Strategic Management refers to the managing of organization resources in order to achieve the desired objectives and goals of the company. It includes setting objectives, analyzing the competitive environment, and evaluating strategies for the firm. This report discusses the use of management tools like PESTLE Analysis, Porter's five generic Strategy, etc. by Tesco for introducing its new product Palm Oil within markets of UK. Tesco is a British leading multinational company. It was established in the year 1919. It deals in home essentials.
1. Macro environmental analysis of UK and Tesco
Tesco is introducing a new product Palm Oil within market of UK. Palm Oil is an important ingredient used in many dishes for cooking. Company is introducing this product in London and other parts of UK; PESTLE Analysis has been conducted and its impact over the product.
- Political: The UK government is taking measures to address deteriorating economy, which includes mix of monetary and fiscal policies. UK consists of England, Wales, Scotland and Northern Ireland. It is one of the most powerful countries of the world. Political Stability of country is strong; UK is among the most successful nations who have effectively applied rule of law, control of corruption, regularity quality and Government effectiveness.
However, Brexit has created political debates and uncertainties within country. Some economists believe that it may create chaos in the country while others believed that it may open doors to numerous opportunities. Tesco needs to carefully analyse the market situation. Tax reliefs are given to investors on their capital gains. The current corporation tax rate for company profits is 19% and it will be further reduced to 17% that generates more revenue (Barney, 2012).
- Economic Factors: The economy of UK is the 5thworld’s largest economy. It faces recession in year 2008, this put economy into great trouble. However, government took necessary actions to robust economy. UK follows an inflation targeting system where the percentage increases in the consumer index are to be maintained at 2%. Changes within interest rates are the primary measures of control which is used by bank and MPC to maintain inflation at desired rates. British household faces certain challenges in 2017. The prices within shops got increased at faster rates. The inflation rate rose to 3.1% in November 2017. This was below the target set by Bank of England. Mixed economy is followed within certain parts of UK, which affects the decision of what to produce, how to produce and for whom to produce (Hitt and Duane Ireland, 2017.).
- Social factors: The UK has been influenced by the idea of Social classes; however, the population within country is multicultural. Estimated population of UK is 65.6 million in 2016. Nevertheless, the population of country is getting older as well.
In 2016, 18% of people were aged 65 and over while 2.4% were aged 85 and over. These implications affect both labour and health care system. However, there are lot of opportunities for Tesco to cater needs for older population. Company would be benefited from these sectors of population. Further, the diversified population of country provides many opportunities for the successful growth of Palm Oil. UK is one of the top 10 countries perceived to have the most number of literates in the world. Thus, this provides highly competent and skilled labourers for Tesco.
- Technological: UK is one of the most technologically advanced nations. Businesses within countries are frequently developing innovative technology to enhance productivity and customer satisfaction.
London is a great hub for both technological and financial institutions. Technology is the major contributor to economic sector of UK. The government of UK is spending huge amount of money to developed technologies within country. It attracts around £28 billion in technology investments in 2011, as compared to other strong economies of world. This creates opportunity for Tesco to use effective technologies for production of Palm Oil.
- Environmental: The environmental regulations within countries are strong and if anyone found guilty while breaking these regulations may oblige to set punishment for the crime conducted. There are government department like; Defra who responsibility is to control food industry, animal welfare, and environmental issues and flood defence. It empowers people of UK to live within the given environmental means. This shows company needs to build up a proper mechanism to control factors that can harm nature due to plantation and harvesting of Palm trees for oil purposes. It must consult to government organisation for regulation and monitoring the harmful impacts of deforestation.
- Legal: There are certain laws and regulations for organisational needs to be followed within their specific industries. But, certain laws like Employment rights Act, 1996, the Employment Act, 2002, Equality Act, 2010, etc. outlaws discrimination on the basis of caste, creed, gender, race and religion, etc. It provides protection to rights of employees and health and safety at workplace. Tesco needs to address these regulations carefully to avoid legal proceeding on company (De Villa, Rajwani and Lawton, 2015).
2. Assess three modes of market entry and recommend the best mode
Tesco can introduce its product, Palm Oil through different modes of market. These are; Joint Venture, Franchising, Wholly Owned Subsidiaries.
- Franchising: It refers to arrangement where one party grants a right to another party to use its trade name or trade mark. Along with this, it grants certain business systems and process for producing and marketing products/services. The terms and conditions of a franchise vary and it depends upon the contract. It usually pays fees only one-time and gains certain advantages like tired and tested products, immediate name recognition and detailed techniques in promoting and running their business (Villar and et. al., 2014)
Franchising can be a beneficial tool for Tesco as it helps in cross border market entry. Further, company would be benefited from local knowledge of franchiser that would help in expanding business to local people of UK. The chances of risk are less than equity based foreign entry modes. Before entering into this mode of market, Tesco should analyse negative impact of franchising, these are as follows:
Franchises reduces down the revenue generation of Tesco. It is because company would earn only the royalty fees and not the profits which is earned by their different franchises. You provide the best thesis help with quality content.
