Introduction
Tesco is a multinational company dealing with grocery and general retail merchandise. Its headquarters are at Cheshunt, United Kingdom. According to information posted on its website, it is the third largest retail merchandise in the world after Wal-Mart and Carrefour. Its main market is in the United Kingdom but it has grocery stores in more than 13 countries across the globe (“Tesco: Mission, Vision and Values” par 1).
Porter’s Competitive Forces
Tesco’s strategy can be analyzed using Porter’s competitive forces namely threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among existing competitors.
Threat of new entrants
In all major industries, there are competitors who exercise dominance. These competitors are known as the ‘incumbents’. Market analysts have however argued that the domination by the incumbents does not guarantee them a permanent stay in an industry since new entrants may express interest in the same industry. Before they enter an industry, new entrants usually invest a lot in developing entry strategies and coming up with unique approaches to gain a portion of the market and build trust with the customers. In many cases, new entrants use the strategy of improving the quality of their products or services to attract customers. This strategy is preferred by new entrants because it is not only sustainable but it also enables them to brand themselves (Norman, Thisse and Philips 67).
New entrants increase competition in an industry. As a result, some incumbents are forced to quit a particular industry, especially if the new entrants have a strong capital base. Other incumbents react by erecting barriers to entry in the industry. For instance, they may design very sophisticated and expensive technologies which are not easily available.
Tesco deals with the threat of new entrants through differentiation of its goods and services. In many industries, new entrants are discouraged through diversification and product differentiation. Just like Wal-Mart and Carrefour, Tesco has embraced diversification and product differentiation and as a result, the three have managed to keep new entrants at bay.
Bargaining power of suppliers
In some industries, there are monopolies in terms of supply of goods and services. In such industries, the powerful suppliers are able to manipulate the prices of the goods and services. Suppliers are regarded as powerful if, for instance, they do not depend on one industry for their revenues. Suppliers are also considered as powerful if they supply goods and services which are unique. Many powerful suppliers also have a huge capital base, which enables them to supply many varieties of products and services in different regions irrespective of distance, competition, and government regulations.
In order to deal with the challenge of bargaining power of suppliers, Tesco has put in place a large capital base which enables it to manufacture some goods by itself. Tesco’s ability to manufacture some of its goods not only enables it to deal with the challenge of bargaining power of suppliers but it also enables it to lower its cost of production, which in turn enables it to lower its prices and gain more customers.
Bargaining power of buyers
In some industries, there are few buyers who purchase certain goods or services in bulk. Such buyers usually have a bargaining power to lower the price of the goods or services. Buyers usually have bargaining power when the cost of switching suppliers is low as well as when the goods or services in question are not differentiated or are standardized.
Tesco’s strategy for dealing with the bargaining power of buyers is lowering the prices of its goods and services so that many people can access them. The whole idea of lowering the prices is to have a large customer base, which is not only crucial for sustainability of the business but also for generation of high revenues.
Threat of substitute products
In any competitive market, there are usually substitute products or services. A substitute refers to a product or service which serves the same purpose as the original product or service. An example of a substitute in the electricity industry is electricity generated from renewable sources. The reason is that electricity generated from renewable sources such as wind serves the same purpose as electricity generated from coal or geothermal energy. However, electricity generated from wind is cheaper than that generated from coal or geothermal energy.
Substitutes usually act as a threat to some industries, especially when the substitutes are cheaper than the original products or services. They also act as a threat when the cost of switching vendors is low. Companies can guard themselves from the threat of substitutes by differentiating their products or by teaming up to influence government policy on the introduction of substitute products and services in the market. For example, in the electricity industry, companies may guard themselves from the threat of substitute products by venturing in the generation of electricity from renewable sources so that new entrants do not use renewable energy as a factor for gaining competitiveness in the industry.
Tesco deals with this threat through differentiation of its products. It also teams up with other multinational companies to influence government policy on the introduction of substitute goods in the retail industry.
Rivalry among existing competitors
In any market where there are many players, it is normal for there to be rivalry among them. The reason is that every player wishes to take control of the whole market at the expense of the others. The rivalry leads to stiff competition for the customers and in many cases, the players use various strategies to attract customers. Examples of the strategies include reduced prices, improved quality of products and services, after sales services, and promotion campaigns on various marketing platforms.
. Tesco has cushioned itself from the rivalry through various strategies such as having very reliable suppliers, diversification, and manufacturing some of the goods by itself. Diversification in particular has enabled it to remain competitive irrespective of the poor performance of some of its ventures.
Porter’s Generic Strategies
Tesco’s strategy can also be analyzed using the Porter’s generic strategies framework. This framework was developed by Michel Porter in 1980s and has been useful for companies which want to improve their bottom line. At the time when the framework was developed, the business environment in many industries was relatively stable. The framework is based on the concept of differentiation. In the field of strategic management, the concept of differentiation refers to the process of making a product or a service popular among customers. It is achieved through description of the unique characteristics of the product or service being differentiated. The table below summarizes Tesco’s strategies using the Porter’s generic strategies framework.
Since the start of the 1990 decade, Tesco emerged as a global leader in e-business. Through its Information and Technology (IT) department, the company developed a vibrant e-business model which has been described as very efficient and effective. According to its IT director Mr. Mike McNamara, Tesco’s e-business model focuses on various business aspects namely marketing, e-procurement, e-training, supply chain management, customer relationship management, and online selling. According to a survey done by an organization known as Datamonitor, Tesco accounted for more than half of total sales done online in 2014.
Through technology, Tesco has been able to boost its revenues by 60% in the past decade. The marketing strategies of the organization involve advertisement on various platforms on the internet as discussed below.
The organization has a Facebook page where it posts information about what it does, the kind of services and products it deals with, its uniqueness, and how customers may get its products and services.
The organization also has a Twitter handle where those who want to know more about it are requested to ‘follow’ the Twitter handle. Once they ‘follow’, they are able to access the organization’s business information. The organization uses its Twitter account to advertise and market its business.
Google +
Tesco uses the google+ feature to market its products and services. One of the interesting features of google+ is You Tube. This feature enables the organization to store videos and pictures of various products. Due to its ability to store huge files, google+ enables the organization to share as much information as possible with its customers, a feature which is missing on Facebook and Twitter.
E-mail Lists
Tesco uses the e-mail for advertisement purposes. Through the e-mail, the organization has been able to increase its audience on the social media. The reason is that over 85% of people who have an e-mail account are also on social media. For instance, Facebook has a feature for customizing audience using the e-mail.
Works Cited
Norman, George, Thisse, Jacques, and Phlips, Louis. Market Structure and Competition Policy: Game-Theoretic Approaches, Cambridge: Cambridge University Press, 2000. Print.
Tesco: Mission, Vision and Values 2014. Web.