A case Study on TESCO
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Introduction to Marketing Strategy
Strategy can be defined as a long-term plan to accomplish certain objectives. Therefore, a marketing strategy can be understood as a marketing plan to achieve the desired marketing goals and objectives. In the context of today’s dynamic business environment, marketing is considered as a strategic discipline, which should be directed to gain the competitive success. For this reason, organization’s are continually trying hard to develop their market share as well as brand leadership rather than just focusing on increasing their revenue (Hills and Jones, 2009). In simple words, strategic marketing can be understood as the broad concept, which along with product promotion strategies also addresses issues such as market segmentation, targeting the market as well as product positioning. Attributing to this fact, it can be said that strategic marketing is the management phenomena of embedding the marketing concepts to the central point of organization (Kotler, 2009). In this report, marketing strategies adopted by Tesco, a leading retailer of food and non-foods items have been demonstrated. In addition to it, significance of internal and external business environment while formulating various strategies has also been examined.
Tesco is one of the largest food retailers in the world, which is operating with around 4331 retail stores in 14 countries around the globe. The company has almost 960 express stores that sell approximately 7000 items including food and non-food items. Moreover, it has 170 metro and 450 super stores (Profile: Tesco, n.d). The company is enjoying largest market share in the UK as well as international markets due to its vigorous marketing strategies. The company is able to target different customers from varied location through its diverse range of product and network in multi-countries.In the fast changing market trends, company has well understood the importance of new marketing strategies in order to entice more customers and thus getting the competitive advantage over rivals.
The role of strategic Marketing in TESCO
Strategic marketing enables the organization to consider every aspect of business including competition, future plans and opportunities, prevailing trends etc. before making any decisions (Varadarajan, 2010). Marketing strategies of Tesco aids in achieving the objective of giving maximum satisfaction to customers by meeting their demands and expectations effectively. A valuable and result-driven strategy helps in assessing the current position of the company with regard to four P’s of marketing i.e. product, pricing, Channels of distribution and Promotional techniques. It helps Tesco to identify potential opportunities that can be seized effectively in order to gain competitive success and also to offset the external environmental threats that may affect the organization’s smooth functioning and thus, hinders its long term growth and success. Role of strategic marketing is not limited to this, but it provides some other benefits such as, it guides management in decision, understanding the current market trends and customer as well as competitor behavior (Kanagal, n.d). This in turn helps in directing all company’s resources and efforts in meeting the expectation of the customer better than the rivals, which further provides greater customer satisfaction.
The company also gains operational effectiveness through the implementation of strategic marketing, that means, as every employee is well aware about his roles, functions and the goals of the company therefore all their activities are directed towards achieving that goal without any conflicts or confusion which in turn improve productivity and reduce cost and time intricacies. Effective strategic marketing of Tesco further helped the company in achieving the competitive advantage and to become one of the largest retailers in the world (Humby and et.al., 2008). This has also supported in expanding the company’s network all over the world along with maintaining the brand reputation. Thus, it can be said that strategic marketing has the key role to play in Tesco’s sustained growth, availing the potential opportunities, resilience to change and also in defining the future development (Stokes and Lomax, n.d).
Relationship between corporate and marketing strategy
Corporate strategy is based on accomplishing the main aim of the organization i.e. to maximize revenues or profits that are usually attained by gaining new customers, retaining old ones and making them loyal towards the firm. For this reason the business enterprises are required to make such policies and strategies that help in gaining the long-term growth and success (Corporate strategy, n.d). The corporate strategy, thus, focuses on overall organization’s activities and operations and directs them towards achieving the main objectives of the company. On the other hand, marketing strategy is vital element of corporate strategy that emphasis more on consumer behavior and understanding their needs and expectations of the company and thus meeting them effectively than rivals. Corporate strategy encompasses various functions such as defining mission, goals and objectives of the company, allocation of the available resources to departments, establishing the business unit and formulating the policies that guide every organization’s operation. While the marketing strategy is being developed by a company in the line with overall corporate strategy, core competencies and value-chain (Frenz, 2013).
