Introduction and Company Background
Tesco PLC is the largest British retailer in terms of both global sales and domestic market share with profits that exceed ? 3 billion. Currently, the company is the third largest after Wal-Mart and Carrefour in terms of revenue but only second to Wal-Mart in terms of profits. The company has diversified its market target into clothing, food, financial services, drink, home, car insurance, telecoms and health. Jack Cohen founded Tesco PLC in 1919 in East London and the company has grown over the years and now has a 30.9% market share in the United Kingdom which makes it the largest retailer in the UK (Applegate & Johnsen, 2007, p. 128). The core business of the company is large format food stores and other convenience items. It operates under four banners namely, Extra, Superstore, Metro and Express. This report analyses the critical marketing issues that is facing Tesco PLC. It will explore the global marketing strategies being pursued by the company and attempt to draw comparisons between its approach and appropriate theoretical concepts and models. The study will also evaluate whether the model being used by the company is still relevant in the current marketing practice or not. The study will rely on the following methodology in the analysis.
External environmental analysis
Tesco Plc operates in an industry that is dominated by two other companies in the global business environment. Its main competitors are Wal-Mart and Carrefour who have a huge base of loyal customers. The external environment will be analysed using the STEEPLED model in order to assess the ethics and demographic factors in the analysis.
Tesco Plc now operates in Europe, Asia and North America and as such its performance is a function of legislative and political conditions of all the countries it operates in including the European Union. The company is affected by employment legislations as most governments encourage retailers to provide mixed job opportunities from low paying unskilled to the well paying high skilled jobs (McLoughlin & Aaker 2010, p. 53). The operations of the company are therefore highly sensitive to the political environment. For instance in Malaysia the government passed legislations that limit the number of stores the company can operate in the country. Tesco Plc employs the local people especially at the lower and middle management levels, pays taxes and complies with the local laws to ensure that its operations are not hindered by such factors.
The economic factors affect the costs, demand, prices and profits of Tesco Plc. High unemployment levels and difficult economic times reduces the ability of households to purchase products and as such affects the demand required for the company to produce such goods (Pradhan 2009, p. 88). The company cannot control such external factors but they have profound impacts on its performance and the marketing mix. It is still highly depended on its core business in the United Kingdom and as such any economic slowdowns in the country can grossly affect it because it is exposed to the risks of market concentration. It is for this reason that the company is focused on growing its presence in the international market in order to raise its revenue base.
The British customers have increasingly developed more preference for one stop bulk shopping because of a variety of social changes. Tesco Plc has therefore increased the amount of non-food items in its stores so as to be able to take advantage of the opportunity. The company also offers a wide range of products that cater for the different diverse needs of people of the customers. Attitudes, beliefs and social conditioning often determine the type of goods and services demanded by the consumers (Richter 2012, p. 61). Additionally, the consumers are increasingly becoming aware of their health issues which change their attitudes towards food. Tesco Plc has had to adopt its marketing mix in order to accommodate the increased demand for organic products. It was also the first to allow customers to make payments using cheques and cash at the checkout.
The demographic changes in the UK population like aging population and more female workers mean that there is a decline in home meal preparation in the country. The company has increased food supply in its stores in order to satisfy the needs of such customers. The same approach is replicated in its international stores as it provides the local foods like whale meat in Japan and other foods in Malaysia and South Korea (Cunningham & Harney 2012, p. 90).
Many products of the company have of the company have been influenced by technology. Technology is therefore a major macro environmental factor that benefits both the company and the customers (Baines et al 2013, p. 77). The customers are satisfied through more personalised and convenient shopping while the company benefits through the development of an efficient supply chain.
Companies are currently facing increased pressure to acknowledge their responsibility to the society. The companies are required to operate in a way that benefits the society (Bradley 2005, p. 33). Tesco has been accused of selling genetically modified foods to children. The focus of the corporate social responsibility of the company is to comply with regulations and its corporate governance policy.
