Tesco is one of the largest food retailers in the world. It has approximately 2,318 stores worldwide and employs more than 326 000 people. The grocery market in Britain is characterized by few competitors, namely the four strong brands Tesco, Asda, Sainsbury and Safeway, which have a market share of 70% as well as by small chains such as Somerfield, Waitrose and Budgens with a market share of 10%. The long-term business strategy of Tesco is focused on becoming a successful international retailer, on further increasing its market share in the United Kingdom, on enhancing its role in the area of non-food products and on developing its services (telecommunications Tesco, Tesco Personal Finance etc.). Tesco’s aim is to create value for customers and to build a lasting relationship of trust with the consumers.
The company began its operations in 1914 in East London as a small grocery store owned by the war veteran Jack Cohen. The brand Tesco – which comes from the initials of T.E. Stockwell (a cooperating supplier of tea) and from the first two letters of the surname Cohen – first appeared on packets of tea in the ’20s. The first Tesco store was opened in 1929 in the Burnt Oak of Edgeware. After the success of the self service stores in the U.S., Cohen decided to open in 1948 the first self service Tesco store in St. Albans. Tesco, that originally was selling food and clothing, has expanded from small shops to supermarkets and by the early ’60s, the reputation of Tesco brand Tesco’s was spread even further.
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In 1974 the company added gas stations in its larger stores, while during the 90s was expanded internationally and taking advantage of the growing Eastern European market, it opened stores in Poland, Hungary, Slovakia and the Czech Republic . Moreover, it expanded in Taiwan, Thailand and South Korea. The company proceeded to acquisitions such as the British T & S, the Polish super market chain HIT in 2002, and the Turkish Kipa in November 2003. In early 2004, Tesco announced the acquisition of the chain Adminstore, which owned the groceries Europa, Harts and Cullens in the London area, for 53.7 million pounds.
3. MARKET POSITIONING
United Kingdom is the largest market for Tesco, which owns the brand names Extra, Superstore, Metro and Express. The labels of the company are divided into value, normal and finest. The brand names have about 50% of company sales. Tesco sells around about 40.000 types of food in its stores, along with clothing and household items. The company provides online services through its e-shop, Tesco.com. In addition to the petrol stations Tesco, the personal finance Tesco was introduced in the UK, a joint venture with the Royal Bank of Scotland, which provides various financial products and services to its approximately 3.4 million customers.
Tesco’s sales in the United Kingdom increased by 1.5% during the third quarter of 2010 versus an 1.2% increase in the first quarter. The company managed to acquire a 30.6% market share, compared with a market share of 30.5% in 2009. Its rival Sainsbury raised its market share from 16.1% to 16.6% accordingly. Last year Tesco’s market share was stabilized, as Sainsbury gained profits during the recession by attracting a large portion of consumers with discounts on many of its products. To regain its lost customers, Tesco has offered special incentives to members of loyalty programs Clubcard, offering twice as many points as well as at home send extra coupons for toys and electrical goods worth 100 million pounds before Christmas 2009. The Clubcard program is one of the strongest components of the mixture Marketing of Tesco, as well as promote the purchase of products that are stagnant sales. Sales through the website have increased by 3% in the non-food during the festive season last year, an increase of 30% over the year before.
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4. Segmentation MARKET
The most effective and efficient combination of operational resources in targeted market segments promises the greatest return on investment marketing. Large multinational retailers such as Tesco use different strategies based on customer databases that keep on sending direct marketing messages effectively and to reward their customers cataloged (1). The Tesco launched the Management of Customer Relationship (CRM program) in 1995 through its Clubcard, offering points for every purchase and giving small rebates to loyal customers. With each use of the card in conjunction with the data of the holder, the company gathered valuable information. He built, therefore, a very strong customer database, on which could not distinguish between customer classes (2).