In Tesco, the marketing and corporate strategy are linked in value-chain which aims at developing and marketing the product that customers wants (Walker, 2006). Considering customer as the focal point of business, Tesco aligns its marketing activities with the corporate policies in order to gain competitive success for the long term. Tesco’s customer-centered strategy is committed to creating value for money products at very affordable prices, focuses on giving them unique and quality services in order to enhance customer loyalty (Humby and et.al, 2008). Its various strategies such as providing a reward through loyalty or club-cards, offering widest possible options for products at reasonable prices and developing new store formats so as to give customer’s best shopping experience differentiate Tesco form its competitors and help it to entice more clientele. In addition to it, Tesco’ other objective of creating value brands facilitates it in developing new and classy brands for its product range and thus appealing aspirational shoppers who prefer a healthier lifestyle (Frow and Payne, 2005)
Developing the marketing strategy
Developing marketing strategy is very critical task for every organization; it requires detailed analysis of each and every aspect associated with the business (Develop a marketing strategy, 2013). Below mentioned are some steps that Tesco requires while developing marketing strategy
Internal analysis: Internal analysis comprises of firm’s internal strength and weakness. It also includes policies, structure, culture, workforce, resources available , the financial strength of the organization that will assist in ensuring the efficiency in the implementation of marketing strategy
External analysis: External analysis refers to examining all the factors that exist externally to organization and directly or indirectly affecting the business operations. It starts with knowing the existing trend and needs of today’s customers, what products they expect and demand (Giovanni, 2012). Second external factor is competitors in which potential competitor’s strengths and threats from them are identified with a view to offset them optimally. After that, factors such as legal, technological, political power, social factors are analyzed. External environment analysis thus involves analysis of micro as well as the macro environment of business.
Setting Objectives: After analyzing the business environment it is required by an organization to set the goals and objectives that are measurable, specified and clear in terms as all the business operations and activities in the future will be directed to achieve these goals and objectives.
Formulation of strategy: Once the goals and objectives are specified, strategies are formulated in accordance with it. Marketing strategies are developed that defines product, price, place i.e. distribution channels and promotion techniques to be used. The strategies set should be able to overcome the threats and availing the growth opportunities before competitors do (Pophal, 2009).
Strategic Marketing Analysis
Approaches to Internal Environment Analysis
IT Integration: In today’s complex and dynamic environment, organizations face more difficulty in adapting themselves to changes and making forecasts. To overcome such challenges, Tesco has developed such systems that control inventories; keep track of all stocks and their delivery, further it also helps in analyzing the various business transactions (Chaffey, 2012). It benefits the company in terms of improved product, services as well as operations which in turn enhances organizational effectiveness. Extranet system enables the company to create information flows between business partners and company itself. This brings more integration, flexibility, extensibility across channels of distribution and thus enhances collaborative relationship with corporate partners (Tesco’s IT strategy to support international expansion, 2008).
Supplier Management: As has been the leading retailer offering diverse product ranges, Tesco works with several suppliers around the world. Use of advanced technology in its operations and communications, it helped in maintaining cooperative relationships with suppliers. It has also enabled the company to control various activities of suppliers and hence ensured timely delivery of stock to all stores. The company also conducts supplier management programs to study major suppliers and making them satisfied (Marketing theory, 2013).
Core competencies: Excellent performance can be judged by the way a company deploys its resources in various departments. Tesco focuses on its core competencies in order to gain competitive advantage. The company has made very strong position in the retail industry through its unique service concepts, introduction of premium quality products and maintaining a good corporate reputation (Our strategy, 2013). Further, it optimally utilized its resources (material as well as human) and competencies that ensure effective operational performance.
Cultural Web: Culture implies that how company and its employees behave; it includes system, operations, structures etc. Tesco has supportive and value-driven organizational culture which reflects how staff behaves inside and outside the company (Russell, 2012). The measurement and control systems employed by Tesco enable the management to review the performance and efficiency of all its employees as well as a decision making process of managers. Frequent discussions, meeting with employees and open and effective communication at every level of organizational hierarchy reflect the well-built internal environment which in turn makes each employee satisfied and motivated towards performing better (Stonehouse and Houston, 2012). Moreover, corporate gatherings, special event aids to it.
Approaches to external environment Analysis
Every organization faces challenges of rapidly changing external business environment. At times these changes are slight in their impact while sometimes they have huge consequences for the organization such as a change in taste of consumers, needs etc, new technology etc., a collaboration of two larger rivals etc. However, these changes create both threats and opportunities to an organization’s development (Giovanni, 2012). As the organization cannot remain stable or static, so it should frequently monitor its external environment in order to ensure the growth of business, formulating strategic capabilities that help in achieving the success and also to improve the ways to develop existing and new product with a view to meet customer’s expectation efficiently.