Tesco Plc is required to comply with the different policies and legislations of the countries in which it has operations. For example in Malaysia it faced restrictions that limit its expansion in the country. The company has lowered the prices of some goods to comply with the pricing policies of different countries in which it has business operations.
Internal Environmental Analysis
Although Tesco PLC has operations in different countries across the world, its core operations are in the United Kingdom which accounts for over 60% of its sales. This study will use different theoretical models in analysing the external environment of the company. The company continuously upgrades its ordering system, in- store processes and vendor list to improve the efficiency of its operations. It uses information technology to maintain its low priced leadership approach to supply chain management. The EPRG framework will be used to analyse Tesco PLC foreign marketing involvement. The company has to re-orient itself and align its operations to fit into the different levels of operational activities that a particular market segment requires. The EPRG framework assesses four types of orientation of a firm towards foreign marketing. It is very useful in helping companies asses and determine their operational strategies as it relates closely to the marketing mix. The strategies chosen by the company for each variable determines its overall operational strategy. The table below shows the EPRG analysis and marketing mix of Tesco PLC.
The products of Tesco PLC are a mix of ethnocentric and regiocentric. The products that the company sells do not fit into all its market segments. Instead it sells products that are suitable for the respective regions in order to maximise sales (Thoenig & Waldman 2007, p. 111). The international expansion of the company takes into account the different tastes of the respective market segments. For instance it devoted a very big attention to the needs of the customers while venturing into the central European market as is reflected in the product line (Glowik & Smyczek 2011, p. 117). In the Czech Republic the company concentrated on providing the Czech products through retail shops. The same goes to China where the local consumers prefer buying live fish and turtles and other instant noodles unlike in the European market. Tesco PLC had to provide these products to the Chinese market in order to attract the Chinese customers. The other example is in Thailand where the company had to adapt to the shopping habits of the Thai customers by introducing the fresh market hall to serve the interests of these customers who spent a huge proportion of their income on fresh foods. These new adjustments were introduced by the company to help it penetrate the new markets because some of these provisions are not available in its operations in the United Kingdom. The website of the company is also translated into the languages of the specific market segments to ensure that the prospective and existent customers get the latest information on the products on sale and offers if any. The other aspects of the company like online marketing and sales are consistently available in all the market segments.
Tesco PLC uses a mixture of both ethnocentric and polycentric promotional strategy. Although most of its promotional activities are those used in the United Kingdom, it also utilises the needs and characteristics of the particular market in formulating its promotional strategies (Humby et al 2008, p.68). For example Tesco PLC implemented a strong plan for addressing parts of its offer to the customers in Thailand. The measures included remerchandising of its clubpack range of bulk products. It particularly targeted the small traders who shop regularly with the company. Another example is Poland where the company is launching a turnaround plan to improve its presentation of fresh food and is even introducing new concepts like bistro dining in order to differentiate itself from competition (Gunn 2009, p. 139). These plans are in some ways similar to the build better Tesco strategy being used in the United Kingdom but are a little adjusted to best serve the interests of the local market.
Tesco PLC pursues a predominantly polycentric pricing approach in its international markets. The company attempts to organise its marketing activities based on the specific countries of operation (Humby et al 2008, p. 198). It treats each country differently and formulates strategies that suit the specific local needs of the consumers. As such the prices of its products vary across different market segments depending on demand, income levels and demographics. For instance having had a difficult time in Ireland, the company launched pricing initiatives aimed at combating discounters and counter the lower prices offered by its competitors. The company reduced the prices in the stores particularly those close to the Irish border and has plans of extending the same to the rest of its stores in the country in the long run. The same low pricing strategy was also used by the company in Malaysia in order to attract more customers. In the other markets like England and Poland the prices are a little higher because they are sustainable for those market segments. In essence, Tesco PLC tries to ensure that the products and their prices fit into the demands of that particular market segment in question.
