In the United Kingdom, TESCO is the largest and leading retail business in the food and non-food industry. This retail business is in the food industry as well as in personal finance. This company has many strategies that have made them one of the growing retail businesses in the United Kingdom. TESCO has been performing out-performing its rivals in the market and their strategic position is well stabilized by using proper strategies. The debts levels of the company are always kept low if they want to be successful in the market (Terry Kirby, 2006).
The key reasons for the successes of companies are that they focus on their weaknesses and strengths, threats and opportunities they also try to minimize them. However, threats related to the economy and competition always remain a major factor to most companies. A company should continue to offer products and services to consumers at competitive prices and also capturing new customers to gain market share. Horizontal, vertical integrations, between department managers, corporations, supplies are important to make the company profitable (Tescophobia, 2006).
Companies should have strong brand products which reduce the barriers of entry and help them to enter foreign markets in all continents, to achieve the organization’s international strategic objectives however it has been very difficult to operate at first because products should be launched in all languages for the retail business, to their market share in the United Kingdom. But competition is very high not only in the United Kingdom but all over the world because the international market has many competitors. There should be diversifying in range of its products to meet the users’ needs across the world using the following key success factors (Terry Kirby, 2006).
Tesco has strategic reasons why they have decided to enter into the business of banking. Being one of the most profitable supermarket chains they are endowed with enormous resources that will make them a giant in any business they venture into. Looking at the financial statements of 2004 2005, 2006, 2007, and 2008 you will see that the company has a strategy of increasing their business and market share. The company wishes to grow its non-food market in the United Kingdom to 5% and increase the convenience market to 6%. They also intend to increase the personal finance market to 3%. This is a very ambitious strategic plan from the company. They want to grow stronger in United Kingdom Company business then develop to the international market by increasing the number of stalls start non-food businesses, and then exploit the retailing services as well as E-commerce. This is why this company has been expanding into the other markets in the world to expand and improve profitability. The purchase of a retail bank, the royal bank of Scotland is in line with this strategy of differentiation. The exploring into non-food retailing has been exciting because they have created fashion jobs, photo labs, electrical stalls, pharmacies, and now banking. This is why currently they most of this revenue comes from the non-food industry. They have also ventured into petrol stations which are doing very well. Interestingly the retail chain also entered into the construction of homes in London. This kind of venture has ensured there is total maximization of differentiation strategy (Tescophobia, 2006).
In the spirit of differential strategy and international expansion, the co ventured into retail services where they are offering personal finance to their customers. Personal finance has been in existence since the 1990s when these facilities were introduced. These facilities ranged from visa cards, home insurance, motor vehicle insurance, travel insurance, and petty insurance. They also introduced Telkom services where they started their mobile as well as a landline business (Terry Kirby, 2006).
Strategic Analysis and Choice
The company’s recent strategy focuses on (Terry Kirby, 2006):
- Developing new state of the art services
- Continuing the past legacy of innovation
- Enhancing the R & D funding for the two objectives above
- More acquisitions
- Developing and building an efficient and aggressive marketing technique
- Reaching out to the overseas market
Foe argued that Tesco was consistently pursuing a policy of crippling competition by offering local councils facilities such as constructing local amenities as a token which intends to influence the local authority to give them permission to increase their outlets. (Tescophobia, 2006).
Tesco has been crippling competitors by taking offer convenience stores without the intervention from the commission. This led to the expansion of the business of TESCO into more than one or two floors in the country. The growth was alarming and set precedence for the closure of smaller marts in the vicinity. These developments were met with resistance from certain councils, who directly rejected the plans of Tesco for further infrastructural developments (Terry Kirby, 2006).
Many farmers faced low prices on their livestock, from most retail stores especially TESCO is according to DEREK Mead of the national farmers union board, he compared the price offered by these retail stores with the price offered from other markets and the price was seen to be too low, however, the price offered to this farmers is dictated by the chain management. This became one of the unfair treatments of suppliers by TESCO and this led to a creation of a code of conduct for the industry players to protect farmers. (Terry Kirby 2006).
Between the 1980 to 1990s TESCO targeted middle-class consumers and this led to their growth of between 13% and 20%. However, the growth the company is experiencing currently is more than 30% with Salisbury holding 17% of the market. If TESCO decides to increase their stores by putting outrage in some of the properties they own they will control over 45% of the market share in the United Kingdom. This will make it look like a monopoly in the retail business in the United Kingdom. The reasons for this assertions is that currently for every hundred sterling pounds spent in retail business in the UK, 15 of them are received by TESCO. This is not only the largest in a strong economy but a dangerous trend which may kill competition and fair play. (Terry Kirby).