Political: Tesco has its network all across the globe, therefore it is required by the company to adhere to rules and regulation of every country in which it is operating. The organization has to comply with these regulations and laws before making corporate decisions such as entry to new markets, developing product, making strategic alliances or joint ventures etc.
Economical: For any organization, economic factors are of major concern as it has a direct impact on consumer buying behavior. For instance, the recent economic downturn influenced people to reduce their spending on high-valued and premium products and services. Keeping this into consideration Tesco’s low-price strategy encouraged the customer to shop from stores at very affordable prices (Ferrell and Hartline, 2010).
Social: Tesco recognized its customer’s needs, preferences, expectations and lifestyle and accordingly designed its product and services. On one side of the continuum, due to increasing concerns of people towards health and safety, Tesco promoted green, healthy and fresh food items in its stores. While on the other side of the continuum, the company considering busy and hectic like of consumers created online shopping facility (Frow and Payne, 2005). These developments have been made possible only by understanding the needs and expectations of consumers that Tesco has effectively identified.
Technological: In the present vibrant and highly competitive market, technological savvy has become the critical success factor for every organization. Effective use of technology in its every operation of supply chain management to delivery of goods to consumers has made the company to gain a competitive edge over others. The technological advancement has facilitated the company to sell its product online or through mobiles (Doole and Lowe, 2008). It has also enabled the company to reach masses of consumers despite of their geographic location easily through social media. Moreover, with the help of website, the company gets to know about its potential customers and also make them aware about the wide range of product and services it is offering. Technology thus assists the company in knowing its customers in a better way and thus meeting their expectations efficiently (Amalesh, 2011).
Competitors Analysis: Competitor analysis is the key aspect of market research that helps to identify the nature and degree of competition. It also assists in identifying the company’s current market position in respect to competition and to what extent rival’s brand appeals to customers. Tesco is operating in an intensified competitive market, facing competition with three major players: Morrison, Sainsbury and Asda. These giant retailers have their network in many countries that enable them to influence the market as whole (Tinson, 2004).
Customers: For every business organization, customers are the lifeblood which makes the survival and growth possible. Tesco well-recognizes the needs and demands of its customers and accordingly work to meet these expectations in a better way. Keeping the consumer trends into account, the company develops its product and marketing strategies. It also conducts market research and surveys to interact more with customers and identifying their behavioral needs. Through the social media networking sites such as Facebook, Twitter and many, firm attracts customers from various geographic presences (Craft, 2004). The company has molded itself with the prevailing consumer trends which have further provided the opportunity to capture major market share.
Suppliers: Computerized supply management system enables the company to maintain systematic and collaborative relationship with its suppliers. This also facilitates effective monitoring and control over operations of different suppliers in order to maintain the performance efficacies. The company with a view to built competitive advantage by providing its customer’s quality product transacts with the best suppliers from all over the world.
The company: Tesco’s value, strategies, policies and systems are well-structured and lays their emphasis on accomplishing the goals and objectives. Its value of being of high standards facilitates use of sophisticated management strategies and techniques that direct towards achieving the desired goals. The company with its strategic planning focuses on every aspect of business i.e. customer satisfaction, employee performance, financial position, operations and thus maintaining the constant and standardized business growth (Greengrove, 2002).
Employees: Tesco having its approach all over the world is comprised of around 400,000 employees of diverse cultural background, nationality, views and perceptions. In addition to it, as the company has various organizational levels, therefore the employees working with it are also of different qualification, experiences skills and competencies. Tesco believes in recruiting a diverse staff having diverse views, ideas, talent, skills and capabilities (Corporate strategy, n.d). The company optimally channelizes these skills in making the innovative and creative path to achieve the success. It also conducts various training and development programs to enhance the personal and professional skills of employees. The firm has adopted Red Prairie’s human resource management to manage its global employees.
Integrating Internal and external Analysis
By analyzing the internal as well as the external business environment effectively, Tesco has been able to adapt itself with this ever-changing market. It can be reflected from various initiatives taken by the company to respond to the prevailing trends in the market. Tesco has overcome its weakness of too much reliance on the UK market by expanding its network across the globe. It has also been successful in offsetting the threat from competition by implementing various strategies such as brand management, cost leadership, differentiation, diversification etc. and thus able to make a competitive advantage over rivals. The company has also utilized growth opportunities of emerging market like China, Japan etc. by making partnership and alliances with domestic organization in these countries (O’Reilly, 2013).
