Growth Strategy for Tesco PLC - Essay Example

Growth Strategy for Tesco PLC Growth Strategy for Tesco PLC Introduction Tesco PLC is a British multinational superstore that carries grocery and general merchandise. The company has its headquarters in Cheshunt, Hertfordshire, England, United Kingdom. Measured by profits, Tesco is the world’s third largest retailer and the second largest by revenue(Tesco PLC, 2014). The company operates stores in 12 countries in Asia and Europe and leads the UK grocery market with a market share of 30%. Since its inception in 1919, Tesco has diversified into banking, insurance and petroleum retailing among other business interests, all operating under the umbrella of Tesco Group. The focus of this paper, however, is the Groups retail business. In recent years, the Irish market has persistently performed poorly owing to strong competition from discount retailers and fierce couponing activity. Tesco’s response has been to introduce their Price Promise in that market and work hard to demonstrate the superiority of the company’s offer. In spite of these measures, the poor performance of Irish operates has reduced the profitability of the company’s entire European segment. Tesco’s answer to growing competition and sustained growth lies in market penetration. Tesco’s Current Product Portfolio Tesco’s product offering spans two broad categories: groceries and general merchandise (Tesco PLC, 2014). The latter category includes clothing, home appliances, electronics, phones and furniture among other goods. Tescos corporate strategy is to appeal to all the segments of every market the company operates in. One pillar of this strategy has been for Tesco to brand all the products it carries. Tesco-branded products fall into three ranges: the "finest" range for the upmarket, the mid-range for the middle market and the “value” range for the low-end market(Mark, 2009). According to retail, analysts, Tesco’s strategy is one of its kind(Mark, 2009). Internal and External Business Environment and SWOT Analysis The internal environment of a company refers to the internal factors that affect the operations and the success of the company and over which the company has considerable influence relative to the external factors(Tesco PLC, 2014). Tescos internal environment includes the organisations culture, and organisational and management structures. Like societies, organisations too have cultures. Organisational culture refers to the accepted standard behaviours that inform decision-making and action. Whereas there is not a single term that may describe the culture of a particular structure, organisational change researchers have developed a number of models by which the culture of the organisation may be described. In the case of Tesco, O’Reilly and colleagues’ Organisational Cultural Profile (OCP) model best suits the company. The OCP model identifies the culture of the organisation by evaluating the organisation’s values. To this end, the model outlines seven values that include teamwork, innovation, respect for people, goal-orientation, aggressiveness, stability and attention to detail (Machado & Carvallo, 2008). As from 1997, Tesco started to market itself using the phrase “The Tesco Way”(Pendleton, 2004). The company used the phrase to describe its core values and principles that include developing the company’s employees, innovating to meet dynamic customer needs, strengthening the Tesco brand, leveraging the economies of scale presented by the Tesco Group and operating responsibly. “The Tesco Way” became a major marketing tool as the company embarked on an expansion program locally and internationally. The slogan implied a greater focus on people –both employees and customers. In terms of its operations, Tesco’s UK operation is organised into seven types according to size and the range of products carried(Tesco PLC, 2014). At the apex of the hierarchy is Tesco Extra with 247 stores at the close of the 2013/2014 financial year and Dobbies that number 34 at the close of the same period. In between are found superstores, metro, express, one-stop and Homeplus variants. Tesco superstores are large supermarkets that stock groceries and a significantly smaller range of general merchandise than extra stores. Traditionally, the superstores have simply been branded "Tesco", although recent stores such as one in Liverpool are branded “Tesco Superstore”. Tesco Homeplus stores stock only non-food products. Outside the UK, Tesco operates in 12 other countries in Europe and Asia. The significance of the of Tesco’s hierarchy of stores is that it enables the retailer to capture all the segments of the UK market. Today, Tesco is no doubt an efficient, top retailer. This image has not always been true. For instance, in the early 1980s, the company’s management structures at the head office were inward-looking and detached from the