Marketing Strategies Implemented by Tesco

Published Date: 23 Mar 2015

Tesco is most probably biggest food and grocery retailers in all over the world ,they operate around 4331 stores. Tesco main aim such as PESTEL ,Porter five, SWOT and value chain analysis have been used by main organization in order to achieve this goal.

Tesco company overview:-Tesco is among the largest food retailers in the world with revenue in excess of £54 billion in 2009 and recruiting over 470,00 people. They operating approximately 4331 stores in 14 countries around the world. Tesco have 960 express store which sell approximately 7000 products including fresh food in suitable localities,170 metro stores,450 super stores which sell both food and non food items including books and DVDS. Tesco was abounded in 1919 and it was starting the first store in Edgware ,London ,UK IN 1929 (Tesco 2010)

share of leading players in UK food retail market.

SUMMARY INFORMATIONS

Domestic market :- UNITED KINGDOM

Turnover :-GBP 57,538 MILLIONS.

No. of formats :- 11

operating countries:- 14

no. of stores :- 4836

sales area:-8837,433 Sq. Mt.(Website E)

TESCO PESTEL ANALYSIS

A PESTEL analysis for Tesco must consider all the important external equators imparting on the company. These equators many have political ,economic ,sociological, technological, legal or environmental dimensions.

the political analysis must include the impact of local and national government and the international situation. The economic analysis need investigate the influences of the stock market and tax increases, amongst many other monetary matters.

sociological factors are difficult to suss out. We swim in the "water" of our culture without recognising it as an important determining factor. and sociological analysis is all about analysing the background culture. technological factors are usually easier to spot. Because new technologies involve change and change is always noticed for instance ,online shopping has had a major impact on Tesco recent success. the change created by technologies advance often lead to legal problems which is why legal analyses is always an important part of a PESTEL analysis.

Tesco operations enviously have a significant environmental impact from possil fuel use to packaging issues .reducing the demand on the planet is challenge for any big company.

A PESTEL analysis for Tesco must look at all six factor we have mentioned. Here they are again with example of earth.

POLITICAL an increase in unemployment due to a downward tarn in the world economy.The political factors can be local, national or international. Many governments can be involved. For instance, Tesco might have to deal with British and Columbian politics in regards to its coffee supply. Tesco operates in six countries in Europe in addition to the UK. The republic of Ireland ,hangary, Czech republic ,Slovakia ,turkey and Poland .it also operates in Asia ,south Korea Thailand ,Malaysia ,Japan and Taiwan, Tesco performance is highly influenced by the political and legislative conditions of these countries, including the European union (EU).Tesco operating in a globalize environment with stores around the world.

the government encourages retailers to provide a mix of job opportunities from flexible lower -paid and locally based jobs to highly skilled ,higher paid centrally -located jobs (balchin ,1994)also to meet the demand from population categories such as students working parents and senior citizens. Tesco understand that retailing has a great impact on jobs and people fuictors new stores development are often seen as additional stores go out of business or are forced. To cut costs to compete being an inherently local and labours -intensive sector. Tesco employee large number of student ,decaled and elderly workers ,often playing them lower rate. In a industry with a typically high staff turnover these workers offer a higher level of locality and therefore represent desirable employees.

ECONOMIC : impact on sales of the credit crunch.Economic factors have large impacts. Fluctuations in the stock market, or tax increases, can seriously affect the bottom line of a company like Tesco. one of the most influential quotes on the economy is high unemployment levels, which decrease the effective demand for many goods, adversely affecting the demand required to produce such good .economy factors are of concern to Tesco because they are likely to influence demand cost ,prices and profits. These economy factor are largely outside the control of the company. But their effects on performance and the marketing mix can be profound .although international business is still growing (appendix A)and is expected to contribute greater amounts to Tesco prolitover the next few years,the company is still highly dependant on the UK market. Hence Tesco would be badly affected by any slowdown in the uk food market and are exposed to market concentration risk.

SOCIOLOGICAL: an increase in immigration from eastern Europe resulting in a demand for new goods.Sociological factors can vary from the impact of immigration, to changes in fashion.

current trends indicate that British customers have moved towards one stop and "bulk" which is due to a variety of social changes Tesco have there for increased the amount of non-food items avail bales for sale. Demographic change such as the gapping populations meal preparation mean that UK retailers are also focusing on added value products and services. National retailers are increasingly retain to take on new suppliers (clrake bennison and way 1994 ,datamonitor report 2003)

the type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs. Consumer are becoming more and more aware of health issues, and their attitudes towards foods are constantly changing. One example of Tesco adapting its product mix is to accommodate in increased demand for organic products. The company was also the first to allow customers pay in cheques and cash at the checkout.

