Marketing Management at Tesco and Asda - Case Study Example

Mrketing Mngement "Tesco&sd" Introduction Today, with the tremendous growth of the retail market, s are spoiled for choice. With stores vyingfor footfalls, companies have resorted to offering more for less - more quantities, better prices and better services available at the same cost to the consumer. The focus of marketing efforts has also changed today. From merely increasing footfalls, and then focusing on top-line growth, the focus of firms has now changed to customer lifetime value. Customer lifetime value (CLV) is the value the customer generates over the whole period of association with the firm. It considers all the future cash flows of that customer arising from him consuming in the future. Customer relationship management should lead to increased CLV. When one thinks of maximizing CLV, one has to take a long term perspective and hence focus on customer retention rather than just making a sale. This, coupled with the concept of the Pareto principle - that 80% of a company's sales come from 20% of their customers - has made firms have realized that retaining that 20% is integral to their increased profitability (Jobber, Lancastor, 2006) Tesco profile Tesco is the UK's biggest retiler chin who sells everything to stisfy customers' needs such s books, grocery, household equipment, flowers, wine etc. (yhoo finnce 2003) Tesco hve stores in UK, republic of Irelnd, Frnce, Hungry, Polnd, Czech Republic, Thilnd, South Kore nd Tiwn. Through these stores they employ 260 000 people which 65,000 of these re employed overses tht giving them ccess to popultion of 280m cross 10 mrkets. Their gol is to crete 21 000 new jobs in the coming yer. Their min mrket is in the UK where 55 new Tesco stores where opened in 2002, which results in 729 stores now. Their profit in 2002 ws 1,221m before tx compred to previous yer when the result 1,070m. The Tesco group re lso offering non-food division nd retiling services. The non-food division consists of their own opticins. In order to mke it esier for customers for tht reson they cn buy both their grocery nd medicine t the sme time. Tesco re lso the owner of gs sttions. The retil services re offering personl finnce such s life insurnce nd generl insurnce (home, cr, pet, trvel), credit crds nd lons nd sving schemes nd their own webpge (yhoo finnce 2003). s of its 2006 yer end Tesco ws the fourth lrgest retiler in the world. The three lrgest re Wl-Mrt, Crrefour nd Home Depot. METRO ws only just behind nd might move hed gin if the euro strengthens ginst the pound, but METRO's sles include mny billions of wholesle turnover, nd its retil turnover is much less thn Tesco's. t 25 Februry 2006 Tesco operted 1,897 stores in the UK (25.9 million squre feet, 2.395 million m) nd 814 outside the UK (32.8 million squre feet, 3.02 million m). In the UK, there re 83 Tesco Extr stores; 447 Tesco superstores; 161 Tesco Metro stores; 277 Tesco Express stores nd 910 recently-cquired T&S stores still to be converted (see 'Moving in on the convenience ("c-store") sector', below. Tesco's mrket cpitlistion on 31 December 2005 ws 26.035 billion ($44.8 billion), which ws the lrgest of ny retiler bsed outside the United Sttes. Tesco is incresingly trget for people in the UK who dispprove of the effects supermrket chins cn hve on frmers, suppliers nd smller competitors. sd SD ws founded in 1965 when group of Yorkshire frmers decided to go together. SD's successes led to prtnership with the Wl-Mrt fmily from U.S. in 1999. The mission SD hs is to be "Britin's best vlue retiler, exceeding customers needs", (SD 2003) offering prices 10% lower thn min competitors on product such s fresh food, clothing, home, leisure nd entertinment goods etc. The compny lso offers hll lmb nd chicken to meet the demnd of Muslim customers, this long with rnge of ethnic foods, found in Hong Kong nd Jmic. SD ssures tht the "slughter process re crefully set nd monitored by SD's Product Development Tem". (SD 2003) SD hs currently 255 stores nd 19 storehouses throughout the UK nd