Marketing strategy of TESCO

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Business overview

Tesco is an international retailing outlet that was originally founded in 1924 but its first store was opened in 1929 in Middlesex, Edgware, and Burnt Oak in the United Kingdom, and the brand name was used for tea packets in the 1920s. It originally dealt with food and drinks but has currently diversified into software and internet services such as music downloads, clothing, health insurance, financial services and electronics, and other services and products. Last year it became the fourth largest in the whole world. The company expanded further in the 1960s as grocery, and selling of households and clothing took place (Utama, 2007). It has been termed as the largest supermarket in the United Kingdom. Today, in addition to offering service of ordering through the website, the company has occupied markets in countries like the United States, China, Poland, South Korea, and Thailand (Phillips, 2007)

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Market research and Place

Market research can be used to determine the behavior of the customers at the market, in addition to determining the available opportunities and barriers and how the company should respond. Market research is an expensive venture in international market analysis, but it carries the advantage of helping a company respond appropriately to various issues, opportunities, and challenges. A company can benefit from carrying out market research before venturing into a new market, before rolling out new outlets where none existed, and when it wants to improve the current performance trends in the market. Tesco will require carrying out market research to help seize opportunities in the best way in places where there are no outlets, and to improve the current practice especially as a result of competition. Market research can aid the company to design a marketing mix that is more effective in meeting peoples’ needs and overcoming the present challenges.

The range of products offered by the company is dependent on customer profiling and segmentation and no longer the size of the store outlet as used historically. Since customers at different regions would have different wants and tastes, flexible ranging does no longer depends on the size of the stores owned by the retailer. Tesco’s smallest stores (classes as category A) would have the core range offer before, but after changing the system of offering to flexible ranging, the core range would remain but the product range would be offered based on the customer specification and geographical requirements. Different types of own-label products by Tesco were supplied according to the types of customer segmentation. Products were labeled as Value, Standard, and Finest. A strong value label would for example be availed to the stores found to have a large number of “Shoppers on a Budget” which was one of the customer segmentation identified while an offer of products skewed towards ‘Finest’ would be availed where up-market customer base was identified. However, Asda, and identified as a greater customer choice than Tesco, offered product range variations based on the actual store size although all stores were generally offering the same range. A location such as urban/rural or higher/lower income was not generally used as a determinant to vary the range of products but customer specification and geographical requirements. An analysis carried out by the Competition Commission (2000) Tesco indicated that’; The behavior and response of customers towards the existing products and services can help the company design new and better ones or improve the current ones. Customers who could be classified as “frequent high spenders” in the local Tesco market were found by the company to represent 48% of all their sales, while the “frequent medium” class of spenders accounted for 28% of all sales. “Low spenders” who formed the remaining 24%, spent less than a third of their total grocery spend at Tesco as compared to the aforementioned two classes which spent just over a half. By this, the company held that not all customers carried out shopping at ‘one-stop’ fashion outlets. It has already been found that it would be hard to classify as ‘one-stop’ shoppers or otherwise, the customer behavior changed over time and that there is wide variation between the shopping patterns displayed by the customer. Thus the company is adding more outlets needs to take two options; design a line of stores, or build bigger stores: all of which would render more and existing customers able to shop as one-stop shoppers.

Although lifestyle patterns may be useful in revealing the customers’ preferences and requirements when studied, the company found that change in lifestyles was experienced by changing in their customers’ classification over time i.e. customers shifted in the classification from one class to another since the beginning of the classification and that one out of three customers changed lifestyles every quarter. In an analysis carried out by Tesco to determine each retailer’s proportion of spend classified in the form of ‘one-stop’ shopping, it was found that despite the limited range and small size of the local store’s customers liked to carry out one-stop shopping. This was indicated by the relatively high figure of share of the discounter spend for the one-stop classification. It was found that on the classification. The company classified customers according to three criteria (60%, 70%, and 80%) using the significant percentages of the customers’ total cost on grocery shopping and found that only 30-42% of all the spend in the 60% and 80% criterion did not follow a ‘one-stop’ shopping system. Although the lifestyle classes were found to be unstable over time, the company can continue offering and introducing different lines of products that cater for different shoppers’ lifestyles in all the existing and new upcoming stores.

The issue of pricing is also important in marketing and the customer response to the pricing trend needs analysis. The analysis indicates that Tesco held that customers who are described above as not exhibiting the behavior of one-stop shoppers were marginal and they would shift if prices were changed by a “hypothetical monopolist” (in this case supposing the dominant five players were termed hypothetical monopolists) (Competition Commission, 2000).

Another important aspect of the trade for Tesco is the relationship with suppliers. It was indicated that they traded with small and large retailers and they represented 20-30% of the large suppliers’ sales. The relationship with large suppliers with combined co-operatives was rated to be 35% acceptable, 50% good, and 11% excellent, in a survey conducted by the Competition Commission amongst suppliers. The relationship should be fostered further through collaborations to achieve benefits associated with collaborating. This can also be achieved by enhancing their negotiating strength whose only 27% of the main and 15% of the smaller suppliers are termed as adequate in the above study. Such practices as changing agreed requirements without the consent of the supplier, threatening to de-list supplies without any reasonable cause, and imposing listing charges which were noted to have been experienced by 30-35% of the suppliers in the aforementioned study should be avoided to cement relations between the suppliers and the retailer. Tesco specifically was found to have engaged in several practices of examples given above which suppliers were not comfortable about, although it claimed it had a policy and a standard practice to deal with such incidences.