Tesco being one of the largest retail business in the UK they did not face challenges from farmers’ consumers and suppliers until recently when this stakeholders to the business stared questioning some of the dealings of TESCO. In one of the TESCO’s slogans which stated every little help was not taken kindly by some consumers and suppliers and changed it to every little heart. Although the change was in the mind of the customers, it became very costly to the business because the customers, farmers and environmentalists started questioning the corporate social environmentalists of TESCO. One campaigner by the name Sandra Bell asked the government to take a fresh evaluation of the contribution made by retail businesses and small shops to the existence and sustainability of the society. (Terry Kirby 2006)
Other campaigners also recognized the fact that TESCO being a largest retail business in UK was doing business as though pulling small businesses. This was well explained by TESCOs greediness, where they took over almost six hundred corner outlets in the United Kingdom. This kind of behavior is worrying and may mean to bully small businesses by driving them out of business or taking them over by force. (Terry Kirby 2006)
The commission was set up to investigate the relationship between the retail businesses and suppliers in the UK. The commission found out that there were a number of allegations leveled against the big retails in UK and this led into recommendations, which were to be implemented by this retails. (Reynolds J, 1997)
The list of practices also included the unreasonable transfer of risks from them (Tesco, Salisbury’s, Asda, and /Morrison’s) to the suppliers. Such practices exerted undue downward pressure on the income of farmers and workers involved in the supply of goods to such retail chains (Valdero Corporation, 2002).
Wal-Mart can be more rigorous in their outsourcing, and target nations like India and China. Retail giants Tesco and Salisbury’s have made productive use of liberalization and enhanced their raw material supplier base. Raw materials imported from third countries such as India and China are comparatively cheaper than the domestic market, and it is with this in mind that Tesco and Salisbury’s have been enforcing their terms on prices and deliveries from local suppliers and farmers(Valdero Corporation, 2002).
Global supply chains have created new opportunities for labor-intensive exports from countries like India, China and Russia. This has resulted in the dramatic growth of producers and suppliers, both economically and qualitatively. The mushrooming of these producers and suppliers from places over the globe, has heightened global competition, and brought about lower costs. At the top end, however, business has been as usual. With more and more producers entering the fray with a few buyers in the global market, small suppliers find sales hard to come by, making them obsolete. Should farmers and producers begin direct supplies to companies in these countries; they stand a better chance of making higher profits. This can also have an adverse effect on the existing retail giants in the UK. (Dey, Dipankar, 2007).
Most of this services that are offered by this retail chain are the fastest growing in Europe e.g. personal finance retail services has grown and millions of people are holding accounts with this supermarkets. They are currently the greatest in grocery distributor in the world today. Competitors such as Sainsbury, Marks and Spencer, Salisbury Asda and other competitors are finding it difficult to compete with this company (Reynolds J, 1997).
The company realized that legal services are becoming very expensive to them so they started a legal firm. The legal firm was meant to assist the company and assist retailers in the business to get some documents. The company management realized that differentiation of the services we have was necessary and their employers were emotionally oriented with the aim of understanding the functional department of the organization( Reynolds J, 1997). The aim of orientation was:
- For the functional managers to be able to understand the level of focus to give a departmental goal as opposed to an organizational goal.
- They were also oriented on time orientation in respect to management of the environment this was meant to improve corporate social responsibility of the business.
- They were also oriented on how to deal with each other within the organization this was meant t improve interpersonal and ensure there was no conflict in the organization. The managers also were oriented in the organizational structure. This was aimed at improving communication within the organization (Dey, Dipankar, 2007).
The organization activities were integrated in order to improve collaboration between organization departments in order to improve social corporate responsibility.
- Research was more concerned with the long run view was confronted with pressures for new ideas a product innovation. The department operated in a dynamic, scientific environment and had the least beaucratic structure.
- Production was more concerned with the here and now, short term problems such as quality control and meeting delivery dates. The department operated in a fairly stable, technical environment and had the most bureaucratic structure (Dey, Dipankar, 2007).
Sales were in the middle between research and production. The department was concerned with chasing the production and had a moderately stable market environment (Reynolds J, 1997).
Organization structure and different environments
The view of differentiation and integration was confirmed in the subsequent study of firms in the container and consumer food industries. In the part of the study a comparison was made of both high and low performance firms operating in different environments. The aim was to discover what forms of organization structure. It was concluded that the extent of differentiation and integration in effective organizations will vary according to the demands of the particular environment. The mechanisms used to achieve integration depend on the amount of integration required and the difficulty in achieving it (Abell, Derek F.and.Hammond, J.S (1979).
- Organization structures were integrated by the use of o organizational policies and procedures which ensured they succeeded.
- Some structures were integrated through the use of integration and team work for the company. This form of integrating is good for organic structures.
- As the organization integration increased meaning that various policies were to be harmonized and committees set up to make sure integration succeeded. This led to identification of specific group of people with basic knowledge of integrating the system.
- Because they are not dominated by any particular perspective, these integrators can help resolve problems of co-ordination and work programming between different departments ( Dey, Dipankar, 2007).
It is important however, to achieve the right balance of integration. Too high a level of integration may involve costs which are likely to exceed possible benefits. Too low a level of integration is likely to result in departments ‘doing their own thing’, poorer quality decisions and failure to make the best use of resources (Reynolds J, 1997).
