Tesco Plc in a Social Perspective - Case Study Example

Running Head: TESCO PLC: IN A SOCIAL PERSPECTIVE Tesco Plc: In a Social Perspective In APA Style By Case Study Word Count: 2254 Appendix Word Count: 168 Total Word Count: 2422 Going green is no longer a part of corporate social responsibility's efforts-it is a part of man retail cultures Retailers recognize that, as large commercially operating entities, they have a responsibility to restore and sustain the society. --Retailing Today, April 2007 Introduction The new business environment presents a challenge for the giant retailer Tesco Plc. Gone were the days when the main concern of the customer is price and quality. In an industry where merchandise displayed on counters is almost treated as homogenous, companies are pressured to differentiate themselves through other means such as value-added services (Kotler 2005). A new breed of customers has also emerged-a market which is highly concerned on what the organization to address the needs of its stakeholders especially in the communities where it operates (Kotler 2005). As an organization which has been scrutinized for its effect in the market and competition, Tesco is pressured to launch programs which can contribute the society. The idea is to offset the harm it does to the society by investing in beneficial programs. Tesco Plc: An Overview From its foundation by John Cohen as a one-man business, Tesco PLC has ascended to the world retail industry becoming the largest British retailer based on both global and local shares. In its early years of operation, the UK-based international retailer specializes only in the distribution of food products. As it gained more market and its performance strengthened, it enhanced its portfolio by adding other goods and services to which ranges from clothing to consumer electronics to consumer financial services to internet services to internet service and consumer telecom. The phenomenal success of Tesco as a retailer is recognised even in the global arena. The company is named the world's third largest retailer lags behind Wal-mart in terms of global sales while staying ahead of other retail giants like Carrefour, and Home Depot (Tesco Plc 2007). In its 2007 Annual Report, Tesco Plc announced a total annual turnover of 46.661 billion and reported a pre-tax profit of 2.653 billion. It is estimated that in every 8 UK retail sales, 1 is spent on Tesco. The company's success and even mere existence in the strategies it employs to capture new markets and retain its current buyers. After saturating the UK market with its retail stores, the company expanded its customer base by opening up operations in foreign market abroad. The retailer sells to customers in United Kingdom, the rest of Europe, and Asia (Annual Report 2007). The company's desire to reach a larger market is highlighted through its extensive use of internet technology. This also aids the company in gaining access to a low-cost distribution system (Annual Report 2007). The development of Tesco can be divided into three distinct phases: formation; postwar development; and expansion. The first phase starts with the foundation of the company in 1919 and ends with formal opening of the first Tesco store in Burnt Oak, Edgware, London. Postwar development commences with the retailer's initial public offering (IPO). Rapid growth was witnessed as Tesco opens its first supermarket and superstore. The last phase features the rapid expansion of Tesco PLC both in new product areas and geographic region. Throughout this stage, the company utilized the new trends in global retailing to enhance its products and services. Competing in the Market Place: Tesco's Strategies 1. Four Pronged Strategy Even though it has changed so much in terms of size and operations, Tesco Plc maintains a long-term strategy since 1997. The giant retailer claims that this four-pronged strategy enables it to focus on its core operation in the United Kingdom while serving as a guideline in its expansion overseas. This long term strategy has the objective of growing the core UK business, to become a successful international retailer, to be as strong in non-food as in food, and to develop retailing services such as Tesco Personal Finance, Telecoms, and tesco.com (Annual Report 2007). 2. Cost Leadership When John Cohen founded Tesco, he envisioned a retail outlet which will become a leader in the industry because of its low cost strategy. Thus, the retail giant based its operation on a "Pile it high, sell it cheap" approach (Tesco Plc 2007). Founded in this philosophy, the retailer has grown to be a global brand which still sticks to this strategy. In the core of the company's operation is its quest of providing customers with products at the least possible price. This has become the core competency of the business organization. This strategy has been eroded recently when its rival Asda is named by The Grocer as the cheapest UK supermarket. There has been disparities in the conclusion of different surveys (Tesco Plc 2007): "Tesco price check tends to differ saying out of 7134 (compared to ASDA) products, (Survey carried out between July 9-11, 2007) Tesco is cheaper:1835 (compared to 1251 the previous week), Tesco is more expensive:975 (compared to 984 the previous week) and Tesco is the same price: 4324 (compared to 4996 the previous week)" (Tesco 2007). 