TECHNOLOGICAL: how can Tesco take full advantage of the world wide web.New technologies have had a great impact. For instance, online shopping has become a major factor in Tesco's recent success.technology is major malro -environmental variable which has influenced the development of many of the Tesco products. The new technologies benefit both customer and company .customer satisfaction rises because goods are readily available services can become more personalised and shopping more convenient .the launch of the efficient consumer response(ECR)initiative provided the shift that is now apparent in the management of food supply chains (datamoni for report 2003)Tesco stores utilise the fallowing technologies.

wireless devices

Intelligent Scale

electronic shelf libelling

radio frequency identification(RFID)

The adoption of electronic point of sale(EPOS)

electronic funds transfer systems(EFTPOS)

LEGAL: how can Tesco avoid legal opposition to expanding into new high streets.various government legislation and policies have a direct impact on the performance of Tesco. For instance ,the food retailing commission(FRC) Suggested and enforceable code of practice should be set up Bunning many of the current practices ,such as demanding payment from suppliers and changing's agreed retrospectively or without notice (mentel report 2004) the presence of powerful competitors with established brands creates a threat of intense price war and strong requirements for products differentiation the governments policies for monopoly controls and reduction of buyers power can limit entry to this sector with such contras as license requirements and limits on access to raw materials (initial report ,2004 myres2004)

ENVIRONMENTAL : elevate changes is affecting supply and transport, how can Tesco adapt?

The changes caused by all the external impacts lead to many legal problems.

Finally, any large organisation has an environmental impact. For instance, Tesco uses fossil fuel in its transport network. Reducing this demand is a major challenge. (website A and B)

Environmental factors:- in 2003 ,there has been increased pressure on many companies and manager to acknowledge their responsibility to society and act in a way which benefits society overall (lindgreen and hingley 2003)the major societal issue threatening food retailers has been environmental issue ,a key area for companies to get in a socially responsible way. hence, by recognizing this trend with in the broad ethical stance ,Tesco 's corporate social responsibility is concord with the way in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance(jhonson and scholes 2003)

Tesco SWOT Analysis

Tesco has a fully national network in the uk ,stronger in the south of the country, expanding internationally taking with firm bahrti enterprises about a retail join venture. This is a huge opportunity ,which could double its size to US $ 640 billion by 2015. Tesco largest super market chain in U.K. and Strong brand name and financial power.Tesco founded in 1919,more than 90 years of history.Tesco grew with pole organically and through acquisitions.it has been famous for food and drink but now it also deals in clothing home health electronics ,financial service ,telecoms, home, health care ,and dental insurance, retailing and renting DVDs, CDs, music downloads, internet services and software.third largest retailer after wal-mart and Curryform.Tesco store are present in 4811 locations with international present in 13 countries.Strong commitment to corporate social responsibility.Tesco is running store in format's which includes Tesco extra ,Tesco superstores ,Tesco metro, Tesco express ,one stop and Tesco home plus.(website C)

STRENGTH

well-established brand and customer base.

loyal and trusting customers.

great store locations.

superb warehousing and logistic capabilities.

a well established internet presence.

a clubcard scheme for enhancing customer loyalty.

strong bond with supplier ,improving supply chain to reduce the cost.

better usage of technology in marketing and distribution.

WEAKNESSES

interring number of different markets so not able to focus on style market for specialization.

lake of experience in phone and insurance market.

high transport costs.

massive amount of fuel is used in transporting vehicles which causes pollution.

more dependently on UK market.

OPPORTUNITIES

strategic alliance with other companies.

opening of near stores.

joint ventures.

online arena for selling and marketing of product and service.

recommendations Tesco to open a play area for children.

improve its internet shopping.

make their store more ethic.

THREATS

tough competition from giants wal-mart and Carrefour.

take over of asda by wal-mart.

fluctuation in taxes may impact the Tesco financials.

innovation by other supermarket.

government regulations and policies.

rising raw material cost.(website D)

Porter's Five Forces Analysis

An analysis of the structure of the industry should be undertaken in order to find effective sources of competitive advantage (Porter, 1985). Therefore, in order to analyse the competitive environment of Tesco, Porter's five forces analysis has been used by the researcher as follows:

Threat of substitute products and services

The threat of substitutes in the grocery retail market is considerably low for food items and medium to high for non-food items.

In the food retail market, the substitutes of major food retailers are small chains of convenience stores, off licences and organic shops which are not seen as a threat to supermarkets like Tesco that offer high quality products at considerably lower prices (Financial Times, 2009). Moreover, Tesco is further getting hold of these shops by opening Express stores in local towns and city centres creating a hurdle for these substitutes to enter the market.