The current potential of e-commerce lays in the e-commerce arena which helps the company not only in reducing inconveniences associated with mechanical ordering but also save on costs, time and efficiency. The company already has an online website that can facilitate more commerce across the globe. The potential of e-commerce to achieve the goals of Tesco was demonstrated by capturing an average of 30,000 online orders per day for an approximated 2.5 million GBP sales per day in 2006. This represented 66% of the total online grocery orders. This was according to research carried out by comScore Network through an analysis of more than 2 million consumers, worldwide (comScore, 2006).

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Although Tesco stores dominated the high streets, they were spread from these areas but now cover most areas in the first form of dominating the high streets. Today, different types include Tesco Express, Metro Tesco, and Tesco Extra (TVC/Burg-Verlag, 2005). The company has also a website ordering service to target customers online. Tesco has expanded to international markets like China and Poland, the United States, Thailand, South Korea. The strategies for Tesco’s marketing which would help it enter further markets and prosper are; seeking market leadership as a goal rather than buying the “market share with traditional sales-driving techniques” (Phillips, 2007), offering deep discounts that attract customers, recruitment of locals into its system, carrying out in-depth and broader research into the customer behavior than any other player, and its adaptability criteria based on what it finds in the place (Phillips, 2007).

Competitor’s analysis

Competition in the marketplace is important to analyze to apply the necessary measures aimed at counteracting the effects. From 1997/98 to mid-1998/99 Tesco realized sales for 131 reference products below cost and this was blamed on competitive conditions (Competition Commission, 2000). In the year 2006, Tesco’s U.K supermarket sales rose to 30.6% according to a market research firm TNS, and the share of the market increased from the previous year’s 29% (BBC, 2006). Tesco topped Asda with a difference of 13.4%, Sainsbury scored 16.3%, and Morrison 11.1% according to the research firm. The three top competitors in the market according to comScore.com were Tesco capturing 66% of the online orders, followed by Asda with Asda.com (16%) and Sainsbury with Sainsburystoyou.com (14%) although those ordering from the third-placed store spent the most with an average of almost 90 GBP as compared to 80 GBP for the top two. Tesco picked the least amount of item units ordered (58) compared to 69 units picked by the other two suppliers. One way of improving the market on the website is to lower charges paid for delivery by customers. By this time round (2006), Tesco incurred an average of over 4GBP per delivery and beat only Asda (about 5.5 GBP on average per delivery) in the delivery costs charges but Sainsbury beat them all (just over 3 GBP at the average per delivery). The company had the most bought items in volume from their website-11 million bananas and the greatest sales of 2 million GBP of 12-packs of Soft Toilet Tissue.

The major parties to the local retail market were identified to consist of five major parties; Tesco, Safeway, Morison, Asda, and Sainsbury. An analysis carried out by the Competition Commission showed that Tesco faced more than one local effective competitor, and their analysis earlier had shown that at least three reference retailers were available to 92% of UK households within a drive of 15 minutes. This was based on around 200 households and utilized an isochrones analysis. The issue of competition is further complicated by the fact that the starting points for customer’s choice of the store may be many; school, home, workplace among others. Further evidence can be found from the Competition Commission (2000) that according to Adar, a competitor to Tesco, retailers would be in practice be a better or worse choice of the customer if using a different strategy because pricing and offer strategies are on a wide range and change over time. This makes it less practical to choose a customer based on strategy. Tesco enjoys home delivery services being restrained around certain stores. The delivery service for Iceland, another competitor, is wide in coverage and they have national coverage. Hence they offer considerable competition to Tesco. This means that to remain competitive on a wider market, it would be necessary to ensure that they have their services available nationwide. This is backed by the report that the share of home delivery is still low, thus has a potential for exploitation.

Another important factor to consider is the market share for small stores which are not equal to the size of Tesco in the local market. It was found in an analysis by the Competition Commission (2000) that the significance for these stores could be hidden in the fact that the market share of the stores larger than their threshold had a low market share. The number of local monopolies and duopolies were found to exist in the South East where Sainsbury and Tesco operated and therefore customers usually had alternatives in these regions. Because customers tended to have a preference for bigger stores with one-stop-shop or stores where it would be possible to drive from a small store to a bigger store, the store can try to reach out to new customers by providing this in areas that they are lesser presence (Competition Commission, 2000). Many lines where the customers would drive from a small to a big store to shop by using a vehicle due to the weight and bulk in question would also be an alternative for a one-stop-shop. The main competitor for Tesco in the North Ireland and the local market was indicated to be M&S. There is potential evidence that the outlet may be restricted entry to other markets by selling at below-cost, use of loyalty schemes, government regulations, providing services other than groceries, land/property use barrier (rarely letting out stores) and the use of value lines aimed at the discounters.