3. Excellent Customer Service As opposed to other retailers in the global market, Tesco couples its cost competency with excellent customer service. Recognizing that customer loyalty is not only cultivated through competitive pricing, Tesco also invests in training its employees and making them part of its success through the extension of high quality service together with their cheap products. The retailer has been highlighting its commitment of provision of excellent customer service through its slogan Every Little Helps which emphasizes the importance of even the smallest help that a staff or the whole business organization in the satisfaction of customer needs. Tesco Plc also identifies two tenets of this program namely, No one tries harder for the customer and Treat people how we would like to be treated (Every Little Helps 2007). Challenge in the Global Retail Industry: Corporate Social Responsibility Customer has always been central in the operation of retailers. With the rapid transformation in the business environment, the change in the needs and preferences of customers has also been largely altered. Being a primary stakeholder in the operation of Tesco Plc, it has responded to these changes by launching new strategies which looks at the individual customer and community as a whole. The most pressing social issue affecting companies is the growing preference of customers for business organizations are large contributors to sustainable development. This pressure companies to embark on corporate social responsibility programs which allow them to extend the much needed help in the areas where they operate. Customers do not only focus on product or service quality but on the way the company conducts its operation and how it contributes in preserving and enhancing the community where it does business (Favell 2006). This is more pronounced for companies with strong foothold in the global market like Tesco Plc. The entire global retail industry has been apt to respond of developing corporate social responsibility program. The United States, which houses the largest retailer Walmart stresses that: "Going Green is where corporate America is heading. As corporate social responsibility becomes synonymous with good business, developing "green" policies are what many major retailers and corporations are doing. It's great for the earth for a company's bottom line too. 93% of Americans believe companies have a responsibility to help preserve the environment. 83% trust a company more if it is socially and/or environmentally responsible. According to "It's Good To Be Green", a new report by SmartReply, the country's largest provider of mobile and communications for the retail industry, companies engaged in environmental strategies are already reaping strong bottom-line benefits and increased brand loyalty. But for companies who don't have a green policy- watch out, they may risk losing more than just profit." (Horwell 2007) In the Eye of Society: Criticisms for Tesco Plc The clamor for corporate social responsibility has put Tesco in public scrutiny. Its operation, together with its strategies, has been subjected to criticisms. Being able to gain a lot of competitive advantage through its mere size and scope, the company has been branded as disruptive in the economy and retail sector. The rapid growth of Tesco has been criticised by commentators which sees the presence and operation of the retailer as degradation in the market environment. Smith (2006) had boldly commented on the marketing strategies launched by Tesco especially its Loyalty Card which is solely used for the benefit of the retailer by gathering more information than what is willingly given by the customer. It should be noted that the Clubcard has allowed Tesco to gather information about its customers purchasing behavior which allows it to tailor specific marketing program in an individual basis. Furthermore, he states that Tesco uses deceptive advertising by not telling half of the whole story. Another identified drawback of Tesco's rapid growth is its detrimental effect on the industry competition. As the company is able to price lower than its competitors who have a relatively small share in the market through economies of scale, the presence of Tesco is seen as a threat to food producers, suppliers and smaller competitors. As these players in the industry do not have bargaining leverage held by Tesco, they become vulnerable to its tactics. Some are forced to lower prices or close down in order to avoid huge losses. Tesco's Response: Corporate Social Responsibility As buyers are now more informed and are concern about the societal issues faced by their companies, Tesco is trying to address these issues and uncertainties. Its thrust for corporate responsibility is still encapsulated in the building blocks of its Every Help Counts, No one tries harder for the customer and Treat people how we like to be treated. The focus of the company's social corporate responsibility is in four specific and broad aspects including economy, society, environment, and charities. Projects for Society One of our most important values is to treat people how we would like to be treated. We try to achieve this by being a good employer and by playing our part in local communities. People tell us that they want use to use our size and success to be a force for good. We accept this challenge with enthusiasm and commitment. --Tesco Plc 2007 The stakeholders of Tesco which it focuses on in order to serve the society where it operates are classified into three: communities, staff, and customers. 