Lawrence and lorsh do not see the classical and human relations approaches as being out of date but as part of a continuum of patterns of organization and management related to the environment in which they operate. The work of Lawrence and lorch is an extension of this continuum and their case for a ‘contingency theory of organizations’ has provided a further insight into the relationship between organization structure and the demands of the environment (Williamson, D., Cooke, P., Jenkins W. and Moreton, K. 2003).
TESCO strength and weakness
To understand the competiveness of TESCO in retail banking is through analyzing the strength and weaknesses (Terry Kirby, 2006):
- Innovative capabilities of the TESCO retail
- Research and development-commands very good technological leadership with qualitative technological experience and significant investment in R&D.
- New services capabilities: The industry is highly dynamic and the TESCO retail service is strong enough to keep pace with the industrial environment with its innovative approach towards product development.
Other factors influential in the service providing of a firm are the cost structure, the level of vertical integration, work force motivation, and service delivery capacity of the firm.
- Cost structure: Due to the competitive advantage it posses the cost structure of the TESCO services are highly profitable to the organization. The major component of the cost is in the form of products.
- Work force motivation: the TESCO possess a highly motivated work force.
- Capacity: The capacity of production of the TESCO is capable to meet the demands of the innovative and dynamic retail industry.
Operational excellence, technology leadership, innovation and new product development are some of the value disciplines used by the TESCO. As the case of competitive strategy is concerned differentiation is emphasized as a strategic advantage due to the uniqueness perceived by the customer, about the product of TESCO (Valdero Corporation, 2002).
Banking system in UK
A bank is any financial institution whose main activity is to carry out business as a payment agent and also borrow and lend out money. However, with time the banks have expanded their operations and now they are engaged in a wide range of activities. For instance banks are key players in the financial markets and provide financial services like investment funds. However, there are different terms of defining what is bank. According to the English law, a banker or a bank is an identity or a person who undertakes banking business which are outlined as
- Carrying out current accounts for the bank’s client
- Paying checks which are drawn to the bank
Collecting cheques on behalf of the clients ((Harris G., 2007).
What role do they play in the economy? The banks are both very important in an economy of a country. Below are key functions which the banks play:
Issue of money: the banks issue money in form of bank notes as well as current accounts, in accordance to cheque or even an order of payment from the customer. The claims made on the banks can be used as money since they are negotiable or repayable when demanded. Thus, they are valued in according to they value and can be effectively be transferred by simply delivering the cheque to the payee or the bank or cashing it (Harris G., 2007).
Consolidating and settlement of payments: banks perform activities of a collecting agent and also a paying agent for their client. At the same time, TESCO, personal banking services bank took part in clearing which is normally carried out by banking institutions. They also made arrangements of collecting, presenting payments in elations to the customers’ requirements. This assisted them to spend less on the reserve made for payment because the internal transaction offset each other. This form of services allows money to flow from one section to another section of the country. It also reduces shortfalls in other geographical regions among banking institutions (Teweles and Bradley, 2005).
Credit intermediation: Banks lend money using balances held in their books as well as they use this money from customers to make interests. The money that is given out by the banks is normally from the customers, therefore they act like middlemen. The banks will normally have money held at the Central Bank of England and most of the transactions they carry out are based by transactions by customers (Harris G. , 2007);.
Quality improvement: banks normally lend out money to businesses or individuals as well as they are also borrowers this ensures that that control the quality of credit that is given out. They are quality controllers because they borrow money on short term basis but lend this money to customers. They also participate in investing in long term investments and they use the same investments to earn some income which makes them better borrowers (Harris G. (2007).
They also provide pool resources for stimulating economic growth by the borrowing public. Without banking institutions, there will be no economic growth that is meaningful. Since individuals cannot rent money to each other in a responsible way (Harris G. 2007).
Risks of the bank: banks bear enormous risks. One of the major risks a bank faces is looking borrowed money given to some customers. Some customers may be poor borrowers where they borrow money but they refuse to pay back. Others may declare themselves bankrupt after borrowing unsecured loans. Some investor who may borrow money from banks with the hope of succeeding may fail to succeed and the banks may bear the loss because the aim of the bank is not to sell securities. (Teweles and Bradley, 2005).
The money invested by the investor could loss its purchasing power: this risk is at times also termed as inflation risk; it comes due to increasing prices of products, it is important that the investment as well grows with the inflation ratio, otherwise the purchasing power of the invested amount will be reduced(Harris G., 2007).
Risks involved in the banks: Banks are susceptible to serious types of risk which when the risks occur at times may result in bank crisis. These risks include:
Liquidity risk: this is the danger of depositors requesting to withdraw their money beyond available liquidity amount.
Credit risk: the danger of those owing the bank money to fail paying bank, this may result in the bank collapsing with all the money from all those who put their money in the bank.
Interest rate risk: this is the danger of the bank becoming unprofitable when high interest rates forces the bank to pay high amounts on what is deposited while receiving less interest from the loans it has lent out(Harris G., 2007).
