Marketing Plan for Relationship Management - Essay Example

MARKETING PLAN FOR RELATIONSHIP MANAGEMENT External Marketing Audit of Tesco As defined by David Jobber1“Marketing audit is a systematic examination of a business marketing environment, objectives, strategies and activities, with a view to identifying key strategic issues, problem areas, and opportunities.” The external audit comprises of the following: The macro environment The market The competition Macro Environment of Tesco: The macro environment refers to the economic, socio-cultural, technological, political/legal and ecological factors. The following facts provide a fair idea of the macro environmental conditions that Tesco is faced with these days: Food inflation at above 14% Tesco has halted online florist services and In July 2008, Tesco has surpassed all major advertisers including Heineken,Coca Cola & Vodafone whereas last year it was not even amongst the top ten advertisers. Almost one third of the consumers now prefer to shop at smaller grocery stores like Aldi and Lidl. The consumers’ preferences seem to be changing. Tesco has announced job cuts2 Considering the above facts, it can be said that the retail market in UK has become not only highly competitive but also very difficult to survive due to high food prices; it is difficult for large retail stores like Tesco to provide substantial discounts. Moreover, research needs to carried out to determine what are the factors due to which the customers grocery habits are changing in favour of smaller stores as compared to Tesco. Porter’s Five Competitive Forces Porter’s five competitive forces model was developed by Michael E Porter and provides insight into the opportunities and threats that c corporate strategy should cater to. The Five competitive forces are supplier bargaining power, bargaining power of customers, Threats of new entrants, threat of substitutes & competitive rivalry. 1.Supplier Bargaining Power: In this particular case, since Tesco is selling may brands and is not dependent to a great extent on sales of any particular brand to keep people coming back for more, the supplier power is minimum. The customers perceive Tesco itself as a brand. Due to this the supplier power is minimized. Infact the suppliers themselves want to retain a good relationship. 2.The Competition (Competitive Rivalry): An article on U Talk Marketing.com identifies the current “chicken fight” going on between Asda and Tesco in order to maximize their share of the target market, the housewives, purse. The approach of Asda is to indulge in offensive price wars with Tesco with a “loss leading strategy, whereby the product chicken would be the loss leader product in order to drive more customer traffic to other product lines of ASDA. Tesco’s response is a no compromise on quality or prices approach.3This identifies the foremost issue of Tesco i.e. an overly competitive market in which survival is based on entirely the volume of sales rather than the profit margin per sale. 3. Bargaining Power of Customers: due to the highly competitive conditions, the ultimate power lies in the hands of the customers. The price focus in marketing strategies and the price wars are benefiting the customers and the customers choose the best value for money deal for their desired products from a variety of discount stores. 4. Threat of Substitutes: As an article published in The Independent Media4 observes that due to a high food prices inflation rate of 14% and a credit crunch, Britain’s 4 big super markets are out fighting the market share war in their stores using price cuts, discount campaigns and advertising. Even then, of the four big market players Tesco, Sainsbury, Morrisons, and Asda only Asda and Morrisons are growing. Tesco’s market share has fallen from 31.7 to 31.5 %.Considering this, it can be stated that retail market in UK is highly competitive and very difficult to survive in. Moreover, it seems that this situation is in favor of the smaller retail outlets like Aldi and Lidl whose market share is growing. 5.Threat of New Entrants: Due to the highly competitive conditions and the low margins at which Tesco and Asda are operating at , can not be matched by any new smaller chains or retail outlets. Due to this smaller shopping marts are dying out. This has to some extent annoyed the British customer as well who thinks that this is anti-competition. The entry barriers are really high. SWOT Analysis Strengths: Strong Brand Name as one of UK’s greatest discount stores Good presence in the target market due to the large number of outlets Economies of scale, due to its large structure, Tesco avails bulk discounts and can sell products at discounted rates that are unmatched by smaller retailers. This gives Tesco an edge over mushroom competition. Weaknesses: The greatest weakness of Tesco is that it started off as a grocery store and people still think of it as a grocery store rather than a retail chain Another weakness lies in the positioning of Tesco, since it is positioned as the cheapest store, consumers tend to evaluate their performance in terms of prices. Also, price advantage is a USP that can easily be challenged by a competitor. Opportunities: The greatest opportunity for Tesco is the international market. It has yet very low representation in the Asian markets. The changing lifestyle of people whereby working women are a norm, is in favour of Tesco’s ready to cook meals since people now prefer easy to cook meals Threats: The greatest threat to Tesco is the ongoing price war which is threatening to wipe away profit margins and Tesco is losing out market share to Asda. Another threat to Tesco is the current credit crunch which is leading to closures of many stores worldwide TESCO’S Current Segmentation, Targeting & Positioning Strategies The single factor that has contributed to the success of Tesco is their market