Tesco’s Performance in the Retailing Market

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The label is the part of a product that carries verbal information about the product or the seller. Labeling is one of the important product features that require managerial attention. A label may be part of a package or it may be a tag attached directly to the product.

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Obviously there is a close relationship among labeling, packaging and branding. Typically labels are classified as brand, grade or descriptive. Private labels are typically those manufactured or provided by one company for an offer under another company’s brand. Private label goods and services are available in a wide range of industries. Private label means products or services, which are generally manufactured or provided by one company under another company’s brand. High quality merchandise and great customer service are very important to core customers. Private labels owned by the retailers themselves, which are also known as store brands or own labels. Private labels are large in developing markets.

Private labels plays a pivotal role in the landscape of a store and in the profitability of a retailer. (Cosgrove 2004).

Among the leading retailers of private labels is Tesco, which has a large portfolio spanning the entire price range. So from a ‘pile it high, sell it cheap’ approach, Tesco has moved into a more consumer-focused chain where private label offerings are the core of the strategy. Private label brands have clearly become a more instrumental priority for today’s retailers. They are starting to diversify their offering beyond the expected, enabling them to compete more effectively in existing product categories and foray into new and different product categories that have traditionally been dominated by national brands. Brands make it easy for consumer to identify products or services.

Brands also assure purchasers that they are getting comparable quality when they reorder. Branding helps sellers to control their market because buyers will not confuse one branded product with another. Branding also reduces price comparison because it is hard to compare prices on two items with different brands. Brand labeling creates a very little stir among critics. While it is an acceptable form of labeling its severe limitation is tghat does not supply sufficient information to a buyer. A brand extension strategy is any effort to extend a successful brand name to launch new or modified products or lines. As a strategy brand extension offers a number of advantages.

A strong brand name gives a new product instant recognition. The organization gives all the advertising cost involved in familiarizing consumers with a new name. The major advantage of the strategy is that the organization does not tie its reputation to the products acceptance. The individual brand names strategy permits the firm to search for the best name for each new product. Anew name permits the building of new excitement and conviction.

Management’s ability to position appropriately in the market is a major determinant of company profits. A products position is the image that the product projects in relation to competitive products and to other products marketed by the same company. Unfortunately the term product positioning has no generally accepted definition so this important concept in product management is loosely applied and difficult to measure.

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“There are higher margins in private labels but at the same time it is a harder model for retailers. It is going to take additional effort to build the private label business but that is the new business strategy we have decided for our stores.” (Chatterjee 2007).

The key to successful marketing management for today’s retailers is to understand the contribution and role of their proprietary or “own” brands in the long-term business strategy and marketing mix of the retail store and consider both the supply side and the demand side of the equation. Effective category management can enable retailers to solidify and optimize supply-chain relationships. Strategic brand management goes hand in hand with these endeavors to establish sustainable points of difference in each aisle and segment within the store. It also spurs decisions about how to appropriately define the retailer’s “own” brand portfolio in order to galvanize consumers to connect and reconnect with its franchise in a compelling manner.

Merchandising is probably one of the two most loosely used terms in the marketing vocabulary. To some people merchandising is synonymous with marketing. Retailers make particularly heavy use of the word as verb, noun, or adjective. A clothing buyer may be complimented for having merchandised a new sports shirt very well this season. Another executive may claim that sound merchandising plans for next season are completed. One high level executive in a department store is usually called the merchandising manager and retailer stores normally have no one with the title marketing manager or sales manager.

Retailers continued to push more and more private label products into different categories of the marketplace because they represented high margins and the promise of profitability with little to no marketing effort. Over the years, this proliferation of private label offerings perpetuated a myopic approach to private label brand management.

Retailers in the United Kingdom have been private label innovators in many respects. For example since the UK consumer buys a significant proportion of his weekly purchases from one store, the competitive focus is at the store level and this is where it has been imperative for retailers to create a persuasive consumer connection. In order to accomplish this objective, retailers have had to elevate themselves above competitive retail outlets by having a comprehensive offer. They would develop their portfolios and provide proprietary products in categories where national brand manufacturers’ offerings did not suffer a lot.

UK retailers in the fast-moving consumer goods industry focus their strategy on building loyalty through quality ‘own’ labels. (Corstjens et al 1995, p.363-373).

Tesco has entered as the largest food retailer in the United Kingdom and is now the third largest in the world. As it prepares to enter in the US, it is important to provide a background portrait of Tesco’s vast reach in the United Kingdom and its growing international operations and to evaluate its marketing messages in the context of its actions. Tesco has expanded into a dozen countries to become a global giant in the food and increasingly non food retail area.

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Tesco’s international operations are pivotal to its future growth. As such, Tesco has become adept at employing what has been called a globalization approach and part adapting to local conditions but primarily remaining global in nature applying key standardization goals such as its in house brand to its multiple operations.