In particular, Tesco segmentation variables are summarized as follows:
a. Geographic segmentation
The Tesco, apart from its base located in England, also operates in 13 international markets. A division of the market is based on the country running and great attention is paid to the specific needs of each geographic segment. A further subdivision is made between cities and local markets of each country to adapt its products and promotional packages to local conditions.
b. Demographic Segmentation
Demographic variables associated with age, sex, family size and stage of life, the generation of income, occupation, education, social class, etc. The information derived from the use of the Clubcard in conjunction with the data of the same user, giving the company the ability to classify customers better and be placed on the market based on their specific needs. For example, stores Tesco Finest created for buyers with more disposable income for consumption, unlike the stores Tesco Value targeting low income consumers with greater sensitivity to price (3).
c. psychographic segmentation
The Clubcard presents an image that “captures” the lifestyle of people who used. Tesco acknowledged the genuine psychological needs of consumers and chose to cover those for which consumers really care. He created so many different lifestyle magazines targeted to different personalities and tastes (Autocar, BBC History, Country File, Easy Food, Gardener’s World, Harper’s Bazaar, etc.). In its efforts also extend wider market, has created several clubs for different areas, eg Baby Club, Healthy Living Club, The World of Wine Club, etc.
d. Behavioral Segmentation
H Clubcard was the tool that enabled Tesco to build a remarkable knowledge of the purchasing behavior of consumers. This includes knowledge of where and when customers shop, where they spend their time in the shop, the rate of utilization of products, their commitment to certain brands and, respectively, the rejection in others.
a. The first steps
H Tesco introduced in Ireland in 1979, acquiring 51% equity in stores 3 Guys, but the left in 1986, was unable to continue functioning in the country as customers rejected the British products sold in stores. In the late ’80s and early ’90s, Tesco has examined the available options in the U.S. and other European countries. In December 1992, Tesco introduced in France by acquiring 85% equity in Catteau super markets, which however failed to remain in the French market because of competitors Carrefour and Promodes. The initial experience of Tesco globalization has not been successful. However, it has acquired deep knowledge of the operation in different markets. It was found that the operational strategies that were successful in the UK would work in other markets only if they had a local “stigma.”
b. Develop an international strategy
The full emergence of international retailing is not something that can happen overnight, but requires a long-term approach. With over 10 years international experience that Tesco has developed a strategy based on 6 levels (4):
Flexibility: Each market isƒ˜ unique and requires a different approach.
Locally: Local customers, localƒ˜ culture, local supply chains and local regulations require a careful bid will be delivered by local officials.
Focus: The company understandsƒ˜ that customers want great service, great selection and great value.
Multiple formats: This Tescoƒ˜ store has a mix that allows it to move in multiple formats quickly.
Development: The company takesƒ˜ care to provide support staff, processes and systems.
«Building» brands: brands allowƒ˜ to build meaningful and lasting relationships with customers. In China the first Tesco branded store with the name «Tesco Legou» opened in February 2007 and now the company has completed the renaming of all stores.
c. Strategic entry and penetration
The Tesco understands the need to understand the market in which it wishes to penetrate. It is essential to choose the best location for shops to offer local clients the right products, to develop local awareness and to understand the political climate of the country and government legislation. The company’s penetration in international markets is through joint ventures, strategic alliances, subsidiaries or acquisitions of local retailers. This facilitates the entry of Tesco and involvement in foreign markets, allowing it to be shared with the local partner’s experience, thus successfully adapted to the needs of the local market. With the local partner is also the possibility to share costs and risks, as well as the “know-how” in management.
d. International operation
Since the mid-’90s, the company invests in new international markets, seeking new opportunities for growth and how to build long-term earnings to shareholders. Today the company operates in 13 markets outside the UK, Europe, Asia and North America. Also, recently announced its entry into the Indian market, where it established a cash & carry business. Over 180 000 people are employed in international business, working by 2,016 stores and generating sales of 17.9 billion pounds and more than 700 million pounds profit (5).
