is through the support from a collaborative approach to human capital sharing. With this approach, the company would be in a position to deepen its knowledge transfer process.

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Tesco should also develop a bulk-buying approach to ease the logistical nightmares that the company has faced in the recent past. to be able to handle the logistical transition with their potential suppliers, it is important Tesco adopted bulk-purchase to give their suppliers confidence and desire to compete for partnership with them. This would allow them to dictate the terms of a business partnership, hence lower prices to their customers.

Reference

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