Tesco promotes consumer led strategy. The marketing concept proclaims that the entire business has to be seen from the point of view of the customer. Every department and every worker and manager must think customer and act customer. The purpose of any business is top create a customer and it is the customer who determines what a business is. With the adoption if the marketing concept the consumer became the focal point of the business. The key to customer retention is customer satisfaction. Therefore customer retention is more critical than customer attraction. If the organization creates a dissatisfied customer it will easily poison the public attitude about the company.

Therefore, a customer oriented organization would track its customer satisfaction level each period and set improvement goals. Clearly the customer centered organization is in a better position to identify new opportunities and set a strategy course that makes long run sense. By watching customer needs evolve it can decide what customer groups and what emerging needs are the most important to serve given its resources and objectives. Consumer perceptions of retailer image can help by developing strong and unique retail brand associations in the minds of consumers.

Tesco was competing on a cost-leadership strategy driven by a constant growing market share in the U.K. Tesco also has key partnerships with branded and private label manufacturers. Relationships with its external environment significantly influence Tesco’s needs for multi-directional cooperation. Different sources of institutional constraints force Tesco to become more nationally and socially responsive.

Regulatory pressures have pushed Tesco into creating joint ventures for the development of its retail chain. Invariably, these pressures create coercive isomorphism among foreign retailers that are led to adopt the same entry and cooperative strategies Tesco provides leadership to its whole supply chain, including the UK and has gone beyond it in partnership with its key suppliers Tesco carefully monitors other competitors’ entry strategies.

Though many retailers are ramping up private label marketing efforts with space in circulars, displays and store signage, ultimately it’s a product’s packaging and label that guide consumers toward purchasing decisions at the shelf. (A big role: product labels are the primary communicator with consumers, so make them count 2005).

With the growing realization that brands are one of a firm’s most valuable intangible assets, branding has emerged as a top management priority. Given its highly competitive nature, branding can be especially important in the retailing industry to influence customer perceptions and drive store choice and loyalty. Proper integration from branding and retail image research to provide a better understanding of how retailers create their brand images, paying special attention to the role of the manufacturer and private label brand assortment.

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The importance of store brands has increased and many products carrying a label that is exclusively available from a specific retailer chain have been introduced in recent years, with varying degrees of success. Retailers appear to pay little attention to the multiple risks associated with adding new product categories to their store labels. Thus we can able to investigate how store image factors and various categories of perceived risk associated with product attributes affect consumer evaluations of store-branded products.

Thus it provides a structural model which is developed and tested providing indications of the likelihood of store brand success in various product categories which aims to provide an understanding of how a retailer’s overall loyalty marketing strategy influences the importance of different customer relationship management (CRM) activities, and provides an insight into the role of CRM within loyalty marketing. From the strategic perspective, CRM may potentially provide benefits for customers, retailers and suppliers, not only in commercial terms, but also in terms of individual and organizational learning and development.

These benefits and developments are not, however, universal. By classifying different loyalty marketing strategies, it can be shown that CRM plays a different role within an organization depending on the marketing strategy adopted. CRM activities may be very effective in enhancing customer loyalty for profit. This can only be achieved through understanding the relevance of such tools and techniques to the overall loyalty marketing strategy and applying them accordingly. Different priorities should be given to different CRM activities, depending upon the particular retail situation.

There have been two revolutions in retail trading in the history of distribution; the emergence of retailing as a specialist function and the growth of multiple retailing. The slow rate of change in the distribution system, when viewed from the perspective of long term control, has tended to obscure the extent of a third revolution, that of retailer power. Penetration rates of own label merchandise, in particular, could be being seriously under predicted.

The strategic response by manufacturers has been mixed and, arguably, inadequate in the circumstances. While the typical consumer product manufacturer has developed an understanding of the needs and wants of the consumer, less attention has been given to understanding retailer strategies and how the manufacturer can tailor its offer to suit the individual retailer. Some options are presented for consideration, in particular a focus on closer collaboration between manufacturers and retailers and better integration of their contributions to the supply chain creating mutual dependency.

Private labels offer economic advantages over manufacturer brands that large retailers can exploit to provide more value to customers. Lower costs allow for lower prices on products of similar quality. Large retailers are also able to access a well developed manufacturing supply base for private label products and one that is increasingly competitive with brand manufacturers in scale, technology, innovation etc. most producers work with marketing intermediaries to bring their products to market. Private label brands have made tremendous over the years. Although the success of private labels has been limited to certain product categories and segments of consumers, retailers continue to expand the domain of private label offerings. Sales of private label brands, also called store brands have been growing rapidly in recent years.