segmentation strategy according to which they provide customized services to their customers, which led to maximization of customer loyalty.5 Tearry Leahy says “segmentation is just not a sales tool but it has deepened the relationship between Tesco and its customers”. Tesco is a case study example of effective relationship management through CRM. Their loyalty program gives Tesco data which they can use to further segment their market. As opposed to products, retail market segmentation is different in the way that the retail outlets are providing many products and brands to the customers. The retail outlets target markets are the working ladies, housewives, and middle class, lower middle class and upper middle class families. However, due to very nature of the retail outlet business, Tesco might want to target the upper class of the society by offering value added and snob appeal goods. This includes selling of cars on their Express Stores.6The cutting edge advantage that Tesco has over its competitors is the customer loyalty program that they implemented eleven years ago. This customer loyalty program is said to have increased Tesco’s market share from 9% to 30% in the year 2007.7 Tesco’s Segmentation Strategy: Tesco uses data collected through its Loyalty Card Program to intelligently segment its target market in order to send customized mailings and offers.8 An article “The Tesco Data Business”, Notes on Scoring Points, offers insight onto the segmentation & market clustering approaches of Tesco. These include: 1. Tracking Customers aggressively for their purchase behaviour. Every time any customer hands over their loyalty card “points for pounds” are given to him. On their three monthly, customized mailing, the pounds are converted to cash. 2. RFV analysis: The RFV analysis is used by Tesco to further finetue its clusters in the segmentation process. Recency, time between visits Frequency: how often the customer shops Value: how important Tesco is to the customer or how valuable the customer is to the Tesco Store. The first question is answered by the worth and value of total shopping of the customer and the second question is answered by whether the customer buys high margin products from Tesco or not. 3. Customer Cube: This RFV analysis is further transformed into Customer Cube where customers fall into the following three categories: i. Contribution refers to the current profitability of the customer. Commitment: the Future value of the customer, how valuable he can be in future? ii. Championing: if they refer Tesco to high value customers. Tesco’s Positioning Strategy: The tag lines” Every little counts” and “UK’s greatest Discounter”, Tesco has maintained a consistent positioning in the minds of their customers in terms of their customer relationship activities and their unique selling proposition is the cost advantage that they provide to their customers. The Most Appropriate Marketing Strategy for Tesco Till yet , Tesco has followed a Discount pricing strategy and positioned itself accordingly in the minds of their customers as the greatest discount chain. However given the highly competitive market conditions , will it be possible for Tesco to keep up the current strategy? An article by Jemima Bokaie , “Tesco Splits Pricing Strategy for Clothes and Food9” states that Tesco is slashing prices on food whereas adding premium labels to its clothing lines. In May 2008, the ad chief of Tesco also quit job after the announcement of hundreds of job cuts.10 Considering this, it can be assumed that the current discounted pricing strategy is not working for Tesco anymore. Apart from the aggressive market conditions, internally some factors might be contributing to the current trouble including: Tesco is already a very big retail chain and even though the economies of scale might be significant, but due to the price cutting strategy, the economies of scale are either less than or equal to the cost of price cutting sales promotion strategy. Price cutting always leads to price wars with neck to neck competition. Price wars lead the key competitors into a lose-lose game in which both companies would perform well enough to just keep their heads above water. The margins would be enough to keep them going, with a lot of hard work .There would never be enough funds to set aside for investment in Research & Development or in any other portfolio business investments. Tesco needs to get over the image of a grocery store which is in the minds of most of its target market. For them Tesco is still a grocery store. Tesco is presently dealing with this problem by adding premium products to its clothing’s line whereas cutting down on food prices and positioning grocery as a loss leader product in order to entice customers into purchasing high margin products like clothing. In the Heinmann Business Studies for A Levels, comparison between Tesco, Harrods, Sainsbury, Asda and other superstores has been conducted. When comparing Harrods to Tesco, it can be said that Tesco had it branded and positioned itself like Harrods and opted for a “Perceived Value’ pricing, it would have been able to command premium prices. However, since the perceived prices of Tesco are lower, customers are ready to pay a higher amount for the same thing at Harrods rather than Tesco. Recommended Strategy Multi Branding Vs Umbrella Branding Tesco is currently practicing an umbrella branding strategy and all the other outlets carry the name Tesco. In the minds of the customers, all the product lines being displayed at the outlet are Tesco products which means high quality-low price. On the other hand, if Tesco would launch a new chain of stores with a new brand name in the market segment of Harrods, and up class high value shopping centre, not only would it be able to command higher prices but it might be able to pursue a premium pricing strategy. It would ensure Tesco’s