stores and the customers. Then, in the mid-1980s, the company embarked on a business transformation program that would last two decades(Birmingham City Council, n.d.). During the transformation, head office functions were realigned to be to be more responsive to the unique needs of the various stores and their employees and customers. In addition, a new retail-driven department was created to act as the link between the head office and the stores. At the stores, middle management was removed. In their stead, store employees were empowered to serve their customers. Cumulatively, all the transformation processes yielded a Tesco that is now more responsive to consumer needs and, therefore, more competitive. Three important external factors that impact Tescos operations are customers, competition and technology. Tesco serves all market segments in 12 countries in Europe and Asia. As of the close of the 2005/206 financial year, Tesco was the world’s largest retailer after Walmart, Carrefour and Home Depot in the first, second, and third positions, respectively(Tesco PLC, 2014). In 2007, Tesco overtook Home Depot, thanks to the sale of the latters professional supply division coupled with a weaker US dollar relative to the pound. As of mid-March 2012, Tesco controlled 30.2% of the UK grocery market, followed by Asda in a distant second position at 17.9%(Tesco PLC, 2014). In the wider UK retail, Tesco commands around 10% of the market. An integral part of Tesco’s expansion drive been the company’s innovative adoption of technology. The company was among the first to deploy self-service till and use cameras to manage queues. Following is a SWOT analysis of Tesco: Strengths A large market share A well-recognised brand Ability to target all market segments through product differentiation and branding Good customer service Operations in 12 different countries A wide range of products A large branch network A lean, efficient management structure following the restructuring program in the 1980s Multichannel presence – online and in stores Opportunities The use of technology to enhance customer satisfaction Entrance into other markets in Asia, Europe and other continents Rapidly expanding Asian economies Economies of scale created by the Tesco Group – lower cost of doing business The online shopping wave will enable Tesco the segment of the market that may not be reached via stores Weaknesses Unprofitable operations such as in Ireland Threats Competition from discount retailers Fluctuating international currencies Recession in some Asian countries such as Thailand – leading to reduced consumer spending Possible Opportunities for Growth In order to tackle the threat of competition posed by its competitors, the major ones in the UK grocery market being Asda, Sainsbury’s, Morrisons and The Co-operative Food, and realise steady growth, a number of options are available to Tesco. First, Tesco may explore ways of selling more of its products to its existing customers and the customers of its competitors – a strategy known as market penetration (Waheeduzzaman, 2008). Secondly, Tesco may want to develop new markets and sell its current products to the new markets, a strategy known as market development. Third, Tesco may partner with its suppliers and get them to produce or otherwise source new products – a strategy known as product development. However, Tesco is likely to experience considerable difficulty trying to convince manufacturers to produce new products. Otherwise, it would be much easier for the manufacturer to venture into a new product following intensive market research. The last option available to Tesco is to diversify – stock new lines of products and sell them to existing and new customers alike. A closer analysis of Tesco rules out many of these options. On product development, Tesco is limited by the fact that the company is a retailer, not a manufacturer; as such, the question of what to manufacture for whom is best left to the manufacturers. As far as market development is concerned, Tesco, more than any other retailer in the UK, has divided its markets into segments on the basis of income then targeting each of those segments with differentiated products(Tesco PLC, 2014). While the company could create new markets by venturing into new countries, it has a rather cautious policy on controlled expansion. However, as demonstrated in the next section, there is still more that Tesco could do in terms of market segmentation. On diversification, Tescos current product offering is highly diversified; the stores stock a wide array of products – groceries, electronics, phones, clothing and furniture among other product lines. Thus, Tescos best alternative is to penetrate its existing markets, without ruling out the possibility of venturing into new markets. This option is expounded in the next section. Segmentation, Targeting and Positioning