Problems Faced by Tesco - Assignment Example

 Problems Faced by Tesco Introduction of Tesco Britain’s primary retailer, Tesco is among the top three retailers in the globe, operating over 3,900 stores around the world. Tesco has its stores in 14 nations outside the UK. Life keeps on changing everyday and the Tesco team does extremely well at responding to those changes. Tesco has developed from a market booth, started by Jack Cohen in 1919. The name Tesco initially came into sight above in Edgware in 1929 and since then the company has grown and developed, reacting to new opportunities and revolutionizing numerous innovations (Tesco 2008). By the early 1990s, the company came across strong competition and was in need of a new strategy. Even though, it was good at buying and selling goods but they had begun to forget their customers. Once they started focusing on the needs and wants of their customer, the company placed itself at a position that no one has been able to take it away as yet (Tesco 2008). According to the employees at Tesco, working extra hard for customers has been the key to their growth. They want to make customers' lives easier and better in any way they can. Furthermore, they want to appeal to every customer and give them a reason to come back to Tesco. For this purpose, Tesco has invested in the things that are important to the customers. For example, they started the loyalty scheme Clubcard and Tesco.com, internet home shopping service, etc (Tesco 2008). Tesco PLC operates in the field of grocery, non food-food products, financial services and telecommunication (Tesco 2008). Its overall sales were 59.4 billion in 2009 and over 472, 000 people are employed across 14 countries (Stocks 2010). In UK Tesco sales have been on the rise every year, for 2009 sales were 41.5 billion relatively compared with previous year (37.9bn); sales has increased by 9.5% (Tesco plc 2010). Tesco is spread all over UK and is able to fulfill the needs and wants of its customers because it has established a variety of concepts of stores (Tesco 2008). Due to such diverse store formats strategy, Tesco has been able to acquire some of the best retail rankings (Tesco plc 2010). According to market analysts, Tesco controls more than 36% of the overall UK grocery market share; it was 30.5% in 2009. Other supermarket grocery chains’ control are comparatively not significant, that is Asda only controls 16.9% which is a subsidiary of the world's biggest retailer Wal-Mart Store Inc. (WMT) of the U.S., Sainsbury’s only 16.1% and Morrison’s only 12.3% (Baba 2009). The reason behind Tesco’s success and growth over the past several years is due to its revolutionized planning and image. Firstly, it was required to accomplish a difficult task of appealing to all segments of the market -lower, middle and upper class – with an inclusive offer strategy. This was founded on a clear vision of selling high-quality goods at a reasonable price. Tesco most clearly was able to achieve this by offering four different levels of its own-brand products. The ‘Finest’ range of best quality products came in 1998. Afterwards, ‘Tesco Organic’ variety was launched in 2006. Then the ‘Tesco Healthy Living’ variety was launched. Finally, the ‘Value’ range, to attract the price conscious customer, which in 2008 and 2009 was established very effectively to deal with the challenges of the huge recession. By offering a huge variety of own brands, Tesco succeeded in altering customers’ perception of own-brand products, which permitted the company to achieve higher profit margins as compared to other branded products. Secondly, the company mantra moved from maximizing shareholder’s wealth to maximizing customer value. While the fundamental objective is to generate higher profits, this is particularly done while focusing on customer service. Tesco thinks that it constantly needs to enhance the standards of service offered and react to customers’ needs. Its offers mirror trends of a new lifestyle, stressing health and environment in accordance with the customers, employees and business partners. Thirdly, Tesco has established a diversification strategy founded on four main areas; innovating and growing in the main UK grocery market and into areas like convenience stores; innovating into growth through non-food items like electronics, clothing, health, beauty, CDs and DVDs and even starting its non-food Finest and Value ranges; expanding into retail services like personal finance telecom and utilities by going into joint ventures with key player in these industry areas; expanding globally which resulted in more than 25% of its sales in 2008-2009 (McLoughlin & Aaker 2010). Market Research at Tesco In order to spread out its operation, Tesco like most of the other companies in the world makes use of market research. Market research at Tesco provides the company with point-of-sale tracking information, including sales volume, market share, and pricing. This information facilitates them in realizing their competition, expand their product categories, talk about opportunities, and improve their merchandising and promotion activities. It also gives