However, the threat of substitutes for non-food items , for instance clothing, is fairly high. It should be noted that so long as the economic recession prevails , customers will be inclined towards discounted prices hence Tesco is a threat to the speciality shops.

Threat of entry of new competitors

The threat of entry of new competitors into the food retail industry is low.

It requires huge capital investments in order to be competitive and to establish a brand name. Major brands that have already captured the food retail market are Tesco, Asda, Sainsbury's and Morrisons and they account for 80% of all shopping in the UK (Mintel, 2010). Therefore, new entrants have to produce something at an exceptionally low price and/or high quality to establish their market value.

Gaining planning authorisation from local government takes a considerable amount of time and resources to establish new supermarkets and this is therefore a considerable barrier to new entrants.

Intensity of competitive rivalry

The intensity of competitive rivalry in the food and grocery retail industry is extremely high.

Tesco faces intense competition from its direct competitors, including Asda, Sainsbury's, Morrisons and Waitrose, which are competing with each other over price, products and promotions intermittently. It should therefore be highlighted that Asda is one of the key competitors in this segment with an increase of market share from 16.6% to 16.8% during the fiscal year 2010/ 09, while Sainsbury's has shown an increase to 16.1% from 15.8% and Morrisons to 11.6% from 11.3% through the same period (Euromonitor, 2010). The slow market growth essentially means that these increasing market shares from competitors have intensified the market rivalry, which is threatening Tesco's market leadership position.

In rural areas where the nearest superstore can be some distance away, some primary consumers are attracted by retailers like Somerfield and Co-op .

Hard discounters like Aldi and Lidl have taken over the market in times of recession. During 2008 they recorded a growth of sales of over 25% (Keynote, 2010).

Bargaining power of buyers

The bargaining power of buyers is fairly high.

In cases where products have a slight differentiation and are more standardised, the switching cost is very low and the buyers can easily switch from one brand to another.

It has been proposed that customers are attracted towards the low prices, and with the availability of online retail shopping, the prices of products are easily compared and thus selected.

Bargaining power of suppliers

The bargaining power of suppliers is fairly low.

It should be noted that the suppliers are inclined towards major food and grocery retailers and dread losing their business contracts with large supermarkets. Hence, the position of the retailers like Tesco, Asda, and Sainsbury's is further strengthened and negotiations are positive in order to get the lowest possible price from the suppliers.

Market Entry Strategy and Target Customers

We can use Ansoff's product/market matrix to identify directions for Tesco's strategic development. This matrix offers directions for strategic option available to Tesco in terms of products and market coverage, taking into account its strategic capability and also expectation of stakeholders.

Products

Markets

Source: Johnson, G., Scholes, K., Whittington, R., (2005)

From the Ansoff Matrix above, it will be presumes that Tesco's launch of Baby wear in Sweden will involve a market development strategy. Tesco already sells children's clothing (existing product) but Sweden will be a new market and Tesco will need to consider whether it's existing products conform to Sweden's criteria to be made from renewable sources, or whether they will need to form an alliance with a strategic partner, as suggested following the SWOT analysis. Both capability and market consideration has driven Tesco into the development of new markets. In today's 'green environment' children's clothing made from renewable sources is a new slant on a product that can be exploited in other market segments and countries. Tesco may encounter some difficulties around creditability and expectations for the clothes they currently supply through their stores are marketed as affordable everyday wear whilst the new range is going to be aimed at the quality high end of the market. Tesco may not be seen as a credible 'mainstream' supplier of quality clothing.

It is important for Tesco to decide on the appropriate market segment to target in Sweden as this will subsequently determine its generic strategy. If it wishes to compete with the low cost retailers, as it currently does in the UK against the ADSA George brand and Sainsbury's new TUI range, then it must adopt a cost leadership strategy. Alternatively it will have to look for differentiation so that it can charge premium prices at the 'luxury' high-end of the market. As the competitive rivalry in the low cost market is intense, profits relatively low and market entry costs high, Tesco should enter the high-end market with a differentiation strategy which would exploit the Swedish criteria for clothes made from renewable sources such as cotton and wool and emphasising the environmentally friendly approach.

However, before Tesco decides on its target customers, a market analysis will need to be undertaken in terms of

The size of the baby and infant clothing market in Sweden

Market shares of all the existing firms in this market and finally

Segments/ demographics within the market, to identify the profile of the new customer to ensure the best method of targeting is used and the marketing campaign appropriate to address their needs.