1. Communities Tesco Plc believes in contributing to the specific community to where it operates. The company does this by investing the capability of the community members through education. These educational activities range from giving out scholarships, sponsoring sports activities, and conducting first aid training sessions (Corporate Responsibility 2007). Giving out computers has also been a very successful educational program of Tesco Plc. The Computers for School initiative of Tesco has become the benchmark for CRM in the UK. Through the program 84 million worth of information communication technology equipment were delivered in the entire Britain for the last 10 years. This was made possible by the shoppers who have collected vouchers which were then exchanged to equipment by their respective schools (Ramrayka 2004). In order to promote the betterment of communities, Tesco Plc also donated a total of 43 million to the local and national charities in the UK for three vulnerable groups including children, elderly, and disabled. 2. Staff With its experience in the retail industry, Tesco has been able to realize that its workforce is its strategic partners which propel the organization to its expected end. Thus, the company invests in the development of its workforce through various development programs and training which enhance their knowledge and skills. The company also values diversity and does not favor staff according to their gender or race. In order to motivate its human resource, Tesco Plc has installed an efficient compensation system and created a great atmosphere for work excellence (Corporate Responsibility 2007). 3. Customers The business organization has been pioneering efforts in serving its customers better. Tesco Plc has designed various programs where the customer is placed in the center. First, the company recognizes the diversity of the customer by offering a wide range of products to suit different preferences. The company also provides full support to disabled customers through attending programs which enables the staff to listen and respond to what customers with visual, hearing, and physical disabilities tell them. Since healthy living has become a primary concern among customers, Tesco Plc has introduced the Healthy Living range which features products for health conscious individuals. The company has also incorporated simpler and clearer nutritional information on their products. It should also be noted that it has reviewed and removed almost 50 million teaspoons of salt in its over 1000 products which represents 282 tonnes of salt in its clients' diets (Corporate Responsibility 2007). Sustaining the Effort Amidst the various programs which Tesco Plc launch as a commitment for the betterment of the society, analysts are still very much disappointed in some of the company's decision. For example, the company's decision to improve overall performance in the pastry category has led to the closure of a bakery in Manchester which employs 960 people and produce meat pies and quiches for Tesco (Walker 2006). In the word of GMB national officer Jude Bimble, "This is another example of Tesco throwing their buying power weight about by depressing prices and moving production at will to other plants. There is such a thing as corporate social responsibility and Tesco need to start practising this" (Walker 2006). References Annual Report 2007, Retrieved 27 August 2007, from http://www.tescocorporate.com/images/TESCO_FULL%20low.pdf Corporate Responsibility 2007, Retrieved 27 August 2007, from http://www.tescocorporate.com/staff2.htm Favell, A. 2006.Green grocers ; The big chains talk a good game but their true ethical colours are hard to determine.The Independent on Sunday,September10, Kotler, P & Armstrong, G 2001, Principles of Marketing, Prentice Hall International, Inc., New Jersey Pingyao, L. 2003, China's Economic Growth: New Trends and Implications, Retrieved 28 August 2007, from http://www.iwep.org.cn/pdf/2003/wec_2003_1-2_laipingyao.pdf Tesco-Counting on Customer Satisfaction n.d., Retrieved 28 August 2007, from http://www.conchango.com/Web/Shared/Documents/Tesco%20Food%20Counters.pdf Tesco Plc 2007, Retrieved 28 August 2007, from http://en.wikipedia.org/wiki/Tesco Tesco PLC Website 2007, Retrieved 28 August 2007, from http://www.tesco.com Thompson, A. Jr. & Strickland, A.J. 2002, Strategic Management. 3rd ed. New York Mc Graw-Hill. Walker, H. 2006.Tesco blamed for bakery's closure:[01A Edition].Journal,August25 Appendix: The Social Perspective The social perspective used in analysing the case of a business organization highlights the relationship of the company with the larger society. The social perspective focuses on the impact of the operations of the company by reviewing how the company helped or damaged its larger stakeholders. In this case study, Tesco Plc has been examined through the use of social perspective. It should be noted that this case highlights how the company ascended from a very small business entity to one of the global giants. Through this development, it has been noted how the company become detrimental and how it tried to improve its image through the use of societal marketing. In recognition that customers prefer to buy from retailers which are involved in community programs, Tesco has modified its strategy by putting corporate responsibility as a top priority. In order to really know how Tesco is providing positive impact to the society, this paper highlights the company's achievement in promoting the social good. Read More