Product

Today, Tesco is not a market only for groceries. The stores offer other products as well on the same shop allowing customers with the preference of making a ‘one-stop’ shopping to be able to enjoy the service. The product includes mortgages, electronic goods, grocery, insurance services, and financial services (TVC/Burg-Verlag, 2005). Tesco offers a wide range of products under one roof and now has shifted from the system of using the size of the store to determine the range of products available in the stores and shifting to a system of offering a range of products determined by the customer preference and specifications. A wide range of products means that customers with different interests and preferences are taken care of. Its mix of the grocery offers of fresh fruits and vegetables with a reasonable shelf life was termed as appearing as the best performing by Ivins, the Managing Director of conScore that researched in 2006 indicating that Tesco had scoped 66% of all online grocery orders (comScore, 2006).

Pricing

The pricing policy depicts the method of fixing and changing prices for the products by the company. Price modulation is important to achieve competition about what the other retailers or competitors are offering. A company can have a policy-driven on achieving the competitive price other than one based on a set target or individual product lines. An analysis carried out (Competition Commission, 2000) showed that the competitors followed pricing linked to competition the same way Tesco did or had reacted to competitors’ analysis or estimation in their pricing. These competitors included Sainsbury, Safeway, Netto, and Somerfield (Competition Commission, 2000).

The company used the basket as a framework of assigning a price to every product line, and efforts to achieve the national basket which was cheaper to remove the gap between its price and that of Asda, and beat Sainsbury and Safeway were put in place as reported (Competition Commission, 2000). The company’s pricing policy sought to achieve cheaper prices and focus on the competition other than relying on individual product lines and percentages targets for cheaper offers over a given period. Basket price had been principally reduced by the price reduction carried out between 1996 and 1999. A lower price on a limited product range was charged in local stores which formed around a third of its stores (Competition Commission, 2000). The corporate pricing policies and financial targets for individual buying sub-groups guided the buying managers to set the pricing. There is a necessity to retain the system whereby the national and local baskets were checked against the major competitors and this idea was exploited for local and international new markets.

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Promotion

Promotion in a company is made to make aware of the products either existing or new, to the customers either new or old. It is an important offer to the customer to stay in the market, gain acceptance of the products on offer, counter competitors, and help the firm remain competitive. Through innovative means of promotion, the company can engage more customers in its businesses. The company gave out vouchers worth over 1 billion through the most important promotional tool the company had as reported in 2002-the Clubcard (TVC/Burg-Verlag, 2005). Clubcard program aims to bring customer loyalty by rewarding the customer who buys products, which can also boost longtime loyalty. The customer paid $300 million in incentives for “opportunity customers” in 2003 and boosted the allocation for paying royalty in 2004 (Phillips, 2007). Other promotions included ‘computer in schools’. The company needs to participate in a large number of promotions especially in areas where it is not known and the competitors are taking advantage of the market. The efficiency of the promotion process and its preparations, cost, analyzability of all systems, collaboration amongst participants, are important to the success of the promotion. In addition, the use of technology today facilitates sharing of data among corporations even over long distances around the globe. These can be improved by sharing data between the company and the suppliers. It has been reported that over one hundred of Tesco’s suppliers could through an enhanced Promotion Management develop and manage promotions in collaboration with each other (PR Newswire, 2009). The enhancement of the company’s extranet Tesco Trading Information Exchange (TIE) would enable the company to standardize and increase the efficiency of the process by the company and about 400 suppliers in addition to saving money and time in preparation and negotiation of promotion. International markets can be exploited by the use of current systems such as the company’s extranet the TIE which is already enhanced. The company ran around 15000 promotions between 1998 to 1999 July for example and realized a sales value uplift of 122% without taking into consideration the effects of switching from other production lines. The company must also engage in innovative means of promotion to be different from others who are trying out the same technique of promotion. Young unexploited means of promotion need be sought. For example, in July last year, the company launched an in-store winning promotion after teaming up with Dirty Dancing for promoting watermelons fruits. The customers would be directed by the stickers appearing on the fruit to a Dirty Dancing microsite and the winner for a trip for six will go to Chicago to see the musical in Chicago (Buchanan, 2008). Such innovative means can boost the company by attracting people in new strategies than usual means like reduction of prices and gifts.

References

BBC. Tesco’s market share still rising. (2006). Web.

Buchanan Julia. Tesco in Dirty Dancing watermelon promotion. Promotions & Incentives. (2008). Web.

comScore. Press Release: Tesco Captures Four Times More Online Orders Than Closest Competitor During First Seven Months Of 2006. (2006). Web.

Competition Commission. Supermarkets: A report on the supply of groceries from multiple stores in the United Kingdom. (2000). Web.

Laura Lake. Developing Your Marketing Mix. (2009). Web.

Phillips Tim. Approaching the U.S. Market, Global Retail Giant Tesco Will Continue to Build Loyalty through Research. (2007). Web.

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PR Newswire Europe Ltd. Tesco shapes up new promotions possibilities with collaborative extranet. (2009). Web.

Tesco. The History. Web.

TVC/Burg-Verlag. Video Synopsis: The Marketing Mix at Tesco. (2005). Web.

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