Pool of people that they target: While initial banks targeted the rich and middle class people as their key customer, high competition and changes in he industry has made banks to come down and target every individual even those previous considered as not valuable as customers. It is this initial seclusion of the low class and those seen as poor that resulted to formation of mutual funds which targeted those who were left out by the typical banks. Thus, mutual funds mainly target those low incomer earners, to pull together they funds in a common basket to empower them (Harris G., 2007).
Strategies That Banks Use in Investing
Over the past years, banks have taken various strategies to increase their profitability. For example, since the passing of Gramm-Leach-Bliley Act, banks are now able to merge with other investment as well as insurance companies. Merging of banks, other investment, and the insurance services, has made it possible for the banks to respond well to consumer demands of one-stop shopping as it permits cross-selling of various products. At the same time the banks have enlarged the application of risk-based pricing strategy from that of business lending to that of consumer lending, where by high risk customers are charged more interest on loans they take. (Shukla, 1997)
What are the biggest concerns?: The biggest concern in the financial sector has been the high number of financial institutions which have been collapsing due to failing to recover their dates and thus balance their operations. The way the financial assets portfolio are being management also remains a major challenge that the financial institutions have continued to undergo from last year to the present moment. (Shaw, 2007)
Loans are the main asset of banks, and other financial asset class, however, when this key asset becomes suspect, the very basis of a bank is upset to the bank to its very center, and this has been the situation over the past year. In addition the past year saw a decline in assert quality in many financial institutions. This can be attributed to the laxity in many banks of the previous success they enjoyed in earlier years (Harris G., 2007).
How has government reacted to it?: The United States government has intercepted to try and improve the situation that many financial institutions have undergone through the past year. The government has undertaken measures to bail out the financial institutions which have been most affected by the financial crunch which was the most major factor that impacted the financial institutions over the past year. In addition the government also has undertaken measures to increase government’s control of the financial institutions as well make them more transport on what they invest their capital (Shaw, 2007).
Market Segmentation in the Banking Industry
Segmenting customers in the United Kingdom will take different forms for differentiation of services in different forms. However in segmenting the customers, it should be noted that 80% of the profits of the banks comes from 20% of the business. Customers are segmented according to their needs in consideration of their economic value. There are many ways of segmenting a customer in the UK. Segmentation will involve the geographical characteristics of the customers, demographic characteristics of the customers, behaviouristics and psycho-graphic of the customer. Customers are normally grouped according to their age, gender, family, lifestyles, education and occupation. However the bank mostly will segment their customers with the levels of income. Income levels play an important role in determining the segment that will be served by the market. In the United Kingdom there are different levels of customers. These customers have different needs. The audience banking sector in UK includes (UK Adviser Segmentation Analysis, 2006);
Business Community: The banking main objective is to provide financial service to all customers regardless of age, occupation, sex or any other for. With the growing culture to improve financial stability, more business are looking for financial that ensure and caters for that. The UK banking sector is determined to make this happen and offer a services to business from loans, deposits saving and other credit facility. The business community is the largest segment in the United Kingdom. They consist of almost 70% of the services of the banking consumers (UK Adviser Segmentation Analysis, 2006).
Members of the community: This is a larger target audience; because many people working and on business hence banking becomes necessity. To save make the future bright banks plays an important role. With the introduction of many services; banking has been very tremendous and more locals are using the service now (UK Adviser Segmentation Analysis, 2006).
Travelers: Many people who frequent visit UK are usually looking to have fun and enjoy themselves while embracing the different and diverse culture in the country. Introduction of travelers’ card has added to their experience of travelers exciting. They do not need to carry money wherever they go and have become of the best customers of the bank.
This analysis helps in market segmentation on the other bases (UK Adviser Segmentation Analysis, 2006).
Demographics: Since this area consists of predominantly family oriented culture market segmentation based on socio-economic demographics such as gender, age, cultural, or ethnic background of the customers helps us identify female patients as the most significant segment. Women influence financial decisions in most families more than their male counterparts do. Women also use personal finance facilities more often than men do, including shopping and saving for the family (UK Adviser Segmentation Analysis, 2006).
Within this, age forms the second parameter chosen to narrow down the segment to improve focus of financial service design and focus. The age category identified is customers in mid-age i.e. those who are employed or in business. As the young population of the UK grows older, this segment has potential to grow substantially in future(UK Adviser Segmentation Analysis, 2006).
Socio-Economic Stratification: The next step is to identify the specific socio-economic strata within the gender and age category defined above. This category helps us narrow down the target customer to belong to the category who can afford to seek and demand the best services whether it is the quality of banking. This segment must be included in the proposed market through provision of multilingual staff who understand their specific needs derived from cultural and religious considerations (UK Adviser Segmentation Analysis, 2006).