is plnning to open 10 new stores nd two super centres, which is SD nd Wl-Mrt together, in 2003 creting totl of 3,900 new jobs boosting locl economies. Superstores ccount for some 90% of the portfolio with is currently employing 109,000 collegues. The compny's set purpose is to mke goods nd services more ffordble to everyone. (SD 2003) The compny rn loylty scheme few yers bck. 19 of SD stores rn the scheme on tril, giving informtion, but the compny in question decided to cncel the tril due to finncil problems. Operting the loylty scheme in every SD store proved to be very expensive, this would hve creted problem with the compny's mission to offer cheper prices. Informtion gthered during the tril showed customers of SD preferred low prices now thn gifts in the future. (SD 2003) The compny prctices "no excuses gurnteed" policy, it ws set up to ensure the customers not to feel uncomfortble when they would return or exchnge product. This entitles the customer to full csh refund even without receipt. Customers overchrged or underchrged in ny of the compny's stores, will be refunded the difference (if the customer hs been overchrged) nd is given 2 gift voucher for ech product tht the customer hs been chrged wrongly with. SD lso offers ny disbled customer rnge of dditionl service such s Brille guns, Electric Scooters nd Spcehog. The first mentioned ws introduced to the customers for the first time in 1998, it is dynmo gun used to lbel products in Brille for blind customers. SD is the only retiler to offer this service cross ll stores. Electric scooter tht is scooter with n elevting set enbling, disbled customers to rech products on the top shelf. The lst mentioned is high-tech wrden, which speks out whenever vehicle pulls into disbled prking spce. Its purpose is to mke people tht prk illeglly to think twice nd ressuring disbled customer tht effort is being mde to protect their prking spces. SD not only offers products mentioned erlier, the compny lso provides its customers with cr, home nd trvel insurnce (SD 2003). Mrket shre nd importnce of sd nd Tesco Currently Tesco occupied 30.6% of the UK grocery retil mrket while sd occupies 16.6%. Tesco's enormous shre is still growing: by September 2004, it hd incresed to mssive 28%, round 12% more thn its nerest mrket rivl, sd. In the UK, sd's only rel shot t ctching up with Tesco would hve come from merger with Sfewy, which ws disllowed by the competition uthorities 2003. However, sd's prent compny, Wl-Mrt, the world's lrgest compny, with globl sles of $256bn in 2003, is still eight times bigger thn Tesco. t present the only thret to Tesco's ever-incresing mrket shre would come if the Competition uthorities stepped in to enforce monopoly legisltion which defines 'clssic monopoly' s 25% of mrket shre in given sector. Since they hve lredy crried out n investigtion into the power of supermrkets in the lifetime of the Blir government, it seems unlikely tht the Competition uthorities will step in to stop Tesco's obvious nd incresing nti-competitive position. On the contrry, they re just letting Tesco grow nd grow. In September 2004, fter Morrisons bought Sfewy, Tesco ws permitted to buy 10 of the 52 Sfewy stores tht Morrisons were obliged to sell by the competition uthorities s prt of their cquisition. Tesco is eqully impressive when considering its shre of the totl retil mrket. Tesco's totl retil mrketshre is 12.3% nd it mens tht lmost one pound in every eight spent in the UK is spent in Tesco. a. Why Tesco hs been ble to chieve dominnt ledership position in the mrket Tesco's success in recent yers hs minly come from expnding overses, shifting to 'higher mrgin' non-food merchndise nd mintining strong UK core business. Its UK success hs been built on low prices, cultivting customer loylty, offering rnge of different store concepts nd expnding into retiling services, such s bnking nd insurnce. Tesco's focus on non-food items hs led some to wonder whether it is fir to compre Tesco with the other grocery retilers t ll s it seems to hve become consumer goods compny. t the nnul Institute