Background
Tesco Plc is one of the largest retailers in the world, the leading supermarket retailer in the United Kingdom, the world’s largest on-line grocery retailer and the fourth largest retailer behind Wal-Mart, Carrefour and Home Depot (Morris, 2004). The retailer has been selected due to its interesting business model, profitability, business and competitive strategy, service strategy, supply chain and sale mode which has been changed across the years to ensure it remains competitive. Since 1999; Tesco has been the most profitable retailer in the United Kingdom having a 31% share of the UK grocery market in the third quarter of 2009. The company’s gross turnover for the 2008/2009 full year was reported in February 2009 as £59.4 billion. The retailer has over 4308 stores in 14 countries worldwide, over half a million employees, and it was estimated in 2007 that over £1 out of every £7 of UK retail stores was spent in Tesco (Perrey & Spillecke, 2011).
Business Level Strategies
Established by Jack Cohen in London in 1919, Tesco owes its growth to its present position to its image and business level strategy. Aaker and McLoughlin (2010) document that from the onset; Cohen’s approach was to sell it cheap a strategy that had caused the company to overstretch itself thereby having dwindling profitability. Tesco has continuously changed its business level strategy and image with the first major feat being able to appeal to all segments of the market, the lower, middle and the upper classes. The inclusive offer strategy was based on the vision of selling high-quality products at reasonable prices, a vision that was achieved by offering four different levels of its products. There were the finest range of premium products introduced in 1998, followed by the Tesco Organic rage introduced in 2006 and the Tesco Healthy Living range and, finally, the Value range to attract the price conscious customers were rolled out in 2008 and 2009. This focus on customer service lies in the company’s belief in continuously improving the standard of services provided and responding to customer’s needs, (Fernie & Sparks 2009).
Tesco’s retail format is interesting having six different store formats differentiated by the range of products sold and their size, but all branded as variants of the Tesco Umbrellas (Baker & Saren, 2000). In addition to the stores, Tesco has Internet retailing which was introduced in May 1984 with its customer, Mrs. Jane Snowball’s purchase of grocery being recorded as the world’s first ever recorded online shopping transaction. Tesco’s Internet presence became more dominant in 1994 and Tesco.com, a robust home shopping website, formally launched in 2000 (Perrey & Spillecke, 2011). In most cases, groceries are sold within the delivery range with goods being either handpicked within the store or delivered. Tesco has also introduced a DVD rental and music download service in addition to an online movie streaming service which allows shoppers to stream selected DVDs prior to purchase (Baker& Saren, 2000).
Marketing and advertising are also a key business strategy that has played a key role in winning Tesco the customer loyalty and market share. The company has over the years used both direct and indirect approaches to advertise. Across the years, Tesco has used thousands of television adverts with specific themes. For example, adverts in the 80s focused in keeping ‘the cost of living in check, hence, stressing on cheap prices..’ was quite successful, (Perrey & Spillecke, 2011). Also in the 80s, Tesco often stressed on its relatively lower pricing, for example, the 1982 ‘Checkout 82’ adverts showed a till having a receipt coming out of it and indicating the prices (Humby, Hunt & Phillips, 2008). Tesco’s adverts have also included fusion of pop culture and celebrities such as the inclusion of Spice Girls and actors Jane Harrocks and James Nesbitt in the adverts in the 2000s. Presently, Tesco’s key advertising slogan is ‘Every little helps’ and the majority of its adverts mainly consist of shots or images of its products and their pricing superimposed on a red ink. Other approaches include; tailoring promotions to meet the needs and wants of individual customers, introducing customer loyalty systems and analyzing information derived from such systems to advertise on the specific segment of the market (Fernie & Sparks, 2009).
Tesco’s store format is its key business level strategy that is most important to its long term success, and it is an excellent choice from the dynamics of the UK retail market. The six formats include the Tesco Extra or the Hypermarkets, Tesco Superstores or the large supermarkets and Tesco Express or the convenience stores, Tesco Home plus, Tesco Metro and Tesco One Stop. Evidently, Tesco’s retail outlets range from small local stores often attached to petrol stations to one stop stores with an average of 1,300 square feet. They provide customers with essential products on a 23/7 basis. The extra stores are 70 times bigger and cover all the major consumer goods including furniture and entertainment, foods, electrical goods and clothing (Perrey & Spillecke, 2011). Tesco Express often stores within neighborhoods averaging 2,200 square feet and normally stocks food products and other day to day essentials (Baker & Saren, 2000). The Homeplus is a series of non-food stores which offer all Tesco’s products other than food.
Corporate Level Strategy
Tesco’s corporate level strategy is founded on its objective of being committed to creating shareholder value through innovative customer focused strategy which is based on; value for money, customer service, customer loyalty, products and its stores. Tesco phenomenal success is attributed to its customer management strategies which involve: selling more to existing customers in stores, attracting new customers and exploring new geographies (Morris, 2004). Tesco has a Product-Customer Segmentation which has three key segments: the less affluent, mid-market and the up market with a market share of 23%, 53% and 24% respectively (Morris, 2004). Their products are categorized into six categories which include: the price sensitive 16%, mainstream 24%, convenience 9%, traditional 15%, healthy 17% and the finer foods 19%. The finer foods and the healthy products target the up market while the healthy, traditional, convenience and the mainstream product categories targeting the mid-market (Morris, 2004, p.13). The lower market targets price sensitive and the mainstream product categories.