Population trend: Population trends play an important role in providing market for services. Population trends favor the banking sector because it can access a wide range of different population because it covers a wide variety. People are an important factor in the growth of any organization. This is because they provide labor and the customers. Customers are an important asset as they are the ones who buy the products and services and due to this they should be treated well and with respect. This can be achieved through good customer care, the company getting involved in community activities and ensuring that they offer correct specification on the product and services they are offering. Labor provides manpower and they are the ones who control different department within the organization. They should be motivated through good salary, holidays and recreational amenities. The company should also offer opportunity for the labor force to develop through educational growth and give a chance for those who are innovative to come up with innovative ideas to improve the bank products (UK Adviser Segmentation Analysis, 2006).
Market segmentation and to a small extent the strategy defined above will help develop the banking sector Services. A strong orientation to multidisciplinary approach to banking education, and research will form the core of the business and marketing strategies (McCarthy, Jerome, 1981).
TESCO is one of the largest supermarkets in the United Kingdom. Their activities have been streamlined to take care of the customers’ needs, in the market. The company has implemented various strategies meant to improve the competitiveness as well as increase the market share. They have implemented electronic data transfer systems which interconnects their banking systems as well as retail systems across the country. These systems have made shopping exciting to the customers. They have also installed electronic data interchange system that enables communication among the branches suppliers and customers’ as well as enabling tracking of various organizations within the organizations. This trend which is followed by TESCO is more sophisticated and requires sophisticated information technology software to improve performance as well as efficiency of the chain. The system under consideration is said to be more efficient, less costly, and it enables the organizations to position themselves in the market. The information technology software employed ensures there is a breach between planning of a goal and execution of the same goal. T his gives a life line to the supply chain system of the firm (UK Adviser Segmentation Analysis, 2006).
TESCO being the largest retail chain which one of the largest profitability in the UK even at the face of global financial crisis, TESCO has the financial resources to compete squarely in the market for resources in the financial sector. They have been in this sector for some time therefore their aim will be to keep existing customer, attract new customer as well as turn retail shoppers into potential banking customers. At the moment the retail shop has impeccable information in relations to their customers in terms of their shopping abilities because with the information on shopping ability of an individual it is easier to estimate the income level. In such a situation, it is easier for one to approach such a customer with the right product reducing the promotional efforts that is required by banking institutions without customers’ details (Terry Kirby, 2006).
Competition Analysis for the Banking Industry
Buyer Power: The Tesco will face the threat of customers shifting their loyalty to other financial initial not only in the UK such as standard chartered, Barclays bank and much other competition. This phenomenon according to porter is referred to as backward integration. To curb this threat, TESCO will come up with three generic strategies to counter this threat (Terry Kirby, 2006).
Cost leadership: It has reduced the price of some its products including the cost of offering services such as saving, loans and many other.
Differentiation strategy: The bank will come up with alternative services that are differentiated from the rival firms. These services should be economical and are environmentally friendly and community friendly
Collaboration: the Tesco collaborated with banks in to diversify and increase the market share (Terry Kirby, 2006).
Supplier Power: TESCO is faced with the threat of the suppliers being able to control the savings and personal services. The labor laws are also stringent and the workers are so unionized that treating of employees in a fair and equitable manner is inevitable (Valdero Corporation, 2002).
The generic strategies adopted by TESCO against supplier power are by changing the charges for their services. In essence, the fees charged for the services are borne by the customers. This is the differentiation strategy. Another strategy to insulate itself from this force is that of focus. Because of the higher cost of saving and deposits, TESCO has taken on the differentiation-focused strategy. In this strategy, the methodology has been improving the quality of their services. By so doing, the fees can be increased without harm being made to the customers. The customers of the TESCO include retail customers, institution, government and community (Valdero Corporation, 2002).
Barriers to Entry: The other force challenging the industry is entry of new companies with similar services or even more innovative products. This would pose the threat of neutralizing the company’s profits as well as its market share. The generic position that the company has taken has been cost leadership. Through lowering its costs and increasing operational efficiencies, the company has been able to lower its products prices while maintaining its profitability. This has deterred potential investors/ entrants into the industry. This kind of focus strategy that also encompasses the differentiation strategy makes entry difficult (Valdero Corporation, 2002).
Rivalry: This force emanates from other companies within the same industry like Barclays Bank, Standard chartered, Royal bank and many others. The threat here is that these companies capturing the market. However, the company’s framework/ strategy have been reducing fees whenever faced with such a threat (Ben Laurance, Times Online, 2007).
Consequently, TESCO services have been adopted to reduce rivalry. Focus has also been used as the generic strategy to solve these problems- rival companies cannot effectively meet differentiated as well as focused needs of the customers (Terry Kirby, 2006).
Another force is the threat of substitutes. According to Porter, substitute products refer to products in other industries. To the economist, a threat of substitutes occurs when a product’s order is influenced by the price adjustment of a substitute product. The price is affected by alternate products – as more substitute products become available, the demand becomes more elastic since consumers have more than one alternative. A close substitute product constrains the capability of firms in an industry to raise prices. At the same time as the threat of substitutes naturally impacts an industry from side to side price competition; there can be other concerns in assessing the threat of substitutes (Williamson, D., Cooke, P., Jenkins W. and Moreton, K. 2003).