of Grocery Distribution conference in October 2003,22 Tesco Chirmn Dvid Reid mde the ssertions tht 'You cnnot sve your wy to prosperity' nd tht 'Growth is crucil to shreholders...stff...nd suppliers'. Investing in growth is relly t the hert of Tesco's strtegy. This investment doesn't just come from ploughing bck profit. In Jnury 2004, Tesco rised 773m by plcing 315m new shres23, nd in Mrch 2004 nnounced joint venture with property group Toplnd to relese 650m from its UK property portfolio. The min reson for the new shre offering is to py off the compny's debt. Tesco's credit rting hd fllen the previous yer becuse so much of its growth hd been bsed on borrowing. Tesco hs four-pronged strtegy: "Core UK business" - Tht is, grocery retiling in its home mrket. It hs been innovtive nd energetic in finding wys to expnd, such s mking lrge-scle move into the convenience-store sector, which the mjor supermrket chins hve trditionlly shunned. "Non-food business" - Mny United Kingdom supermrket chins hve ttempted to diversify into other res, but Tesco hs been exceptionlly successful. By lte 2004 it ws widely regrded s mjor competitive thret to trditionl high street chins in mny sectors, from clothing to consumer electronics to helth nd beuty to medi products. Tesco sells n expnding rnge of own-brnd non-food products, including non-food Vlue nd Finest rnges. It lso hs done quite well in non-food sles in Irelnd. CDs re one of the best exmples, with Tesco Irelnd promising to sell ll chrt CDs (except compiltions) for 14.95 compred with HMV Irelnd or Golden Discs selling the sme for just over or under 20. "Retiling services" - Tesco hs tken the led in its sector in expnding into res like personl finnce (see below), telecoms (see below), nd utilities. It usully enters into joint ventures with mjor plyers in these sectors, contributing its customer bse nd brnd strength to the prtnership. Other supermrkets in the United Kingdom hve done some of the sme things, but Tesco hs generlly implemented them more effectively, nd thus mde most profit. "Interntionl" - Tesco begn to expnd interntionlly in 1994, nd in the yer ending Februry 2005 its interntionl opertions ccounted for just over 20% of sles, or bout 7 billion (pproximtely $13 billion). It hs focused minly on developing mrkets with wek incumbent retilers in Centrl Europe nd the Fr Est nd now in 2006 they re going to brnch out in the United Sttes. The medium term im is to hve hlf of group sles outside the United Kingdom. Tesco rolls out successful UK inititives in other countries. For exmple Tesco Finncil Services nd Tesco Express convenience stores both operte in severl mrkets. b) The improvements sd mngement should focus on in strengthening the compny's vlue proposition. Products from sd shop re vilble t identicl prices to those found in the SD stores. The delivery chrge is set to stndrd of 4.25 nd is free if the order is over 99. There is no minimum order mount; this mens the customer cn order s little or s much needed. (SD 2003) The Internet home shopping service is not yet vilble to ll, lthough plns re set to expnd s quickly s possible. By registering ones detils on the compny's website, SD will contct the customer s soon s the service of home shopping is vilble in the re. Delivery is mde 7 dys week, by choosing two-hour delivery window when the order is plced, the customer cn pick slot 15 dys in dvnce. Strtegy implementtion is n importnt fctor which sd should not overlook. Strtegy implementtion encompsses most personnel within n orgniztion nd it is importnt to understnd the strtegy being implemented. It is importnt for orgniztions to mrket nd position products, invest in technologies ccording to the mrket, hve enough cpitl vilble. n importnt spect in sd is to focus on the mrketing spect becuse mrketing will llow the customer to see the potentil benefits they my receive. This brodens into the ctegory of mrket segmenttion nd product positioning. This bse hs been selected nd pplied to sd becuse mrketing plys criticl role in ttrcting customers. lthough sd hve mrketing strtegies it