Marketing Objective

Profitability, in terms of operating margin (a 10% target)

Swedish Market share (a 20% target)

Customer advocacy (the number of customers who recommend Tesco branded clothing, repeat business)

Respected company/ brand awareness (the number of community stakeholders who respect Tesco)

Employee motivation (the number of employees who feel motivated to deliver Tesco's goals)

Tesco must ensure that it sets 'SMART' marketing objectives that are specific to the needs of the audience, measurable, attainable, relevant , time limited,

Marketing Strategy

Tesco's strategy is clear, with growth being pursued from four areas - the core UK grocery business, non-food, international expansion and retailing services such as financial services, the dotcom business and telecommunication packages. Basically, Tesco is using its strong stable core to keep the business ticking over while it forges new riskier areas of growth. Pushing further into non-food in the next phase (Johnson, G., Scholes, K., Whittington, R., (2005)). Lidl is currently "destroying" the market by selling the products below cost price.

Having undertaken the SWOT and PESTEL analysis, Tesco's generic strategy will have to be differentiation so that a premium price can be charged. It will do this by joining forces with/ forming a strategic alliance with an existing manufacturer of Swedish children's clothes with a credible reputation for quality clothes at the high end of the Swedish market and by creating a new 'children clothes brand', not using the current Florence and Fred or Cherokee names. All clothes will be manufactured from totally sustainable materials and manufactured in Sweden itself. The new line of childrens clothes will eventually be rolled out through the rest of Europe and the Swedish and the brand values will mean quality and style .

The marketing strategy will involve analysing the markets, and determining which products to offer and the exact age range of the children to be suited, considerations relating to sizing, fashion, seasons and so on will need to be made, as well as the appropriateness of each garment for export to other Tesco shops in neighbouring countries. Tesco may well decide that there will be a 'core' European range of Environmentally friendly clothes which could be exported throughout Europe, whilst there would be a broader range available for local customers. However before any decisions are made, a detailed market research activity will need to be undertaken to test the concept of the new range, the intended pricing parameters, attitudes towards Tesco as a retail outlet and attitudes towards the new Swedish Alliance partner, purchasing habits of the customers (parents buying for children) and so forth.

Having determined the clothing (product) specifications, the strategy is implemented through marketing tactics, which involve detailed decisions about factors such as the price and the way the product is distributed. With regard to price, consideration must be given that the new Swedish range is to be synonymous with quality and style and so would demand a premium price. Certainty it must be higher than Cherokee and Florence and Fred, such as the price differentiation in Marks and Spencer between it's own named brands and Per Una. However, consideration would also need to be given to the fact that the reality is that it is distributed throughout a chain store, so a premium price charged within a Tesco outlet cannot demand the same price as a boutique. (Website F)

A Swot analysis giving an overview of the key internal and external factors pertinent to Tesco, was undertaken, appendix 1, and from this key strengths, weaknesses, opportunities and threats were noted. These were now further refined.

Opportunities

1. Brand awareness growing globally

2. Innovation and alliances

Threats

1.Existing competition

2.High Competition for customers and resources

In considering using strengths to make the most of opportunities (SO)

Tesco has a strong home brand which is becoming known throughout Europe due to existing expansion programme

Tesco could build on the strength of it's brand to join with a leading Swedish manufacturer of children's clothing and jointly there could be promotional opportunities for both Tesco and the Swedish company concerned.

Tesco is in very good financial health, so could very well afford to pay for expansion plans incorporating marketing programmes.

In considering how opportunities could be taken to address the weaknesses, provided that SO was achieved

Tesco's growing brand awareness throughout Europe could overcome lack of local knowledge by using local Swedish general managers to both run the stores, and recommend location, and by ensuring their involvement in local marketing initiatives.

By forming alliances with Swedish clothing manufacturers and by building upon their knowledge of the local population's sizing and purchasing habits, it can only be a win win situation for the companies concerned.

In reviewing the key threats and applying the strengths

Existing competition in the Swedish market means that Tesco will need to use their financial resource to create and sustain a high profile and multi level marketing campaign to both raise the profile of Tesco within Sweden and introduce the concept of quality children's clothes at Tesco and to reinforce the message periodically throughout the years. (Website G)

CONCLUSION

the sources of the Tesco show now far he barding and effective services deliveries can come in moving beyond splashing one's logo on a billboard .it had fostered powerful identities by marketing their retailing concept into a virus and spending it out in to the culture via variety of channels ,culture sponsorship ,political controversy ,consumer experience and brand extensions in a rapidly changing business environment with a high competitor pressure Tesco have to adopt new expansion strategies or diversified the existing in order to sustain it s leading market position in an already established retailing market. The company must constantly adapt to the fast changing circumstances .strategy formulation should there fore be regarded as a process of continuous learning which include learning about the goals the effect of possible actions towards these goals and how to implement and execute these actions .the quality of formulated strategy and the speed of its implementation will therefore directly depend on the quality of Tesco's cognitive and behavioural learning processes.