Tesco has also jumped into non-food sector like insurance and other financial services, convenience market, merchandising trading etc. to target different customer segments. On the other hand company has also recognized the significance of its human resource in organization success, therefore making huge efforts to utilize their skills and competencies in order to gain competitive success. Tesco also abides by the laws and regulation of the government of each country in which it is operating and ensure its operations comply with said rules and policies. Moreover, the organization is also taking various initiatives to act in accordance with corporate social responsibility. In sum, it is comprehensible that Tesco understands its external and internal environment cautiously so as to gain competitive success (Our strategy, 2013).
Decisions and choices made at corporate level
Strategies made at corporate level define the market in which an organization operate and compete to achieve the desired goals. The decisions made at corporate level mainly involve what product and services the company should be involved in?, what segment of market should be targeted in order to achieve the desired goals? How to position the product in market?, what market to compete with? etc. The decisions made at this level to great extent affect the growth and success of business and thus, they are critical to every organization’s success (Stonehouse and Houston, 2012). In Tesco, the financial decisions, allocation of the resources to various departments, staffing etc. are made at corporate level. In addition, as the market in which company is competing is vast, globalized and greatly competitive, so all the activities that are done to achieve the corporate objectives constitutes under the domain of corporate level practitioners. Addition of new product in product mix, developing the existing product, diversification falls under the realm of corporate level (Our strategy, 2013).
As suggested by Porter, the competitive advantage can be achieved by implementing three generic strategies. Tesco is offering the products and services at relatively lower cost than competitors and thus enjoys the cost leadership in industry (Frenz, 2013). The company is able to control its operating costs effectively which in turn enable it to price its products and services competitively in order to generate high profit margins. The other strategy of differentiation has also been adopted by Tesco through which it offers products which different and unique features in terms of technology, customer service etc. at affordable prices. The third strategy is aimed at target market which can be focused either by differentiation or cost leadership. While pursuing these strategies the company emphasis on creation of internal operations efficiencies that will in turn help to withstand external environmental pressures (Tesco changes marketing strategy, 2007).
By forming the partnership and joint alliances with local organization, Tesco enter the new and emerging markets. It also helps the company to exploit the knowledge of domestic partners in identifying the needs of consumers and thus satisfying their needs and expectations effectively.
Marketing Decisions at business unit and functional level
In large multi-national organization like, Tesco, there exists a strategic business unit that represents specific divisions, each of which is responsible for its functions, operations and associated decisions. Sometimes these business units are based on a particular product or service line, which involves decisions regarding individual product and services. The decisions may be regarding development of existing product or introduction of totally new products etc. Basically, the business units emphasis on their product life cycle, competitive advantage and competitive environment (Marketing theory, 2013). Business level decisions are primarily concerned with navigating the competitive market in such a way to ensure required finance and market edge in context with other business in same strategy.
- Integrating and coordinating unit operations in order to align with corporate strategies
- Developing competitive advantage and competencies in unit
- Formulating strategies to compete in product niche markets
- Frequently monitoring the markets so as to conform the needs of consumers
On the other hand, functional level decisions are concerned with integrating the functional areas of an organization such as, Human resource, finance, research and development, marketing, production etc. in order to contribute to overall corporate success. Functional level decisions that affect marketing are such as, utilizing expertise within functional areas, coordinating different activities like marketing research, advertising, promotion etc. However, decisions of functional level usually have shorter time orientation and are certainly taken by lower-level managers involved in specific functional areas (Dyer and et.al, 2004).
Approaches to competitive positioning of TESCO
Five-force model by Porter is employed by Tesco to investigate the external environmental factors influencing the company. In context with the Threat of new entrants, company along with the other major retailers like, Sainsbury, ASDA enforced strong barrier to entry of new rival within the same industry. For instance, it is difficult for new retailer to match up with the position of these global players and also to find reliable and cheaper suppliers. The second force i.e. Buyer’s power, Tesco’s customers have substantial buying power as they can switch to other supermarkets to get the cheaper products. This has forced Tesco to have disciplined approach in fixing the prices (O’Reilly and Kerrigan, 2010). On the other hand, the company has the power of supplier in their own realm.
Being the largest supermarket in the world, Tesco has different suppliers for every product it is offering. This has enabled to gain control over suppliers and making them efficient in their performance. Forth force of competitive rivalry shows that organization faces tough competition from Sainsbury, Morrison, ASDA and some other food retailers who compete with products, price as well as marketing and promotional strategies with the aim of gaining more customers from all over the world. The fifth and last force that affects the competitiveness of Tesco is the threat of substitutes. To gain the new growth opportunities of the market, Tesco has expanded and diversified its product mix, providing relatively cheap products than rivals (Strategic Marketing: Tesco buys Giraffe in move up market, 2013). It has also provided online shopping facilities to customers with the view to retain them which in turn have enabled the company to offset the threat from substitutes. From the Porter’s five force model analysis, it can be said that Tesco has become successful in implementing its strategies to gain the competitive advantages over rivals.