TABLE 1: List of countries where it operates Tesco (Feb. 2010)
Number of operation
shops + / – Shops
China 2004 88 18
Czech Republic 1996 136 23
Hungary 1994 176 27
Ireland 1997 119 3
Japan 2003 142 7
Malaysia 35 3 2002
Poland 1992 602 28
Slovakia 1996 81 11
N. Korea 1999 305 63
Thailand 1998 663 92
Turkey 2003 105 9
United Kingdom 1919 200 2482
USA 2007 145 30
Total (excluding UK) 302 2331
6. STRATEGIC ANALYSIS OF MICRO-ENVIRONMENT: THE FIVE FORCES OF PORTER
According to Professor of Harvard, M. Porter, the degree of intensity of competition in the industry of an enterprise is determined by five basic forces (PORTER, 2008). These are a) threat of new entrants in the industry, b) the bargaining power of suppliers, c) the bargaining power of buyers, d) the threat from substitute products and e) the intensity of competition between existing firms.
a. Threat of new entrants
The barriers for new entrants is enough, and can be summarized as follows:
The aggressive tactics of newƒ˜ product development, promotional media and distribution of Tesco and Asda, such as economies of scale and diversification strategy.
The purchase of food in the UKƒ˜ is dominated by a few competitors, namely Tesco, Asda, Sainsbury and holding a market share of 70% and smaller chains, Waitrose, Somerfield, Budgens and 10%.
New entrants need to raiseƒ˜ significant capital to cover fixed costs and investments in new technologies and advanced supply chains.
b. Bargaining Power of Suppliers
This force represents the influence of large food chains in the bargaining power of suppliers, and the fear that businesses will be threatened by the chains of supermarket. The market leader, Tesco and Asda, they can negotiate better prices from suppliers than smaller competitors. However, suppliers are threatened by the possibility of large chains to source their products from their respective suppliers abroad more affordable for those values. The fierce competition has significantly reduced profit margins for both chains, supermarket, and for suppliers.
c. Bargaining power of buyers
The lower the conversion cost of standard or non-differentiated products, so more power to get buyers (PORTER, 2008). The Tesco’s Clubcard is a very successful strategy for keeping customers. The Tesco controls and maintains the customer database through customized services, promotions and ongoing promotions. Over the past two decades there has been turning all supermarkets and more clients to:
use of financial servicesƒ˜
market pharmacy products,ƒ˜
market for green products thatƒ˜ promote fair trade
d. Threat of substitutes
The substitution may reduce the demand for a product, since the threat hopping consumer alternatives. Its sector of supermarkets, Tesco and Asda are opening more and more branches in towns of Great Britain in order to gain more ground.
e. intensity of competition between existing firms
The adoption of large-scale outlets and the increased concentration of retailers have become key features of the sector of supermarkets. The ever-growing industry that is dominated by low number of strong brands, have strong barriers to entry for new companies and aimed at an increasingly discerning consumers. The fierce competition is forcing major retailers in the United Kingdom to invest in new, innovative ways of keeping their customers. The market leaders successfully meet new challenges by focusing their policies on prices, and enhance the quality of goods and services.
7. GENERIC STRATEGY OF PORTER
A leader in food retailing, such as Tesco, will be followed by one of three generic strategies (generic strategies) developed by Porter, to gain a sustainable competitive cost advantage over competitors. These are cost leadership, differentiation and focus.
a. Cost Leadership Strategy
Through this strategy, Tesco aims to achieve lower production costs and offer products and services at the lowest market prices, which requires tight control of operating costs. High profitability due to high margins, high volume production or a combination of both (GEORGOPOULOS, 2006).
b. Strategic diversification
Through this strategy, Tesco offers products and services that are or appear to be unique in the eyes of buyers. The variety of products and services, advanced technology, and knowledge of consumer needs are factors that differentiate them from Tesco’s competitors (JOHNSON and SCHOLES, 2002).
c. Strategic Focus
This strategy can be achieved either at low cost to run a project (cost leadership) or differentiation to better meet the needs of this project, or a combination of both (GEORGOPOULOS, 2006). The Tesco, say, moving to internal improvements in order to protect itself from external pressures.
The Tesco sometimes below cost, or strategic leadership or differentiation, both in particular markets and markets specialized products.
The Tesco is the market leader in food retailing in Britain, as well as beyond the disposal value for money products, developing strong links with suppliers and creating a pioneering network of branches, focuses on marketing strategy to build good relationships with customers . Also, early on identified opportunities
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