Store brands, particularly when they include the store name or logo in the brand or on the package, can be viewed as an extension of the brand name of the store itself. Store brands represent an extensive and highly complex branding strategy. This suggests identifies the variables, private label strategy, intervening in the causal relationship between satisfaction and loyalty. Understanding the image of a retailer as a brand or how brands impact its customer satisfaction and loyalty are important issues both for retailers and the manufacturers who rely on them to sell their own branded merchandise. The marketing intermediaries make up a marketing channel also called trade channel or distribution channel.

A marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place and possession gaps that separate goods and services from those who would use them. Members in the marketing channel perform a number of key functions and participate in the major marketing flows like information, promotions, negotiations, orderings, risk taking, physical possession, payments, etc. marketing functions then are more basic than the institutions that at any given time perform them.

Changes in channel institutions largely reflect the discovery of more efficient ways to combine or separate economic functions that must be carried on to provide meaningful assortments of goods to target customers. Direct marketing would require many producers to become middlemen for the complementary products of other producers in order to achieve mass distribution economies. Producers who can afford to establish their own channels can often earn a greater return by increasing their investments in their main business. Marketing intermediaries through their contracts, experience, specialization and scale of operation offer the firm more than it can usually achieve on its own.

Intermediaries smooth the flow of goods and services. This procedure is necessary in order to bridge the discrepancy between the assortment of goods and services generated by the producer and the assortment demanded by the consumer. The discrepancy results from the fact that manufactures typically produce a large quantity of a limited variety of goods whereas consumers usually desire only a limited quantity of a wide variety of goods.

Customer satisfaction and customer loyalty is becoming an increasingly important factor in modern retailing–a market characterized by slow growth and intense competition. Retailers use manufacturer brands to generate consumer interest, patronage, and loyalty in a store. With the growth of competition, retailers compete with manufacturers for consumer pull to increase their relative market power and this will indeed lead to rise of the retailer as a brand is one of the most important trends in retailing.

Private label strategy can help retailers attract customers and create loyalty to the store by offering exclusive product lines and premium products. Customers’ loyalty to a service provider is influenced by their overall satisfaction with that provider. Satisfaction is significantly related to loyalty only at very high levels of satisfaction. Therefore, the exact nature of the relationship between overall satisfaction and loyalty is an empirical issue.

Private label clearly presents some strategic challenges to manufactures and in order to continue they need to focus on building their brands through increased advertising expenditures through a combination of traditional and non traditional mediums.

What part does merchandising play in today’s advertising? It is undoubtedly assuming an increased and even new importance. This is in large measure due to the self-service trend in more and more retail stores. (Weaver 2007).

Tesco offers detailed strategic analysis of the company’s business, examining its performance in the retailing market.

Industry Executives believe Tesco will be the Leading Innovative Retailer in Europe over the Next 5 Years with Carrefour and Aldi Rated in Second and Third Place. (Business Services Industry 2006).

Research into the way that labels are used has revealed a number of things. First of all clarity is important to consumers and they are more likely to use the label and a significant minority claim not to look at the label at all. A contradiction was highlighted in a number of studies, whereby consumers support the inclusion of the maximum amount of label information, yet regularly claim to feel confused or overloaded by the information provided.

A significant difference in the way that consumers use labels during the first and subsequent times they make purchases was found. Of half of those that use more than basic information the information sought was on nutrition, ingredients, general information and in. Research reveals that consumers prefer simple labeling over for example well branded, natural, and basic or eye catching packaging. Consumers felt very strongly that clear, honest and transparent food labeling is the foundation of consumer choice. Research also revealed that marketing offers were found to be very important in the product labeling mix as they the power to override normal purchasing decision criteria.

Bibliography

A big role: product labels are the primary communicator with consumers, so make them count. (Private label marketing): Article Excerpt. (2005). Private Label Buyer. Goliath: Business Knowledge on Demand. Web.

Business Services Industry: Industry Executives believe Tesco will be the Leading Innovative Retailer in Europe over the Next 5 Years with Carrefour and Aldi Rated in Second and Third Place. (2006). b: BNET. Web.

Corstjens, Judy., Corstjens, Marcel., & Lal, Rajiv (1995). Essential Research Collections: European Management Journal: Abstract: Retail competition in the fast-moving consumer goods industry: The case of France and the UK. Vol.13. Iss.4. P.363-373. ScienceDirect. Web.

Cosgrove, Joanna (2004). Smart marketing and merchandising: category by category, marketing strategy and product placement work in tandem to boost… Private Label Buyer. [Online]. AllBusiness. Web.

Chatterjee, Purvita. (2007). Globus Launching Small Stores to Build Private Label Biz. Business Line. Web.

Weaver, Jon (2007). Advertising and Promotions Articles: Strategies, Ideas, Solutions & Tips: Role of Merchandising in Today’s Advertising. BestManagementArticles. Web.

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BusinessEssay. "Tesco's Performance in the Retailing Market." July 9, 2022. https://business-essay.com/tescos-performance-in-the-retailing-market/.