is importnt for sd to mrket online in more effective mnner. To dte, sd's online system does not offer customers to view products nd services in rel-time. This mens consumers prefer to shop in store so they cn feel nd touch products. sd's website lso do not encompss softwre which trck their consumers movements, this could be used s mrketing tool. This could be in the form of customers receiving n emil or text messge informing them tht the products they hve been viewing re now on discount. This would enticed customers to use the website more nd more often. BY segmenting the mrket it is more esier for sd to rech their trget udience. nother importnt spect which sd hve to consider is its reserch nd development. (Dvid, 2005) suggests tht "the most successful orgniztions use n R&D strtegy tht ties externl opportunities to internl strengths is linked with objectives". s result of this, orgniztions re ble to invest in reserch nd development to benefit from differentition of products nd services. While this frmework highlights wht the importnt spects of R&D re it would be useful for sd to focus on the three spects of R&D. In the first instnce sd could become the first to mrket new technologicl products. s mentioned before the concept of online shopping is slow, therefore sd should ddresses this with new mrketing cmpign. Secondly sd cn imitte wht Tesco re doing t the moment by bsing their reserch on Tesco's positive spects. This would include mking sd stores into smller convenience stores s this would not only offer more convenience to customers but will still promote their low prices. nd thirdly through reserch nd development sd could gree on collbprtion with smller supermrket such s Morrisons to being together technologies which will knock Tesco off the top spot. This hs identified the wys in which strtegies cn be implemented within orgnitgions, it is now importnt to look t wys in which the permnce of the orhnistion cn be monitored. Question 2: customer reltionship mngement s Criticl success fctor for Tesco nd sd strtegies As we are increasingly finding, one of the most effective ways of capturing and utilizing customer data for marketing and sales efforts is by investing in technologies such as a customer relationship management system (CRMs) (CRM Today, 2007). The Benefits of a Customer Relationship Management System is that methodologies, software, and usually Internet capabilities help an enterprise manage customer relationships in an organized way. From a technological standpoint, CRM can be categorized as the largest compilation of IT concepts to date. It involves moving the ownership of customers away from individual departments to the enterprise level. In addition, its focus is also on best serving the needs of each customer on a personal level rather than serving the needs of target markets as a whole. The primary functionalities of CRMs are still debated by experts, and often times it varies depending on the purpose the system is intended serve in that instance. However, the high-level buckets of CRM capabilities can be categorized according to customer service, marketing, and sales (Alberta e-Future Centre, 2007) In the retil industry it is crucil to hve excellent customer reltionships in order to sty competitive on the mrket. For both sd nd Tesco this hs been importnt tool implemented in their strtegies over the yers. Tesco's growth over the lst two or three decdes hs involved trnsformtion of its strtegy nd imge. Its initil success ws bsed on the "Pile it high, sell it chep" pproch of the founder Jck Cohen. The disdvntge of this ws tht the stores hd poor imge with middle-clss customers. In the lte 1970s Tesco's brnd imge ws so negtive tht consultnts dvised the compny to chnge the nme of its stores. It did not ccept this dvice, yet by erly 2005 it ws the lrgest retiler in the United Kingdom, with 29.0% shre of the grocery mrket ccording to retil nlysts TNS Superpnel, compred to the 16.8% shre of Wl-Mrt nd 15.6% shre of third-plced Sinsbury's, which hd been the mrket leder until it ws overtken by Tesco in 1995. Key