The management orientation of Tesco PLC has elements of both geocentric and polycentric influence. The global expansion of the company has been accompanied by teams that focus on both global and local markets. Its international expansion strategy has mainly been through joint ventures with the local partner firms in order to be sensitive to the needs of the local markets (Maynard 2013, p. 33). The company retains the employees of the partnering firms and continues with the approach of employing the local people because they are well placed to serve the needs of the local consumers. These local personnel are maintained by the company especially in the middle and low management positions because they are better placed to serve the needs of the local market than the foreign expatriates.
Place and Process
The process of Tesco PLC is a mix of polycentric and geocentric. The company has adopted a global approach in some of its operations as it has designed its value chain in a manner that ensures that it minimises its operational costs. For instance when it came apparent that it was critical to reduce the prices of products in its stores in Ireland, Tesco PLC decided to drop its suppliers in the country in preference for favourable ones elsewhere. The management of the company has established its distribution channels to facilitate the movement of its products across the different regional and national markets (Zentes et al 2011, p.173). The process of the company also has some elements of polycentric approach because it uses some strategies based on particular countries. For instance in Asia it treats all the countries differently based their product demands are different making it impossible for the company to use the geocentric approach.As such it acquires the products from the local suppliers and uses local marketing channels for serving the needs of that particular market segment. The polycentric approach has helped the company penetrate into difficult markets like Malaysia, China and South Korea as these countries have significant political, economic and cultural differences with the United Kingdom (Zentes et al 2011, p. 45). The products of the company are sold in its stores which it rents in the major malls and shopping centres whenever it finds space or builds its own stores in cases where that is the best option for the market segment. The place can be said to be polycentric because the products are mostly in the big cities where there are many consumers with the ability to buy its products. The polycentric approach enables the company to strategically position itself in the markets in order to reach as many customers as possible.
Proactive Market Research
The uses a polycentric approach in research and new product development because the needs of its customers in the different market segments are very diverse. In addition to this, some market segments like the American market have big industrial players like Wal-Mart who have a large base of loyal customers making it difficult to venture into such markets with an ethnocentric approach.
Proliferation of the Brand
The products of the company are standardised around the world to ensure that they are distinct and meet the required company standards.
TOWS ANALYSIS of Tesco Plc
The TOWS analysis will be used to analyse both the internal and external factors in order to provide a holistic view of the position and direction of the company. The figure below shows a combination of the TOWS analysis that combines the DEEPLETERS analysis with the competitive advantages and EPRG model.
O Strong global brand and high brand exposure
O Strong core UK market
O Strong and stable growth in Asia
O Financially sound
O Variety of products to appeal to different consumersINTERNAL WEAKNESES
OEthnocentric reliance on the UK market
OStagnant or negative sales in some developed countries
OHigh price elasticity due to competition and low costs of customers switching to other brands and loyalty
OResistance to large firms in some countries
OContinue entering appropriate markets across the globe
OContinue building on cost efficient pricing to attract more customers
OGo into new markets and buy local retailers to gain market shareWO
OExplore ways of reducing their operational costs in order to reduce prices for the consumers
OIncrease the efficiency of its business process and supply chain
OCapitalise on the opportunities present in the developing world by opening more stores there
OIncreased competition from other well established brands
OPolitical and legal opposition against expansion in some economies
OContracting consumer expenditures in Europe that reduce the demand for the non-basic goods
OEconomic reforms may threaten multinationals like the finances and operations of Tesco Plc
ORemain ahead of its competitors in terms of research and innovation in order to give the customers what they want
OContribute to the society in which it operates to limit the political and legal barriers that inhibit its growthWT
OIncrease the awareness of the brand through advertisement
OWithdraw from the markets that are not performing well and use the funds to support other operations of the company
The above analysis reveals that the company is on the right path as it has enacted mechanisms that will help it capitalise on its strengths and address its weaknesses. For instance the company has closed some of its international businesses that are not performing well like in the United States to reduce on loses. The company has also increased its operations in China and is focused in strengthening its presence in the emerging economies in Asia. Additionally, it is employing more local people and complying with the local regulations to reduce opposition against its operations in some economies.