This bars the company from effectively increasing the price of its services whenever need arises (Valdero Corporation, 2002).
To reduce the strength and danger of this force, the company has strengthened its differentiation generic strategy as its framework. Customers would then be loyal to the uniqueness of their products even when Tesco’s increase in price (Ben Laurance, Times Online, 2007).
TESCO supermarket is has not established it in my country as retail services in food and non food sector. The contrasts in the life and culture of Kenya are significantly visible in the life style of the Kenya population. Kenyans are generally poor. The population of immigrant workers from Europe and Africa are less than that of the native population. The purchasing capacity and the consumerist culture influenced by the affinity towards the western life style makes the Kenya market more lively and dynamic for TESCO to come and enjoy (Valdero Corporation, 2002).
In the area of marketing, much of the information required is outside the firm e.g., information on why people buy only certain products and not other products. The variables involved in the marketing decisions being external to the firm make the study of external environment very important in market planning. I will have to take special care to find out which of the environmental factors –social, political, cultural, economic, legal, technological-are the most important for the TESCO at the present time and which ones could be the most important in the coming days. I should also concentrate on external agents such as competitors, suppliers, customers, trade unions, governments, share holders, local community which are affecting the company most(Valdero Corporation, 2002).
The innovative idea involved in the retail services as offered by TESCO is helpful to people as they will benefit with the advantage comfort along with the increased opportunity for employment. The personal finance facility provided by retail stores give the customers the opportunity to be served near homes. Americans and Britons influence in the life style of Kenya is significant and this has greatly affected the otherwise conservative traditional society in Kenya. The presence Pizza, Hamburger and Barclays Bank in every town shows the influence of consumerism on the society by those countries mentioned (Brown, T. & Iverson, K., 2008).
Sustainable Competitive Advantage
The major contributory factor for sustainable competitive advantage of an organization is its positional advantage. The positional advantage of a firm is decided by the assets, skills, and resources possessed by the firm. Examples of positional advantages are factors such as differentiation, customer intimacy, or low cost allowing the firm to achieve superiority and higher profit. In the case of TESCO, differentiation can be considered as more secure than cost advantage in achieving competitive advantage due to the following reasons such as: 1.differentiation has been built and sustained over time,2.customer relationships and loyalty are the base of differentiation,3.differentiation cannot be easily transferred,4.differentiation can not be easily replicated,5.quality and innovation are the building factors of differentiation,6.differentiation stops customers from switching for a lower price,7.differentiation is successful in creating switching costs for the customers. Differentiation of a firm’s product is generally based on the following important factors such as: 1.product quality, 2.customer service, 3.product reliability, 4.after sale support, 5.technology leadership, 6.style, and image. In the case of the TESCO retail services, the product differentiation is based on the quality, reliability, the technology leadership, and the image of the product and the firm (Valdero Corporation, 2002).
The target must be well defined. The concepts of marketing mix and market segmentation combined with a clearly defined target group will increase the scope of the market planning. The four components of the market mix such as product, price, promotion, and place must be taken into consideration while defining the target group. Here the product of the TESCO being introduced is brands of retail services that is differentiated and therefore while defining the target group the factors such as gender, social, economical, age etc. are very important. In this case the target group for the, TESCO should be people of all ages (Terry Kirby, 2006).
Marketing Strategy and the use of four Ps: price, place, promotion, and product
Price: Affordable and attractive price will be charged. Sophisticated services will definitely come with a price. Even though they are fighting with established companies they can succeed with the pricing strategy with highly competitive and sophisticated services. A competitive market environment will be influenced by various factors and price is not the only one influential factor. A premium price, if substantiated by a convincing technological supremacy and qualitative advantage a conventional marketing strategy of selling at a lower price is not required. The main point required to be mentioned here is the aggressiveness required in implementing the strategy at the initial stage, only to convince the market (McCarthy, Jerome, 1981).
Place: Nakumatt, Tuskys, Uchumi and Wool mart are the most famous super markets in Kenya city. It is advisable for TESCO to use different groceries, shopping stores and banks within, residential areas so that their services are accessible to all. For example the Nairobi is going to be a big part of the marketing strategy as they are well known in Kenya for having 70% of gross national income. Therefore it will be constructive to invest in Nairobi first to make an offer to the customers where they can place shop (Barlon, K. , 2006).
The proposition for the location of these stores would be bus stages, which would be very convenient for people as these are the places where they board their buses. Locating there would be very convenient and the location is strategic (Brown, T. & Iverson, K., 2008).
Promotion: The proposed and most effective promotion methods are based on the idea of marketing through word of mouth. In this process the participation of grocery shop owners as well as their customers should be ensured. Advertising in their grocery stores and the use word of mouth as well as through the radio for the first couple of weeks of introduction of the product (Terry Kirby, 2006).