This will increase the chances of nurturing a franchise as a future competitor.
It will take away the control of company.
- Joint Venture: A joint Venture refers to Business organisation undertaken by two or more person or organisations. In this process two parties agreed to pool their resources for the purpose of accomplishing a specific task. This as an agreement between parties for a particular purpose and set time frame. These form of business agreements have shown a great growth in past years. To enter through this mode of market Tesco needs to join hands with a well established and successful companies. Further, Tesco needs to have common goals and objectives with regards to market entry, acceptable level of risk/reward of the market enter, sharing of technology and following local procedures of government. The benefits of Joint Venture are (Lin and Wu, 2014);
- It will provide company with new insights and ideas which help Tesco to increase it sales of Palm Oil.
- Both parties in Joint Venture will share risk . Thus, it will reduce down the burden over Tesco. Further, it is a helpful tool as Tesco has introduced it Palm Oil and will need a strong support.
The demerits of joining joint venture is:
- To enter through this mode Tesco needs to conduct a detail research of companies with which Tesco will join hands.
- Further, it reduce down the flexibility in operations of company.
- There must be great imbalances in terms of expertise, assets and investments as different company is working together.
- More over Tesco cannot enter through this mode as Joint Venture are for short period of time.
- Wholly Owned Subsidiaries: This refers to a firm which is completely owned by another company. Business entity which owns that subsidiary is known as Parent or holding company. Parent company has the right over all the stock of subsidiary and it can appoint there directors which controls operation of company. The benefits of Wholly owned subsidiaries is that it provides chances of diversification and manage their risk. Further, company can rely upon suppliers and service providers. It can take control of their supply chain.
The recommendation for Tesco to enter into new market with regards to it new product is that company should enter throughWholly Owned Subsidiaries. This mode of market entry is been recommended due to following reasons:
- Wholly Owned Subsidiaries provides a full right to Tesco to exercises control over the operations in foreign country.
- This benefits Tesco as it dose not need to share it Trades secrets and process with others.
- This reduces the risk of competition and competitors within Palm oil industry.
- It will be benefited tool as Tesco will have all the rights and powers of it Subsidiaries. Company can change or appoint Boards of Director accordingly.
- Wholly Owned Subsidiaries would be a suitable option as Tesco can ask it subsidiaries to imply all it resources to developed new product or to create a product differentiation.
- It can used earnings of it subsidiaries to expand it business to other parts of the world (Wright, Paroutis and Blettner, 2013).
3. Concepts of market Segmentation and targeting. Evaluate the potential target market.
The term Market Segmentation and Targeting is used within marketing strategy of a company. According to marketing theory in order to developed a successful marketing strategy. The service marketers must developed a successful market segmentation.
- Market Segmentation:It refers to process of dividing or segmenting a market into smaller uniform groups. That have similar needs and characteristics. Segments created are composed of individuals that will response similarly to the marketing strategies. It assumes that different market segments required different marketing programs and techniques. There are five type of market segmentation which are; Geographic, Demographic, Behavioural, Situational and Psycho graphic Segmentation. The benefits of market segmentation is that it will help Tesco to realise the needs and wants of their targeted consumers before their competitors. Market Segmentation reduce down the risk of an unsuccessful marketing campaign conducted by company. Further, it helps to target a potential segment and formulate plans of marketing accordingly (Laufs and Schwens, 2014). To properly practice segmentation the marketer within Tesco need to keep certain things in their mind i.e.
- It should be measurable i.e. in terms of size, buying power and profiles of each segment.
- It must accessible which means the company should reach to all target consumers through it marketing mix.
- Each segment must be different from another segment.
- Targeting:The term targeting means to break a particular market into a segments and then to concentrate over marketing strategies of that particular segment. This consist of two steps which are:
- Evaluating Market Segments:The evaluation of market means to examine the suitability and attractiveness of particular segments. To determine attractiveness of a particular segments Tesco must look to characteristics like; accessibility, potential for growth, scale of economy and size. Also, firm should consider that particular segment must suit to objectives of company and its new product.
- Selecting Market Segments: After evaluation of market segments company deicide to enter which particular segment or how many segments. To accomplish this task Tesco must analyse target market. These market consists of various groups of buyers to whom company wants to sell their products (Teece, 2012)
The benefits of using market targeting strategies is :
- It helps Tesco to be cost effective in its operations.
- Assist company to prioritize their consumer market and formulate plans and marketing strategy according to needs and wants of target consumers.
- It helps to differentiate companies brand from its competitors (Gould and et. al., 2015).