comprehensive analysis of consumer purchase information, perception and attitudes towards the company. In addition, customer satisfaction, demographics, and other unique insights are offered to discover and influence key retail industry movements (Supermarkets’ customer research methods n.d). To identify their customers’ areas of interests and opinions about the company, Tesco has used numerous research techniques. To determine the lasting preferences of the customers, Tesco conducted market research using a method known as conjoint or trade-off analysis, which entails asking a huge sample of customers to exchange different possible determinants of store choice in order to create an overall ranking, multiples can examine alterations in consumer inclinations over time and also recognize any differences by customer categorization (Supermarkets’ customer research methods n.d). Tesco aimed at enhancing its value-for-money offer founded on customer’s perceptions of all dimensions of the shopping experience; cost, quality, variety, service. This also incorporated dimensions such as the shopping atmosphere, availability of parking space, and store hygiene. It kept a regular eye on its performance using a number of indicators. This research, into significant dimensions, took place after every two years. The research consisted of a huge sample of Tesco clientele to suggest 49 possible store dimensions in sequence of significance. In 1997, Tesco analyzed the top 30 of these characteristics for each of the customer groups; ‘up-market’, ‘mid-market’, and ‘less affluent’. For the up-market group, the most essential dimensions were standards of cleanliness, quality of food on the whole, and value for money. For the less affluent part, the most essential dimensions were standards of cleanliness, value for money, and quality of fresh meat. This was identical to the mid-market section; suggesting that all of Tesco's customers appreciated their standards of cleanliness as the most important characteristic when they are shopping. This indicates that research such as this is vital as companies cannot speculate what their customers’ desire. Therefore, Tesco has utilized these revelations to offer better services to their customers (Supermarkets’ customer research methods n.d). Furthermore, Tesco analyzed its performance in relation to its competitors, using a survey known as Image and Attitude survey. This research comprised of a sample of 11,000 consumes over a period of 12 months on ten dimensions. Due to the results of this research, Tesco showed a long-term progress in perceptions of overall value for money. They used the results of this survey to develop some of their techniques and try to beat competition (Supermarkets’ customer research methods n.d). In February 2006 Tesco declared that it was planning to enter the US retail grocery market. Tesco planned to invest around $400m (£220m) annually, over a five year period, in its US project. This was projected to be enough to pay for between 100 and 150 stores in the first year of operation. For this purpose, Tesco started a comprehensive market research including visiting shoppers at home to observe what they purchased and requesting buyers to keep a food diary to monitor what they ate (Stocks, 2010). Tesco also provides incentives to individuals to take part in their market research programs. For example, recently Tesco was searching for individuals, men and women aged between 25 and 70, to participate in market research about their planned site for the Tesco’s store. Everyone who participated in the research received £30 cash along with refreshments (Hattersley and Mottram Community Media 2010). Therefore, market research is critical to large department stores like Tesco. The huge variety of products that Tesco offers demands a detailed analysis, if the company is to have any chance of knowing their market. Thus, Tesco has performed the following market research: By analyzing past sales Tesco predicts future sales and, by predicting the sales of competitors, establish if they are expected to keep hold of the market dominance.  Surveys show that customers appreciate cleanliness above everything, closely followed by value for money. They also illustrated which supermarkets scored the best in these categories. Tesco has also been successful in testing with the launching of new products. It has launched products like CDs and jeans, where it can compete on cost with traditional providers. After successful trials, they continue adding new products of a similar nature. (Supermarkets’ customer research methods n.d.) Thus, Tesco has made use of state-of-the-art market research to attain market dominance in the UK, and major inroads in other part of the world. Literature Review There are numerous reasons why market research is challenging for large retailers such as Tesco. First, the phenomenon of carrying out organized market research has not been in use for a very long time. Also, data collected from the customers cannot be relied upon sometimes owing to the level of economic development resulting in an ever-changing environment, thus, creating challenges for conducting research (Craig & Douglas 2000). As businesses develop further and further in international markets, the function of well-timed and precise market research to direct decision-making becomes highly important. Research to support marketing decisions has developed over the past few years and must change even more to support organizations in the contemporary world. There are four key areas where advancement must take place. First, market research should be more directly in line with market development opportunities. Second, researchers must possess the ability to perform and organize research that covers dissimilar research environments. Third, market researchers should build up new and innovative methods to investigate the cultural reasons of behavior. Finally, technological advances need to be integrated into the research process in order to facilitate and accelerate research conducted across the globe (Craig & Douglas 2000). Marketing research has been developed by marketers in order to discover possible issues and opportunities for the products and services. It is based on consumer information, their preferences, their perceptions and attitudes, their beliefs, etc. It is nearly impractical for the marketer to get in touch with all the different categories of consumers. Furthermore, it might be possible that respondents do not provide with the true reasons behind their decisions. To achieve the most accurate results, the researcher will have to search beyond the boundaries, which will make the researching more expensive but it will be more reliable as well. Similarly, it is hard to discover the preferences of consumers because some consumers might be inclined to buy expensive items that are known as luxury goods. This might misrepresent the collected data from all the consumers. Furthermore, the research might discover answers which may be effective but cannot be adapted in reality (Vacoas n.d.). According to Jacobson (2007), Tesco has entered new markets successfully due to its market research. The example of Tesco’s rigorous market research is illustrated by the Tesco loyalty card which has developed into the largest loyalty scheme in the UK, with approximately 13 million users. The cards give complete breakdown of what Tesco customers pay, what they pay for, and at what time they pay. As a result, Tesco has been able to sharpen its logistics, product ranges and launches to perfection. Market research is a discipline which is founded on trust and interrelates with individuals in several aspects. The field of market research has numerous ethical issues attributed to it such as privacy and confidentiality of personal information of the respondents. Breaches of these ethical issues can result in the violation of the rights of the consumers, thus, having unfavorable consequences. Furthermore, increased use of technology in the field of market research has also increased the chances of violation of personal rights, therefore, organizations needs to consider the ethical issues related to market research as extremely important (Dutka & Frankel 1994). Methodology The present study identifies the problems faced by Tesco while conducting market research. The related literature and industry observations were used as the data for the content analysis concerning the problems faced by large retailers such as Tesco in conducting market research. The sources consisted of academic journals, newspapers, trade publications, and industry Web sites. Content analysis is a research instrument used to find out the existence of certain words or theories within writings or sets of writings. Researchers compute and study the existence, significance, and associations of such words and concepts, then make deductions about the messages within the texts. The use of content analysis for exploratory study is extensively supported in the literature, particularly for qualitative research (Miles & Huberman 1994). The analysis included assessment of publications on the problems faced by retailers in conducting market research mentioned in the literature review. Publications included popular Internet sites, company websites and industry publications. Other sources included blog spots and interviews of managers working in Tesco. Analysis Tesco, being one of the world’s largest retailers, conducts regular market research to gauge the changing perceptions and attitudes of the consumers. Even though, it is a forerunner in using technology for market research, but it also faces problems and challenges while conducting market research. Table 1 lists these broadly identified issues. These broader issues were categorized into four major categories which are mentioned later. Table 1 Problems faced by Tesco while conducting market research 1. Customers do not have the time to take part in market research. 2. Difficult to target the diverse segments of the market. 3. Difficult to measure the consumers’ ever-changing needs and wants. 4. Issue of privacy and confidentiality of personal information of consumers. 5. Ethical breaches attributed to market research. 6. Invasion of privacy of the consumers. 7. Major portion of the revenue spent on market research. 