Products: To meet the requirements of the customers to its optimum level store from the customer, visa card will be issued with every shopping earning points that will be eventually be converted into A shopping. Home delivery services will attract the customers to the retail store. These services will be made available to the customers at an affordable cost, and are also made available at the most suitable places. These services are designed in such a way that they are made the most customers friendly in providing accurate service effectively and fast (McCarthy, Jerome, 1981).
Based on the importance of consumer orientation and the elements of marketing mix, one should remember that the marketing strategy consists in directing a proper marketing mix towards a target group of customers or market segment. Targeting involves segmentation of consumers into various groups that consume different services. In segmenting the market different groups are considered and these groups are put together as per their characteristics. The target group will consist of both male and female population, but the gender ratio may vary. Further we should clarify the age group (Brown, T. & Iverson K. 2008).
Political factors such as war, terrorism are not predictable and only due allowance for backlash be given. Economical issues such as the effect of globalization and transnational trade issues are vary much important in view of competition. As far as socio-cultural factors are concerned the TESCO have a very strong customer base and only need to locate any change in living standard of the people. In the technological factors, such as communication, transportation, quality assurance, accuracy, efficiency, and speed are very important because the TESCO is trading mainly retail services. Legal and environmental factors are not that much important in the case of the TESCO as they are already functioning with very much conformity with those regulations in other common wealth countries (Porter, M. E. 1998).
The total environment can be segmented into three classes as 1.Mega environment 2.Micro environment. 3. Relevant environment. Out of these three groups as far as the now discussed market planning for the TESCO is concerned, micro environment is the most important one, because the planning is for a relatively shorter period. Therefore our important environmental factors of concern are consumers, governments, and local community (Reynolds J, 1997).
The main environmental advantages of the TESCO are the users of their services, who are in need of quality services. Their independently functioning local retailers are in partnership with them. They care most for the quality, speed, and accuracy of the service provided to its users. They care for their consumers and the local community. As the TESCO is strictly abiding by rules, regulations and the government policies, there is no clash with the government. Now the only point of concern as far as the environmental factors are concerned is, from the competitors. Such issues should address through the SWOT analysis and the resource analysis; and the findings may be taken seriously while proceeding through the process of market segmentation, targeting, positioning Etc. Finally the formation of marketing mix and promotion policies are to be decided basing the above discussed environmental factors. The main factor need to be focused is the severe competition from the equally strong rivals. Advertising and other sales promotion policies such as offering discounts, special offers Etc. are recommended for the TESCO, based on the environmental analysis. Thus a proper analysis of the environment, especially the analysis of the external environment will enable the company to locate its strengths and opportunities (Lazer William and Eugene J.K., 1962).
With growing competition at the market place and need to realize full benefits of promotion methods, by the TESCO , it is required that the management should realize it’s strength, weaknesses, opportunities, and threats. The first steps is to asses and analyze the present situation of the brand in terms of market share, major competitors, and brand performance of brand users, non-users and lapsed users. This benchmark should then be related to the market size and the potential estimated. It will now pave the way for determining the role of sales promotion in effecting the desired change company’s brands market share. The result of this exercise will be the availability of desired information to set measurable and attainable goals. The second step deals with the identification of the alternative schemes, and the selection of the most appropriate sales promotion scheme(s), capable of accomplishing the goal set, within the available budget. The third step relates to incorporating creativity into the scheme to be offered. This is making the scheme novel, attractive, and challenging from the view point of its target group i.e. consumer, trade or sales force. The fourth step relates to legal validity of the sales promotion scheme to be offered. The fifth step covers primary decisions relating to timing and duration of the schemes to be offered, location-wise selection of dealers, and convection of the trade and sales force about the appropriateness of the scheme. A firm has to restrict the scope of its search business opportunities as well as safe guard against threats present in a relevant environment. It should, however, be kept in mind that environmental changes are frequent and unpredictable. No firm or organization can ever assume the environment to remain static throughout its life. (Ferber, Robert1974).
As for the TESCO is already establishing retail outlets operated by locally selected partners, and having a strong customer base; resource analysis is needed only to find out, what will be the impact of new market planning proposals on the resources of the company. The result of such an analysis will help a lot in the planning process. The overall process will help to enhance the utility of the resources (Lazer William and Eugene J.K., 1962).
In service organization the systems by which you receive delivery of the service constitute the process. The process of delivery function can be compared with that of operation management with that of operation management in a manufacturing unit. In a service organization there is no clear cut input or output. Rather it is the process of adding ‘value’ or ‘utility’ to system inputs to create output which are useful for the customers. The resource analysis helps to optimize the utility of resources. (Sabwala S.A. and R.M. Lala1986, p.138).