survival in the long term. The Tesco chain of outlets should be retained so as to provide competition to Asda in future as well. Existing Marketing Mix Strategies and Recommended Strategies for Future: Product: Since Tesco has a diversified portfolio of products of different brands and labels, it has the potential to provide more shelf space to high margin products and introduce new high margin brands whereas pruning off the non-profitable lines that are not even generating customer traffic. Price: The current differential pricing strategy of Tesco might be serving it well for the time being to cover up revenue shortfalls. However, differential pricing strategy in specially where positioning is based on low prices and value for money, will eventually create confusion in the minds of the customers in future. Place: The future strategy for Tesco stores should be such that they should be more aggressive and try opening their outlets near or opposite to Asda stores. This is a strategy followed by KFC by opening outlets near to McDonald’s and was very effective in driving customers to their outlets. Promotion: The current promotion mix heavily relies on print and electronic media advertising. Due to the increased competition, Tesco has been heavily investing in advertising to the extent that it is over-burdening the company and they have had to announce job cuts. In this case, every marketing campaign should be evaluated in terms of return on investment on per 100 pounds spent. The advertising and promotion results should be evaluated in monetary terms for example if a quarter page advertisement was placed in The Guardian, how much was the increase in the turnover at the store on that day and the following two days. What was the increase in volume of sales and profit margins? After finding out the answers to these questions it should be decided whether it is profitable for Tesco to go ahead with more insertions in the Newspaper. Moreover, Tesco needs to keep an eye on emerging media like Email Marketing, point of sale promotion, new ways of generating word of mouth and direct mail. It seems that emerging media have a better reach and better results for example Tesco can acquire billboard sites on rental or purchase them in strategic location maybe opposite to Asda or near their own outlets and use it to change skins every week and announce their new deals. This might be comparatively cheaper and might be helpful in reminding people to visit the store. Moreover, the current email marketing strategy is very effective but also very expensive since it has been outsourced. Tesco can save costs by having an alternate email marketing cell created within their department. Recommended Extended Marketing Mix for Tesco The nature of Tesco’ s business is such that it is actually a service that they are providing to the customers. They have very limited brands of their own, they display brands and labels of other companies that re being sold in many other places. Thus, to keep customers coming back, Tesco needs to focus on the shopping experience that the customers have at Tesco in order to keep them coming back. For this, Tesco needs to keep in mind the three additional P’s of service marketing i.e. people, process & physical evidence. People: this refers to all the people directly or indirectly involved in providing a service to customers. This includes the frontline, the knowledge workers, and the employees. Tesco’s vision “Every little helps” is a motivating statement for all their employees to perform with a focus on what the customer might additionally look for. Tesco knows what their customers want i.e. clear aisles, availability of all products, value for money, no queue’s and helpful staff. Tesco has formulated its stores all over the world to provide all these qualities that shoppers seek in a good shopping experience. For this purpose training is provided to all frontline employees in order to provide a good service to customers. However, this can be further improved by innovating in the services provided. For this purpose knowledge workers including marketing and product specialists and consultants to come up with some out of the box ideas which will provide their customers with an added attraction. This could be something like having a cinema or a branded coffee hang out place on one of the floors. This will not only keep Tesco in news but the crowd that these services attract will also filter into the departmental store and would mean increased volume of sales and more referrals. Tesco now needs to concentrate on its knowledge workers and its management to provide something out of the box to the customers which will give Tesco the cutting edge advantage that it requires to success against its competitors. Process: the processes have already been simplified by Tesco. Once again, we would like to stress that innovation is required to give Tesco an advantage over others. This includes after sales service as well. Tesco could initiate a monthly delivery service to customers who would like to avail the opportunity. This would mean that using their past records or email demand, Tesco could deliver their groceries and other items to their place. This would reduce the complete shopping process for Tesco customers and especially would appeal to working ladies. Moreover, parking in high density areas should be given added priority. Today’s shopper wants an easy parking which is not already overflowing with cars, without a parking ticket! Physical Evidence: This is an implicit factor embedded in the service. Many stores use branded grocery bags to increase the tangibility of their service offerings by providing physical evidence. Tesco can innovate in this by providing other brands with a small caption provided by Tesco. For this, Tesco would have to form strategic alliances with their key vendors to come up with co-branding activities. The