Understanding an industry or sector business environment is important to the success of any company or business venture. A business, therefore, needs to formulate its strategies based on the existing conductions within that industry.
Tesco plc operates in the retail industry characterized by stiff competition from big and small companies alike.
The retail industry could be sufficiently evaluated using PESTEL analysis.
The strategies can also be formulated using the principles of perception which will help the company enhance its market positioning as well as target market (Skaalid, B. (1999).
To analyze and evaluate the business environment of a company factors like competitors, the legal factor can be analyzed. This could be soundly described as the analysis of political, economic, sociological, environmental, and legal (PESTEL) factors that characterize the industry that the company operates in (Koptelnikov, V. (2008)
Tesco Business Environment
Political factors – Tesco plc core operations are in the UK and therefore a substantial part of the operations will not be affected by the political factor e.g. instability. Other regions are in the USA parts of Europe and Asia. Political factors could affect the Asian operations because some of them are not mature democracies. (Mitton, A. E. (2006).
Economic- The retail sector’s performance is largely driven by consumer spending. The consumer spending over the past year has not been strong although this did not affect the performance of the company. The recent surge in oil prices could also affect consumer spending power.
Social – The retail industry has also been affected by changing consumer trends. Many consumers have become environmentally conscious such that retailers are forced to reduce their pollution and conserve energy. The retail sector though has countered this by engaging in environmental protection activities.
Technological – most retail chains and stores have embraced the power of technology due to the realization of benefits accruing to a company using innovative products. Technology has been embraced by most retailers to reduce their costs as well as for environmental issues. Therefore technology is basic to this sector.
Legal – the increasing consumer, employee, and pressure group awareness is pushing the government to pass strict laws governing environmental protection, employee welfare, and consumer welfare as well.
The retail industry is very sensitive to consumer dissatisfaction. A case in point is the Wal-Mart saga of paying employees minimum wage (Mitton, A. E. (2006).
Environmental factor – Environmental conservation has been one of the key challenges faced by companies in the world retailers included. This is why many companies spend a lot of time and resources on conservation programs.
The retail sector has not been left behind in this regard. The biggest challenge to retailers will be to ensure the availability of a wide variety of products and services without causing much pollution to the environment.
From the analysis of PESTEL, it is evident that the retail sector business environment is affected by a range of factors that could adversely affect the performance of companies operating in the sector.
In Britain, the retail sector accounts for about a fifth of the economy with a third of consumer spending are retail (British Retail Consortium (2008).
Key Competitors in the Retail sector
As seen earlier, the company’s UK operations account for most of its revenues and profits. Although Asian and other European operations also contribute substantially to the company’s sales as well as profitability.
Apart from the traditional UK, Asia, and European markets, Tesco over the last year expanded to North America through the USA.
In the UK the company’s key competitors are WM Morrison’s supermarkets, J Sainsbury, Wal-Mart, Marks and Spencer, Alliance Boots, Somerfield, Next Group, Spar UK ltd, Car phone Warehouse, Little woods Shop, Arcadia group e.t.c. These are not the only competitors faced the Tesco; there are several others smaller retailers.
Although Tesco’s British operations are faced with stiff competition, the company has managed to grow impressively over the recent past until its current position of being the top retailer in the UK.
On the global front, Tesco also faces competition from companies like Wal-Mart, Carrefour, Home Depot, Metro, Kroger, Target, Sears, Costco, and Schwarz (Mintel Oxygen (2008). Pgs. 26-27
The list of competitors that the company faces ranges from huge companies e.g. Wal-Mart, Carrefour to smaller ones like Texaco retail. Therefore, the company, despite its impressive growth, faces competition from all sides.
Principles of perception
These are normally called Gestalt principles of perception. These principles work on the premise that things are affected by their position and what surrounds them. Therefore things are not only a sum of their pasts but more (Behrens 1984, page 49). These principles, therefore, recognize the importance of the surrounding environment.
Gestalt principles include figure and Ground similarity, proximity or contiguity, continuity, and closure area, symmetry (A2zpsychology (2006).
Tesco positioning strategy
The company operates multi-formats businesses/stores in the UK and international markets. The company has used the principles of perception to enhance its multi-format businesses by retaining the Tesco brand and therefore the customers can associate all the company’s businesses with the Tesco brand (Mullet. & Sano (1995).
The company, therefore, does not build stores that cater to all types of customers rather its multi-format store strategy can cater for the high middle and low-income customers under the Tesco brand (London Metropolitan (2008).
The company’s loyalty card program has been used to collect data on the shopping patterns and needs of consumers while at the same time used as a reward card.
The data collected from the consumers are used to take into consideration their needs and therefore the company can understand its customers well.
Tesco plc has been able to enhance its competitive positions through the adoption of strategies that has seen the company rise to be the number one British retailer.
A2zpsychology (2006). Perception-Principles of Perception. Web.
Behrens, R. (1984). Design in the visual arts. Englewood Cliffs, NJ: Prentice-Hall, Inc.
British Retail Consortium (2008). Retail Statistics. Web.
London Metropolitan (2008). Service Positioning. Web.
Koptelnikov, V. (2008) Business Environment Defined. Web.
Mintel Oxygen (2008). Economic Concentration of the Top 10 continues to grow. Web.
Mintel Oxygen (2008).Top 250 European Retailers. Web.
Mitton, A. E. (2006). Understanding, Interpreting and Analysing the Business Environment. Web.
Mullet, K. & Sano, D. (1995). Designing visual interfaces: Communication oriented techniques. Englewood Cliffs, NJ: Prentice Hall
Skaalid, B. (1999). Gestalt Principles of Perception. Web.