8. Difficult to target consumers from diverse cultures. 9. Dishonesty among consumers. 10. Some researches might result in virtual solutions that cannot adopted in reality. 11. Some researches might not yield the desired results. Categorization of problems faced by Tesco in market research 1. Ethical issues in market research 2. Dynamic nature of consumers’ needs and wants 3. Diversity of target population 4. Expensive to conduct and might yield unwanted results 5. Marketing Research, a discipline whose Ethical issues have a significant role in market research. Privacy and confidentiality of personal of information of consumers and ethical breaches attributed to market research are of great concerns to organizations indulging in colleting data to gauge consumers’ perceptions regarding the products and services being offered (Dutka & Frankel 1994). Retailers, such as Tesco, pride themselves for protecting the consumers’ right of privacy of personal information (Dutka & Frankel 1994). But there have been instances where data has either been leaked or used for purposes other than research. Such breaches and violations can ruin the name of the company in the market and can also result in law suits against the company (Dutka & Frankel 1994). The impact of cultural diversity on countries like UK and USA has been huge. People having diverse cultures and languages residing in these countries are a major source of revenue for numerous organizations especially retailers. As these individuals are a major segment of the population, therefore, retailers, such as Tesco, need to consider their needs and wants as well while designing their products and services. This is a huge problem for such organizations because it becomes difficult for them to accommodate culture-based differences of value, language and social practices during market research. Retailers have to make sure that they are not hurting any of the beliefs or practices of this segment of the population while conducting research. Furthermore, determining the needs and wants to individuals belonging to different cultures makes it difficult for the retailers to generalize the data which might ultimately result in making the wrong decisions (Moran 2005). Similarly, retailers have to keep in mind the different segments of the population as well while conducting market research. They have to make use of different research methods and instruments to gather data from the different segments of the population such as adult males and females, youth, old-age people, etc. Even though, it is extremely beneficial for the retailers as they become aware of what the different segments of the population want but it also increases the cost as well (Moran 2005). In today’s rapidly changing world, consumers’ needs and wants are ever-changing (Mitchell & Kiral 1998). The advancements in technology have made consumers more aware of their surroundings (Mitchell & Kiral 1998). This awareness has led to a change in customer preferences all over the world. In today’s depressing economy, consumers are cutting back and making trade-offs (Hartman Group 2008). Cost-conscious consumers and competitiveness among retailers are demanding the prices to be kept down (Hartman Group 2008). Given today's economic uncertainty, the trade-off is more likely to be a great price rather than an exclusive item or exceptional brand (Hartman Group 2008). On the other hand, there are a number of consumers who will not sacrifice quality for price (Hartman Group 2008). Similarly, consumers’ need for convenience, customer service and e-commerce are the most dominant aspects in shopping in today’s world. Due increasing demands on their time, consumers at present are less inclined to look at shopping as a form of leisure (Mitchell & Kiral 1998). Tesco’s ability to identify with with its customers is the result of in-depth research, and has been the key to its resoundingly successful entries into a number of new markets (Jacobson 2007). Tesco does more research work than any other company in the sector and other retail chains are now following its footsteps (Jacobson 2007). Their market research does not stop at new customers, but included existing customers’ buying habits too (Jacobson 2007). Even though, Tesco has proven successful in its market research ventures by achieving the desired results but it should be careful because sometimes spending too much on market research does not yield the results. Rather the results might even prove totally impractical with no real life application. Conclusion This analysis was based on a recent literature review of information available on the problems faced by large retailers, such as Tesco, while conducting market research. Tesco is one of top companies of the world which conducts regular market research to understand the needs and wants of its existing and future customers. Even though, Tesco uses the most up-to-date technology for research purposes along with the best possible research methods but there are certain issues faced by the world’s second largest retailer while conducting market research. The changing nature of customer preferences has to be