resons for this success include n "inclusive offer". This phrse is used by Tesco to describe its spirtion to ppel to upper, medium nd low income customers in the sme stores. ccording to Citigroup retil nlyst Dvid McCrthy, "They've pulled off trick tht I'm not wre of ny other retiler chieving. Tht is to ppel to ll segments of the mrket"[8]. By contrst SD's mrketing strtegy is focused hevily on vlue for money, which cn undermine its ppel to upmrket customers even though it ctully sells wide rnge of upmrket products. During its long term dominnce of the supermrket sector Sinsbury's retined n imge s high-priced middle clss supermrket which considered itself to hve such wide led on qulity tht it did not need to compete on price, nd ws indifferent to ttrcting lower-income customers into its stores. This strtegy hs been bndoned since losing the number 1 spot to Tesco nd prticulrly since the rrivl of Justin King s CEO in 2004 who hs estblished new customer-focused strtegy closer to tht of Tesco. One plnk of this inclusivity hs been Tesco's use of its own-brnd products, including the upmrket "Finest" nd low-price "Vlue". The compny hs tken the led in overcoming customer reluctnce to purchsing own brnds, which re generlly considered to be more profitble for supermrket s it retins higher portion of the overll profit thn it does for brnded products. Customer focus: Sir Terry Lehy, chief executive since the mid 1990s, hs tken the bold step of trying not to focus on the usul corporte mntr of "mximising shreholder vlue". The compny's mission sttement reds, "Our core purpose is, 'To crete vlue for customers to ern their lifetime loylty'. We deliver this through our vlues, 'No-one tries hrder for customers', nd 'Tret people how we like to be treted'". The underlying im is of course to mke higher profits, but there is cler focus on customer service t the top level of the compny. s for the sd customer reltionship mngement, the compny should improve this re of their business. This is bsiclly due to the size of the store: sd is not perceived s the top supermrket since it is rther smll supermrket. Convenience is mjor fctor to customers nd by not hving smller sd stores is llowing customers to chnge to Tesco. lthough prices re low customers re fced with substitute stores. sd hve to open up smller mini stores which will entice customers to go to them. lredy promote themselves s low price compny nd by plcing store ner their competition will brek down the customer loylty if sd cn offer vlue for money. Internl business processes is key re in which sd could gin difference. Communiction is regrded s vitl spect becuse without this it is very hrd to implement chnge. Communiction llows constnt shring of ides nd wys of chnging. sd cn integrte their processes by dopting n ERP system. Secondly sd employees cn communicte with one nother through Bluetooth technology to speed up processes rther thn looking for people on the store floor. Communiction will not only open up chnnels for new ides nd wys of becoming more efficient but will help to enhnce existing business internl processes. s the second lrgest retiler in UK, sd hve lredy done remrkble work in the business, most of the strtegies nd business policies were seem to be befitting. But I still believed tht there is spce for improvement. Some suggestions re discussed further. Price defltion shows problem nd hs been hndled poorly by mny lrge retilers. In order to obtin sles increses, compnies hve bought products tht re experiencing price defltion, without llowing for the inelsticity of demnd for most bsic products. There re only so mny pirs of underwer tht consumers will purchse, or bsic jens, despite lower prices. Consequently, there hs been glut of merchndise units, which hs resulted in mrkdowns tht reduce sles nd gross mrgins. To increse the mrket shre in UK, sd needs more supermrkets in the key plce to cover the customer group, just s Tesco's strtegy sid: selling everything to everybody t everywhere. Imge improvement is nother urgent tsk tht needs to be solved. Becuse of the cquisition, now most