Segmenting, Targeting and Positioning
Market segmentation: Before selecting a segment you must arm yourself with substantive knowledge about the buyer. The basis selected should be such that it evokes a sufficient purchase response to justify cultivating that segment. Remember if it were easy to identify the various mixes of benefits sought by the various groups in the market, segmentation would hardly present any problems. (Yankelovich, Daniel, 1964). As such there is no standard answer to what basis is the best in a particular case and companies resort to one or more of the following:1.Intuition and experience: Many marketers try to segment their market on the basis of their empathetic understanding of the situation. But you must not forget to check such intuitive thinking against the evidence which may be there in support of such hypothesis.2.Trial and error: Trial and error is another method which is used to divide a market into different groups based on product attributes and to subsequently check whether such groups are proving meaningful in terms of market response.3.Research on consumption systems: observing and studying the total consumption system associated with the product in use helps generate new ideas for benefit segmentation.4.Research on attitudes and perceptions: This is area in which there is currently the greatest interest. This type of research is being used, in respect of quite a few of the consumer products that are being introduced by large- sized companies (McCarthy, Jerome, 1981).
Before I conclude our discussion on market segmentation I should also discuss how a company should select its segments. Both general factors which one uses to evaluate any economic opportunity and the factors specific to the situation should be considered in evaluating segment options against these criteria. The general factors are company thrust, size expected growth, capital investment, profit required competition, and segmental factors such as accessibility and visibility by the customers (Lazer William and Eugene J.K., 1962).
Marketing Mix Development
In marketing, marketing means development is done in an environment that is dynamic. This means that marketers must be agents of change by adapting strategies which change with the environment. Any static marketing mix will find itself outdated and unable to keep the business afloat. Marketing is normally divided into various marketing mix such as price, product, promotion, place and physical distribution areas (Williamson, D., Cooke, P., Jenkins, W. & Moreton, K. 2003).
No organization operates in isolation. It derives its existence from the environment. The major constituents of mega environment are technological, social, political and economic environments. These environments can further be classified into international, national, regional etc. The trends in mega environment from the view point of this company have long term implications. The micro environment has a substantial impact on this organization’s current business. Consequently; developments in micro environment become the dominant preoccupation of the management for strategic decisions. The constituents of the micro environment are competition, suppliers, customers, financial institutions, regulatory organizations and channels of distribution (McCarthy, Jerome, 1981).
Current Marketing Situation for the TESCO
By SWOT analysis method I can analyze the market conditions and evaluate the influential factors for the success of a firm. SWOT means strength, weaknesses, opportunities and threats available for the organization. A firm operates in an external environment with full of opportunities and threats. From a firm’s view point it is helpful to visualize the total environment comprising mega, micro and relevant environment. Though the threats and the opportunities of relevant environment are normally the major pre occupation of a firm it is equally important to monitor the other two environments (Williamson, D., Cooke, P., Jenkins, W. & Moreton, K. 2003)
Continuous monitoring of the economic environment is a pre- condition for any strategic decision. Strengths of your organization must be sorted out.It may be your strength based on your human resource, strength based on your infrastructure, good will of your brand, work ethics of your organization etc. Weaknesses such as less area or volume of market covered, the less experienced in the market are to be considered. Opportunities such as the growth trend in retail sector and technological development, communication, and transportation facilities. Threats and the strengths are competitive edge that your immediate competitors have. The technique of SWOT analysis if conducted with minimum errors will contribute a lot to get a clear picture of the position of your business status (Yankelovich, Daniel, 1964).
Resource Analysis: Resource analysis technique helps to analysis the availability of healthy resources. The main resources are Human, Capital, Money and Infrastructure. Human resources constitute an important dimension in the management of services in their roll both as performers of their services as costumers. People as performers of service are important and therefore the firm must recognize that each employee is a salesman for the company service (Terry Kirby, 2006).
The importance of customers in service stems from the fact that most services imply active and involved customer organization and interface. Service personnel are important in all organizations but more so in an organization involved in providing services. The behavior and attitude of the personnel providing service is an important influence on the customer’s over all perception of the service and he can rarely distinguish between the actual service rendered and the human element involved in it. Customers are very important for the firm because they are going to influence other costumers. The kind of costumers that you attract exerts an important influence on prospective customers (Terry Kirby, 2006).
Suggestions for Implementing the Recommendations
A positive leadership with creative thinking and adaptability to change will be able to lead the organization in the right direction. Human resource planning and human resource development policies must be designed with an aim to create qualitative input for the business so that the firm is fully equipped with modern ideas to combat the forces of liberalized, global market. Instead of keeping blind rivalry with foreign companies, constructive cooperation in the possible fields of business development and expansion, in the way of technology transfer etc. can be sought. Research and development, training of employees, promotion of latest information technology, strict adherence to the rules, norms, and ethics of the business etc can strengthen the firm and its business as measure of reinforcement (Terry Kirby, 2006).
Therefore a good leadership with a vision is a must for success of any organization. In the case of the business organization, the TESCO, its leading personalities at Kenya, With high enthusiasm and a positive attitude to take challenge, can lead the marketing of TESCO coin kiosk successfully by applying the critical thinking in their decision making process(Terry Kirby, 2006).
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