Competitive positioning reflects the significance of the environment and its analysis in context to business which in turn provides the effective tool to become the market leader. It can be achieved by efficiently understanding the needs and behavior of consumers and satisfying them in every aspect better than rivals (Madaan, 2009). Tesco by adopting an approach suggested by Porter’s five force model analyze its competitive position and accordingly formulate strategies to mitigate it.
To enter the emerging markets such as China, Japan etc., Tesco has made the strategic alliances with key domestic players which has further facilitated in maximizing revenues and expansion across the globe. This strategy has been considered as a means to market development and also helps in exploiting optimally the available resources and competencies of local players. The company has gained large economies of scale and thus gained a large market presence (Hulten, 2007). While operating with own supply chain, store operations and product development, it has also utilized local market knowledge and operating expertise of its domestic partners in order to render best shopping experience to each and every customer. The partnership has been successful in three key areas: Feasibility, sustainability and Acceptability in local markets which in turn helped the company to extend its network around the world (Lowe and Doole, 2008).
Strategies that contribute to competitive advantage
In today’s highly globalized and intensified competitive business environment, Tesco has to formulate such strategies that align the company’s resources with changing internal and external environment with a view to broaden the customer base. It is employing four prime strategies that facilitate in gaining competitive advantage which includes market penetration, market development, product development and diversification (Pophal, 2009). In addition to these, its sophisticated brand management strategy also adds to firm’s competitive advantage:
Market penetration: Tesco has become successful in penetrating within existing market with existing product and services and thus increased its market share in the UK as well as other countries.
Product diversification: Tesco is operating with the diverse products and services, under the private label, such as food and non-food items like insurance, merchandise, petrol, electrical appliances etc. along with adopting a competitive pricing strategy which in turn aided in gaining the competitive advantage over rivals (Greengrove, 2002).
Market development: Tesco has been able to extend its network all over the world with its new and diversified product range and services. Moreover it supports with strategic alliances and partnership that the company makes with domestic players. It is further enhanced with distribution channels, introduction of new product and other corporate and marketing strategy (Craft, 2004).
Brand Management: The Company has made its strong brand identity in the retail food market and is being recognized as a supplier of quality goods and services. Tesco has managed its branding by adopting innovative ways to improve the customer shopping experience.
Application and Implementation of strategies by TESCO
The success of company as world’s largest retailers shows the effective implementation of branding as well as marketing strategies. Tesco has fostered powerful position by promoting the retailing concept through viral marketing and thus, reinforcing it into every country and culture via brand extensions, cultural sponsorship etc. In drastically changing markets with high competition pressure, the company has applied new expansion and diversification strategy so as to sustain its global leading position in the retail industry (Russell, 2012). With a view adapt business with current trends; formulation of new and innovative strategy is of prime importance. Moreover, having the largest network as well as organizational structure, the strategies should be examined and implemented as various levels of an organization’s hierarchy. The company’s strategy at the corporate level defines the product and services in which it will compete and focuses on available resources to utilize them in optimal manners in order to gain competitive advantage (Dyer and et.al, 2002). The company is striving to innovate its product and service ranges so as to achieve the objective of targeting every customer segment across the globe. It directs its activities and strategies to provide superior quality product and services to customers. The company is equally focused on its workforce development and encouraging them to come up with the new and innovative ideas by being customer-oriented (Profile: Tesco, n.d).
The above analysis of Tesco’s marketing strategy in respect with Internal and external analysis; it shows that company to a great extent has been successful in various markets due to its strong brand identity as well as marketing strategies. The company has been able to gain strong market position because of its diverse product lines (Chaffey, 2012). In present dynamic and competitive market, Tesco has adopted various product development strategies and technology to sustain and grow in the market. Tesco is presently working on product differentiation and cost leadership and thus earning high revenues in domestic along with international markets. However, the company is required to emphasis more on adopting its operations with the changing needs of consumers (Ferrell and Hartline, 2010). Use of different strategy for diverse markets will provide huge potential to grow and success of the company. In addition to it, coordination of suppliers, employees and other business partners is also significant for its victory.
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