of the people equl sd to Wl-Mrt, t the sme tome they lso ccept those negtive views which were bout Wl-Mrt. For exmple: cutting cost t ny cost, Wl-Mrtistion of locl communities, nti-union nd worker's right, squeezing the suppliers nd so on. (Kthrine shw: SD Wl-Mrt The lterntive report, 2005) Compre with Tesco nd other locl retilers, the public seems prticulrly ginst SD (Wl-Mrt). In long term view, we believed this problem is needed to be py specil ttention to. In conclusion, If sd wnts to stnd the competitiong with Tesco, it should build strong business strtegy focusing on business growth nd winning mrket shre from Tesco nd other strong compnies, such s Sinsbury's nd Morrison. But for Tesco, its min mission is holding its mrket shre nd mking sense of the competitors' ction. Both companies struggle to improve their customer relationships through an organized system of CRM. As a result it performs customer segmentation and helps marketers focus their efforts on where they will make the greatest impact. CRMs help Tesct and Asda to segment individual clients, perform statistical modeling, and provide profitability calculations in order to detect the relative value of that client to the business. References: 1. SD (2003), 'SD', vilble t www.sd.co.uk, [ccessed 23/03/03] 2. BBC news, (2003), 'Tesco joints bttle for Sfewy', vilble t http://news.bbc.co.uk/1/hi/business/2682559.stm, [ccessed 14/03/03] 3. BBC, 2006 [Online] http://news.bbc.co.uk/1/hi/business/4694974.stm (ccessed 5/1/07) 4. Begg, D nd Wrd, D. Economics for Business. 2004. Berkshire. McGrw-Hill 5. Brssington F& Pettitt S (2000), 'Principles of mrketing', Second edition, Pitmn publishing, Essex 6. Britton, C, Rees, , Worthington, I (2005). Economics for Business- Blending Theory nd Prctise. 2nd Edition. Prentice Hll 7. Computer weekly (1998), 'Tesco', vilble t http://web3.infotrc.glegroup.com/itw/infomrk/522/703/59532309w3/purl=re1_EB, [ccessed 27/03/03] 8. Dvid, W & Jck, H (2002) Retiling Strtegy : Plnning nd Control. Mcmilln Press LTD, Nottinghm 9. Gerry, J. & Kevn, S (2002) Exploring Corporte Strtegy: Text nd Cses, FT Prentice Hll, London 10. Kmcity (2003), 'World of Retil' vilble t www.kmcity.com/wor/Europe/UK.htlm, [ccessed 17/03/03] 11. Mlhotr N K & Birks D F (1999),'Mrketing Reserch-n pplied pproch', Person Eduction, Hrlow, UK 12. McGregor (2003), 'Retil:Big plyers', vilble t www.prospects.c.uk/cms/ShowPge/Home_pge/Industry_insights/Retil/Big_ 13. Potter, G (1997) Where hve customer loylty schemes les us Retil nd Consumer Worlds, Issue 27, PricewterhouseCoopers 14. Slmon,W.J. (1996) Retiling t the Millennium: how chnges in consumer buying behvior re driving concentrtion. Interntionl Trends in Retiling, 13(1), June. 15. Tesco (2002), 'Tesco', vilble t www.tesco.com, [ccessed 25/03/08] 16. Tesco, 2007 [Online] www.tesco.com/todyttesco/pricecheck.shtml (ccessed 5/1/07) 17. Vickers (2001), 'Tesco stcks up online sles', The Gurdin, vilble t http://medi.gurdin.co.uk/Print/0,3858,4168381,00.html [ccessed 25/03/08] 18. Wlters, D.W. &Lffy, D (1996) Productivity nd Profitbility in Retiling. Mcmilln, Bsingstoke. 19. Yhoo finnce (2003), ' Tesco- the leding supermrket in Britin', vilble t http://uk.biz.yhoo.com/p/t/tsco.l.html [ccessed 25/03/08] 20. Siebel Inc. (2006). What is CRM. Retrieved February 28, 2006 from http://www.crmondemand.com/crm/what-is-crm.jsp 21. Is4profit, Inc. (2005). CRM: What are the benefits Retrieve February 27, 2006 from http://www.is4profit.com/busadvice/crm_customer_relationship_management/1_crm_benefits.htm 22. Foss, B. and Stone, M. (2001). Successful Customer Relationship Marketing, Kogan Page, London. 23. Jobber, David. and Lancastor Geoff. (2006). Selling and Sales Management, 7ed.. Perison, 24. Alberta e-Future Centre. (2007). Customer Relationship Management. Retrieved on November 25, 2007 from http://www.e-future.ca/alberta/ebusiness/efc_customer_relationship_management.asp. 25. CRM Today. (2007). What Are Missing From CRM Systems and Processes Retrieved on November 26, 2007 from http://www.crm2day.com/library/50410.php. Read More