Tesco needs to adapt market segmentation and targeting policies of marketing for effective positioning of it is new product within market of UK. Palm Oil is the world's most widely-traded and versatile vegetable oil. There are many countries across the globe that are the largest producers of Palm Oil. Thus, it creates a potential target market for Tesco Palm oil. The market segmentation and targeting practices that can be applied by Tesco within Palm oil marketing strategies are:
- Geographical segmentation: This will include cities, regions and climate of UK. The cities are; Ireland, England, London and Wales. The climate of UK is pleasant and this will promote more usage of Palm Oil.
- Demographic Segmentation: In this form of segmentation consumer market is divided on the basis of; Age, Gender, Religion, family size, Income and Education. Tesco has great opportunity to serve diversed population of UK.
- Behavioural: It divided consumers on basis of their knowledge, attitude towards product and how they would response. Tesco should analyse the consumer behaviour in relation to use of Palm Oil and how they would response to changes in their cooking oil.
- Psycho Graphic: it divides targeted market on basis of values, attitudes, interests and traits and lifestyles of people. Tesco has great opportunity to established a strong market for it product. Diversification in beliefs and value will help company to effectively places it product into market.
Tesco targeting and positioning for Palm Oil is as follows:
- Target groups for Tesco new product includes: Household consumers, Old Age Population, Young students and small and medium sized Hotels and restaurants. The focus of company would to target each groups separately and position product accordingly. It will formulate different marketing strategies for individual segments. For instances; It includes household as target group. The marketing strategy of company for this particular group is to attract all household ladies to buy Palm Oil and replace it with their present Cooking oil. It will display this product into all the supermarkets owned by Tesco In UK. Similarly, to lure young consumers Tesco shall elaborate the nutritional benefits of using Palm oil. Further, it can reduce prices of its product as compare to it competitors. Company must do effect positioning of its product by adopting Functional positioning . It means to increase quality of product and sold by way of effective advertising it to targeted consumers (Hitt and Duane Ireland, 2017).
4. Apply porter's generic strategy and how it will help company to gain competitive advantage:
Porter's Generic Strategy is used to determine a firm's relative position within a particular industry. It indicates direction or strategy for an organisation. These strategies are; Cost Leadership, Differentiation, Cost and Differentiation Focus (Porter's Generic Strategies. 2017.. The application of Porter's Generic strategy is as follows:
- Cost Leadership: It means to become a leader in terms of cost within dimension of the industry in which company operates. This can be achieved in two ways i.e.
- Increasing profits by reducing cost. This means to charge industry-average prices.
- Secondly, by increasing market share through charging lower prices while still making a reasonable profits due to reduction in cost.
Tesco can gain competitive advantage by using both the techniques. Company can reduce cost of it products in compare to its competitors. This would attract more consumers from each target groups. Secondly, Tesco must reduce down its cost of production by cultivating Palm tress within UK. Further, it can employ cheap labourers for cultivation of Palm Oil. This will help company to provide better quality of product at cheaper rate (Mathooko and Ogutu, 2015).
In this strategy firm needs to be unique and provide different product as compare to their competitors. This means company needs to build a unique product. It can do this by adding values, innovative feature, increase it durability , etc. Tesco needs to build a unique feature while introducing Palm Oil within markets of UK. As, Palm Oil is been sell earlier by other competitors of Tesco. This requires company to build a new and innovative feature. It can achieved this objective by:Cost Focus: This involves business seeking a low-cost advantage in just p[articular or small number of market segments. Tesco needs to be clear while targeting its niche market. After, targeting it can offer the lowest possible price. This can be done through understanding needs and preferences of that targeted market and dynamics within that market. To provide the lowest cost it is important for Tesco to ensures that it cost of production remains low. If the cost increase and still company provides at same rate then it may create loss to Tesco (Robson, 2015).
Conducting a deep research and development regards to current needs and demands of target consumers.
Tesco should conduct effective marketing of it products. This will help it to reach to widespread consumers in United Kingdom.
Company needs to be adaptive to changing Dynamic environment.
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Aim of Research and Market Analysis
The firm seeks differentiation in it target segments. This refers to special customer needs of particular segment. It creates opportunities for company to provide a complete different product from that of its competitors. To implement this strategy it is important for Tesco to see that there must be a different and special needs prevailing within target groups. To achieved differentiation focus Tesco can make use of it strong brand loyalty. It will it to easily sell it new product into it targeted market and will create a competitive advantage for company (Tanwar, 2013).
To choose any generic strategy Tesco needs to conduct SWOT analysis for each strategy. Further, company needs to conduct a Five Forces Analysis and must evaluate the result of each generic strategy. After, conducting a comparison then it must determine which strategy will be best suited to achieve competitive advantage .
This report concludes that how a particular firm can establish and operates it business within a new market or different country. The report shows that by using different management tools company can evaluate opportunities and threats for its product. To introduce a new product Palm Oil, within markets of UK Tesco needs to conduct PESTLE Analysis of UK and it impact over the product. Further, there are different modes through which Tesco can enter into wide markets of UK. These are; Joint Ventures, Franchise and Wholly Owned Subsidiaries.