Analysis Already, through branding and packaging its product offerings in value, mid and finest ranges, Tesco can provide virtually everyone with something, depending on their budget(Tesco PLC, 2014). Building on this leverage, Tesco should further penetrate into its and its competitors’ existing markets by doing at two of several things. First, whenever possible, Tesco should seek to fragment its market segments further. For instance, the company could further segment the high-end market according to age or gender: the needs of wealthy young women are different from those of older wealthy women. However, before the company moves in this direction, it must do due diligence to ensure that the segments are large enough to sustain the demand for the product that is targeted at the segment. Secondly, Tesco should upscale its uptake of technology to reach the unreached across the various segments. Already, the company has embraced what it calls "Tesco Multichannel", where consumers can reach the company and its products both digitally and via the physical store(Tesco PLC, 2014). However, digital platforms should not just be about selling products: they should also be about interacting with the customer. Being truly multichannel transcends simply having a website. Rather, it is about placing the customer at the heart of the business such that they can interact with Tesco at their convenience – through customer care desk, the website and social media through other platforms. Marketing Mix Alongside the strategy discussed above, Tesco should make use of the four Ps, Cs and Es of marketing in order to realise sustained growth (Constantinides, 2006). On the four Ps, Tesco should keep an eye on its suppliers in order to maintain product quality. At the same time, the companys packaging should be of high quality. The quality must be accompanied by fair price levels; the company has tried to introduce the Price Promise in Ireland, but the move has not persuaded Irish consumers to abandon discount traders in favor of Tesco. Clearly, more needs to be done. Tesco will need to intensify its promotional activities through advertising. As far as place is concerned, Tesco already has an expansive branch network: more stores may not be necessary. An online store will suffice in their stead. As far as the four Cs are concerned, Tesco should design their stores and package their products and processes with the needs of the customer in mind, one of which is convenience – todays consumer wants to access pricing information about a product, for instance, from the convenience of their couch and Smartphone (Constantinides, 2006). The company should consistently communicate its product offerings while keeping the price low and affordable. On the four Es, Tesco should focus on giving shoppers delightful, memorable experiences. Tesco should consistently create value for money so that as they exchange their money for a product, the customer is satisfied. Evangelism is about a happy Tesco customer spreading the news among their friends and family. Everyplace is about product availability, an area in which Tesco’s performance is admirable. Conclusion In the midst of mounting competition from discount traders and other leading retailers, Tescos solution lies in the company infiltrating further into its existing markets and getting into the markets of the competitors whenever possible(Pendleton , 2004). To this end, the company should further segment its three broad segments: low-end, middle and upper markets. Meanwhile, Tesco must make use of technology to reach the unreached portions of these segments. This strategy should be complemented with the marketing mix so that Tescos products are available at the right place and price when customers demand them. References Birmingham City Council, n.d. Tesco – Business Transformation Case Study, Birmingham: Birmingham City Council. Constantinides, E., 2006. The Marketing Mix Revisited: Towards the 21st Century Marketing. , 22(3-4), pp. 407-438.. Journal of Marketing Management, 22(3-4), pp. 407-438. Machado, D. & Carvallo, C., 2008. Cultural Typologies and Organisational Environment: A Conceptual Analysis. Latin American Business Review, 9(1), pp. 1-32. Mark, 2009. Tesco’s still pushing discount products to fight back competitors. [Online] Available at: http://news.idealo.co.uk/news/4521/tescos-still-pushing-discount-products-to-fight-back-competitors.html [Accessed 1 March 2015]. Pendleton, D., 2004. Tescos Steering Wheel Strategy. [Online] Available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy/Tesco%27s%20%27Steering%20Wheel%27%20Strategy.htm [Accessed 1 March 2015]. Tesco PLC, 2014. Annual Report and Financial Statements 2014, Cheshunt: Tesco PLC. Waheeduzzaman, A., 2008. Market Potential Estimation in International Markets: A Comparison of Methods. Journal of Marketing Management, 21(4), pp. 307-320. Read More