determined continuously as the customers are becoming more and more aware of their surroundings. These ever-changing needs and wants have forced retailers, such as Tesco, to conduct regular market research. Furthermore, each set of consumers prefer different aspects while shopping. While some consider convenience to be their top-most priority, others deem value for price to be the most important part of shopping. Thus, it is difficult for the retailers to measure the most important aspect of shopping, what to provide and what not to provide. Similarly, there are numerous instances when the market research conducted does not have fruitful results. The research, which has millions spent on it, might offer results that have no practical application. The increase in cultural diversity in countries like UK and USA has also made market research quite difficult because it is difficult for the retailers to accommodate all the cultures of the society in market research. Moreover, the changing nature of consumers has also given rise to different segments in the market which the retailers have to serve. Therefore, the increasing diversity and groups with varieties of preferences have to be looked after while conducting market research. In addition, due to the increased use of technology and otherwise as well, ethical issue play a significant role in market research. Companies, conducting researches have to keep the information of respondents private and confidential so that the collected data is not used for purposes other than the research. Recommendations In order overcome the problems faced during market research, Tesco can take the following measures into consideration: Analyze data on consumer buying and shopping trends in order to divide changing behaviors already in progress from those supposed to have altered due to the present economic situation. Categorize the population of consumers into groups that should be having similar characteristics to make the research easier. Devise separate tools or incorporate cultural differences in existing tools to identify the needs and wants of consumers belonging to different cultures. Keep close tabs on the information collected from respondents for the purpose of market research so no breach of the ethical conduct takes place. Format market research tools that include people from different cultural backgrounds as well. Conduct research continuously but carefully so that the research yields proper and desired results. References Baba, RM 2009, Tesco UK grocery market share up at 30.5% 12 weeks to Dec 27 –TNS. Retrieved November 12, 2010, from http://www.advfn.com/lse/ShareNews.asp? sharenews=TSCO&article=41054419&headline=tesco-uk-grocery-market-share-up-at-30-5-12-weeks-to-dec-27 Craig, CS & Douglas, SP 2000, International Marketing Research, John Wiley & Sons, United Kingdom Dutka, S & Frankel, LR 1994, ‘The maintenance of ethical principles in marketing research’. Retrieved November 12, 2010, from http://www.amstat.org/sections/srms/proceedings/ papers/1994_019.pdf Hartman Group 2008, Understanding consumer behavior in tough times. Retrieved November 12, 2010, from http://www.hartman-group.com/hartbeat/2008-05-14 Hattersley and Mottram Community Media 2010, ‘Tesco’s market research £30 reward’. Retreieved November 12, 2010, from http://www.hmcm.org.uk/?q=node/1023 Jacobson, K 2007, ‘What Tesco can teach us’, growthbusiness.co.uk. Retreived November 12, 2010, from http://www.growthbusiness.co.uk/channels/growth-strategies/business-expansion/259636/what-tesco-can-teach-us.thtml McLoughlin, D & Aaker, DA 2010, Strategic market management: global perspective, John Wiley and Sons, Inc., United Kingdom Miles, MB & Huberman, AM 1994, The qualitative researcher companion: classic and contemporary readings, Sage Publications, London. Moran, M 2005, ‘Consumer series II: cultural diversity’, The Gourmet Retailer. Retrieved November 12, 2010, from http://www.gourmetretailer.com/top-story-consumer_series_ii__cultural_diversity-5400.html Mitchell, VW & Kiral, RH, 1998, ‘Primary and secondary store-loyal customer perceptions of grocery retailers’, British Food Journal, vol. 100, no. 7, pp. 312 - 319 Stocks, J 2010, ‘What sells 1.5bn bananas a year, employs 472,000 people, flogs the UK’s cheapest engagement ring and makes £6,000 a minute? Our guide to Tesco by numbers’, Mail Online. Retrieved November 12, 2010, from http://www.dailymail.co.uk/news/ article-1319718/Tesco-numbers-Employs-472-000-people-makes-6K-minute.html Supermarkets’ customer research methods n.d. Retreived November 12, 2010, from http://www.competition-commission.org.uk/rep_pub/reports/2000/fulltext/446a6.4.pdf Tesco plc 2010, ‘Five year summary’. Retrieved November 12, 2010, from http://www.tescoplc com/plc/ir/financials/fiveyearsummary/ Tesco 2008. Retrieved November 12, 2010, from http://www.dailymail.co.uk/news/article- 1319718/Tesco-numbers-Employs-472-000-people-makes-6K-minute.html Vacoas, PW n.d., ‘Finding reliable market research about retail industry,’ Helium. Retrieved November 12, 2010, from http://www.helium.com/items/1049837-finding-reliable-market-research-about-the-retail-industry Read More