Analysis of opportunity identification will be done using the BCG Matrix. The Boston Consulting Group Matrix (BCG) is important in analysing how companies allocate resources (Maynard 2013, p.81). The matrix splits the products of the company into four categories that determine how much money the company should invest in them. The categories are as follows:
Cash cows should be used by the company for profits as much as possible
Stars should receive investments so that they become the next cash cows
Dogs have low share of market growth and should be sold as they depress the performance of the company
Question marks have low share of high growth market and have the potential of becoming stars or dogs.
The high street shops of the company are the cash cows. Tesco Plc has approximately 30% of market share in this division although the growth of the division has been very slow. The online operations of the company are the stars. The company is the largest online grocer in the United Kingdom. Tesco Plc should make more investments in this sector to improve its online offering because e-commerce is growing rapidly. The question marks of the company include video on demand service and blinkbox which face high competition from the big industrial players. The company should decide on the appropriate level of investments needed for turning this division into star. The Fresh and Easy operation in the United States was a dog and that is why the company decided to pull out of the country.
The targeting strategy of Tesco Plc includes people of all ages and it offers a wide range of products to meet the demands of the customers. The company focuses on the specifications of products that are close to those of the rival companies in order to try and win customers from such companies. For instance it offers fresh and unreserved goods because people spend more money buying fresh products. In addition to product specifications, the company also prices its products fairly to attract more customers because households are very sensitive to price.
The findings of this study reveal that the strategies being pursued by Tesco Plc in its international expansion are in line with strategic models. The company identifies the opportunities present in the business environment and then devises the strategies for exploiting them. It has also adopted entry strategies like joint ventures and acquisitions for expanding into the international market. Such approach has helped the company expand its distribution network and win over the local markets by giving the customers a local approach. The company has also closed down the international businesses that are not doing well in the United States and Japan to reduce on loses and help it focus on other profitable markets. The company must continue to exploit the potential emerging markets and also looks for mechanisms of outdoing its major competitors.
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Baines, P., Fill, C., & Page, K. (2013). Essentials of marketing. Oxford: Oxford University Press.
Bradley, F. (2005). International marketing strategy. New York: FT/Prentice Hall.
Cunningham, J., & Harney, B. (2012). Strategy & strategists. Oxford: Oxford University Press.
Glowik, M., & Smyczek, S. (2011). International marketing management: Strategies, concepts and cases in Europe. Mu?nchen: Oldenbourg.
Gunn, M. (2009). Trading regime analysis: The probability of volatility. Chichester, England: Wiley.
Humby, C., Hunt, T., & Phillips, T. (2008). Scoring Points: How Tesco Continues to Win Customer Loyalty. London: Kogan Page.
Maynard, J. (2013). Financial accounting, reporting, and analysis. Oxford: Oxford university press
McLoughlin, D., & Aaker, D. A. (2010). Strategic market management: Global perspectives. Hoboken, N.J: Wiley.
Pradhan, S. (2009). Retailing management: Text and cases. New Delhi, India: Tata Mcgraw-Hill Education Pvt. Ltd.
Richter, T. (2012). International marketing mix management: Theoretical framework, contingency factors and empirical findings from world-markets. Berlin: Logos.
Thoenig, J.-C., & Waldman, C. (2007). The marking enterprise: Business success and societal embedding. Basingstoke [England: Palgrave Macmillan.
Zentes, J., Morschett, D., & Schramm-Klein, H. (2011). Strategic retail management: Text and international cases. Wiesbaden: Gabler.
Ethnocentric Polycentric Regiocentric Geocentric
EthnocentricProliferation of the Brand
Polycentric Price / place/ Proactive Market Research
Geocentric People / process
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