above strategies are important in trying to make Tesco an important part of the customers life. For this they have to evolve from the concept of a hi-fi grocery store to that of a total solution for every day needs of the customer. To succeed in such a strategy Tesco would need to emphasize completely on developing long term customer relationships. Customer Relationship Management Tesco realizes the importance of customer relationship management and for this purpose they offer club card, Baby toddler club and keep constantly in contact with their customer sin form of email marketing of new deals and direct mail shots. Their marketing mix is such that it supports this strategy of customer relationship building and retaining. Even though the current strategies are very comprehensive and working well, but some improvements can be made by introducing special occasions marketing for the smaller minority & ethnic groups. This may include may be a launch of special jewellery and trinkets and gift item deals before the Muslim religious festival Eid or deals on items of cultural importance to Hindus before their religious festivals like Holi & Devali. This would bring Tesco close to other ethic groupos and would help them in their international strategy especially since they have launched their stores in India. In many malls, opportunity to launch new product is being provided by the malls to other brands. Tesco can benefit greatly from such a campaign and by allowing some clothing label or cosmetic range to use their outlet space to launch their product. This would help generating word of mouth for Tesco and product launches tend to attract a lot many people especially in cases when cosmetic is being launched and free trial are being given. It will also provide Tesco an opportunity to benefit from the other brands appeal and many women would come and avail the offers of Tesco simultaneously. Also, it would be word of mouth and publicity for Tesco without any direct costs being added to the expense account. This would be an added attraction to the current place strategy of Tesco. Another Mall strategy that Tesco can benefit from is by increasing the product and place value of its outlets by making them a fun place to be at. For Example they can have bowling alleys on one of the floors which will attract the young crown and eventually their moms and dada as well. They can have a youngster oriented coffee place or even a small bar serving drinks. The more the attractions the longer the customers are likely to stay. Budgets and Evaluation Methods for the Marketing Plans For this the simple rule that sales should justify the marketing costs should be followed. The marketing mix should include a fair share of BTL advertising and emerging media. The reason for this is the ATL advertising is necessary only when brand building is required. Tesco already has a top of the mind recall and given the difficult times when Tesco is losing profitability, it can not afford this expense for a longer period of time without slashing jobs. For this purpose, a cost-effective marketing mix is proposed with a campaign focused on Email Marketing, generating word of mouth, co- branding activities, event marketing and billboard advertising. Evaluation of Marketing Campaign The best way to evaluate a campaign is provided by Biz Tree11.The following questions can be asked: Percentage of growth? (Before and after the campaign) Whether this percentage met or exceeded the expectations Whether the increased sales are form new customers or old? Re examine the original marketing goals? Are you selling to your target market or not? Is this the most profitable segment for your market or not? Has the market share increased? If yes, what is the percentage of increase? Which marketing mix medium is more successful? Tesco is one of the largest retail stores around the world and till yet their marketing strategies have been successful. However, in these difficult times when food prices are rising and competition level has decreased the profitability levels, it needs to innovate in its marketing mix while evaluating the marketing costs in terms of the benefits they provide. (3141 words) APPENDICE David ,Jobber, Principles and Practice of Marketing , http://www.mcgraw-hill.co.uk/he/web_sites/business/marketing/jobber/files/marketing_plan/09comp.html Ad Chief Quits Tesco After Announcement Of Job Cuts, Marketing Week ,Published: 01 May2008,http://www.mad.co.uk/Main/News/Disciplines/Advertising/People/Articles/a2585b986ef84ed2ac20493fc126a9dd/Ad-chief-quits-Tesco-after-announcement-of-job-cuts.html Tesco Changes Marketing Strategy, http://www.utalkmarketing.com/Pages/Article.aspx?ArticleID=2818&Title=Tesco_changes_marketing_strategy Beale, Claire, The Independent Media, Claire Beale on Advertising: How Asda hijacked Tesco in the great discount brand campaign http://www.independent.co.uk/news/media/advertising/claire-beale-on-advertising-how-asda-hijacked-tesco-in-the-great-discount-brand-campaign-937456.html Wylie,Devon, A report of CRM best practices in the retail industry http://www.loyalty.vg/pages/CRM/case_study_14_Tesco.htm http://www.independent.co.uk/news/business/news/tesco-plans-huge-expansion-of-express-outlets-655357.html Partner of Tesco, Other Major Retailers Ties Relevancy To Profitable Demand Gen http://www.demandgenreport.com/archive.php?codearti=1066 The Tesco Data Business (Notes on “Scoring Points”) Published November 6, 2008 Analytics http://ouseful.wordpress.com/2008/11/06/the-tesco-data-business-notes-on-scoring-points/ http://www.brandrepublic.com/Marketing/News/828024/Tesco-splits-pricing-strategy-clothes-food/ http://www.mad.co.uk/Main/News/Disciplines/Advertising/People/Articles/a2585b986ef84ed2ac20493fc126a9dd/Ad-chief-quits-Tesco-after-announcement-of-job-cuts.html http://www.biztree.com/Templates/Marketing-Campaign-Evaluation.html Read More