Tesco Finest with 1,200 lines is a brand targeting the up market and Tesco’s strategy is to offer super-premium product and prices. The strategy also offers limited to high-value added items and directly addresses Marks & Spencer. Tesco organic with 1, 245 lines, has a strategy to directly attract up market shoppers, capture margin in new category and aims to provide a complete shopping budget (Morris, 2004). The Tesco mainstream brand also offers the same quality as the national brand, and has the strategy of increasing the branded versus the margins. Tesco Value with 1200 lines offers cheap and basic products and has the strategy of directly addressing limited assortments and limited to low value added items. The Tesco healthy living brand has an estimated 600 lines and targets specialty niches with products and aims at stretching to non-foods (Morris, 2004). The last brand is the Tesco Kinds which targets children aged between 5 and 11 and has a strategy of helping parents improve diet and offer food products with minimum artificial ingredients (Morris, 2004). Strategic expansion is a business level strategy that would be most important for its long term success. At present, the UK market that is the company’s key market has is becoming saturated as a result of increasing competition. This has led to tricky situations in which at some point made the company engage in price wars of commodities leading to unreasonably low pricing. International expansion would, as a corporate level strategy would increase its customer base, since it by the nature of the business; its profitability depends on its customer base.
Competitive Environment
In every business undertaking, all the players in the market face competition among themselves that may result in some being faced out of business, these companies compete for customers, distributors and suppliers and seeks to establish strong customer base in which ever manner that is legal and ethical (Aaker & McLoughlin, 2010). Tesco plc has a number of competitors key among them being BP plc, Safeway plc, ALDI group, Somerfield, ASDA group limited, The Boots group plc, Marks and Spencer group plc, John Lewis Partnership plc, Booker cash and carry, Shell group and The Big food group plc, (Perrey & Spillecke, 2011). Of Tesco’s many competitors, the three main ones include Asda, Sainsbury and Morrisons which are the second, third and fourth largest supermarket chains in the United Kingdom. Asda, its key competitor, has a 16.5% UK grocery market share and bases its marketing strategy solely on its pricing with the slogan, “Britain’s Lowest Priced Supermarket, 14 Years Running.” Asda deals in general commodities that Tesco trade in, from food to non-food hence it poses a great challenge to the company’s vision of expanding its customer base. Asda uses Wal-Mart style strategy, with a simplistic layout that is 20% bigger than its key rivals but with 20% fewer lines. The company also has multiple level stores similar to Tesco with the stores according to size including, Asda Supercenters, superstores, Supermarkets, Asda Living and George Stores, (Perrey & Spillecke, 2011).
Slow-Cycle and Fast-Cycle Markets
The competition challenges presented by Tesco’s major competitor noted above would not differ significantly in both slow-cycle and fast cycle markets. In a slow cycle market, building a unique and proprietary capability is the key to gaining a competitive advantage. This type of competitive advantage is challenging to understand or imitate by competitors. After building propriety advantage, a firm focuses on maintaining, protecting and extending the advantage, (Zentes, Morschett & Schramm-Klein, 2011). The UK retail market has relatively common market dynamics with limited creative options. Besides, Tesco has introduced more creative and innovative products and product lines comparative to Asda. Similarly, fast-cycle markets are characterized by situations in which firm’s capabilities that contribute to its competitive advantage are not shielded from imitation hence is always rapid and inexpensive. The choice, Asda, would not differ significantly since the UK retail market can be evaluated as a slow cycle market. Asda follows the Wall-Mart Model while Tesco has introduced a number of leading technological innovations that would give it a competitive advantage in a fast cycle market.
Conclusion
Tesco views private label as a key element of its success noting that it selects, prepares, and packages everyday products in dozens of different ways. It is true that the company has sufficiently served its customers in almost all aspects from food to non-food commodities, however, with increasing number of people and the global village reality the company needs to increase its outlets both locally and internationally. This would enable it to reach those who need the services and products thereby reducing their over reliance on the UK market and generating enough revenue to off-set its debts (Baker & Saren, 2000). It should also reinforce its customer services as this will directly impact on the much larger customer base both in UK and outside, they should increase their communal responsibility to other areas of need such as less privileged in the society this will not only increase their confidence in the company but it is also a sign of giving back to the community. Their insurance company should be diversified to cover other aspects of life insurance since, in the present day, there are a lot of risks and catastrophes that people need to guard against.
References
Aaker, D. A. & McLoughlin, D., (2010). Strategic Market Management: Global
Perspectives. West Sussex: Wiley Publishers.
Baker, J. M. & Saren, M., (2000). Marketing Theory: A Student Text. Independence, KY: Cengage Learning.
Fernie, J. & Sparks L., (2009). Logistics and Retail Management: Emerging Issues and New
Challenges in the Retail Supply Chain. Philadelphia, PA: Kogan Page.
Humby, C., Hunt, T. & Phillips, T., (2008). Scoring Points: How Tesco Continues to Win
Customer Loyalty. Philadelphia, PA: Kogan Page.
Morris, T., 2004. Tesco: A Case Study in Supermarket Excellence. New Zealand: Coriolis Research.
Perrey, J. &, Spillecke, D. (2011). Retail Marketing and Branding: A Definitive Guide to
Maximizing ROI. West Sussex: John Wiley and Sons.
Zentes, J., Morschett, D. & Schramm-Klein, H. (2011). Strategic Retail Management: Text
and International Cases. Wiesbaden: Gabler Verlag.
