This report is set out in order to evaluate the marketing strategy adopted by Tesco along with how they gain a competitive position internationally through globalisation. Under the findings of this report, the approach which will be evaluated will be related to Porter’s competitive positioning. This will be used to show how Tesco gain a competitive advantage over their rivals such as Asda using the generic strategy. The five force framework will also be investigated to anaylse the competition it faces and finally how Tesco segments there market, identifying the gaps available to develop.
In order to write this report a collection of different sources were used. These sources included books, journal articles, media articles, websites, Tesco’s annual reports and information from Tesco’s website. The information gained from these sources helped to discover how Tesco manages to gain the competitive advantage in their industry. It has also helped to focus the importance of successful competitive positioning with models from Porter to establish the position in the minds of the consumer. 1. 0 Introduction This report includes a theoretical model which will reflect the practice of Tesco in relation to strategic analysis.
It will look at the competitive positioning approach and the models/concepts used by Porter to gain a competitive advantage over Tesco’s rivals. By doing this it will show what other companies in the industry would need to do in order to take over the competitive advantage that Tesco have. Strategy is based on the long term of a business and is the direction and scope of the organisation. It aims to achieve advantage in a changing environment through its configuration of resources and competences (Johnson et al, 2008).
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There are generally three different levels of strategies associated with organisations.
The top level is known as the corporate level strategy which is alarmed with the overall purpose and extent of the organisation. The second is the business level strategy which looks at particular markets and how to compete successfully in them and the third level is the operational strategies which look at how the organisation delivers successfully (Johnson et al, 2008).
2. 0 Findings 2. 1 History of Tesco Tesco began when Jack Cohen first opened a market stall in the East end of London in 1919 and since then began trading in 1924.
This shows that Tesco has been serving customers in the UK for the best part of a century. Today, they class themselves as much more of a weekly shop as they have introduced new services, products and ways to shop all driven by their ‘Every Little Helps’ philosophy (Tesco, 2008).
In the last decade Tesco has grown their business to become the world’s third largest grocery retailer by determining an excellent level of service wherever they operate. They have a strategy for growth which is based in five parts.
These include core UK business, non food, international, retail services and the community (Tesco, 2008).
Tesco’s market share is still growing just short of 7% although that is not as fast as it was. This is because at present the economy is in a recession and so customers are changing their habits (Leahy, 2008).
‘According to the Institute of Grocery Distribution (IGD), the UK food industry group predicts that Tesco will grow at a faster rate than Carrefour in the coming four years. Tesco’s growth will be spurred by international expansion in markets such as China, the US and India’ (Hall, 2008).
The Essay on Employing Strategy in a Competitive Environment
Question # 1- Create an environmental scan for the company indicating the most significant environmental threats and discuss how the company should respond to each threat to ensure that the impact to the business is minimal. Companies and industries are constantly impacted by their surroundings. For example, “all companies operate in a macro environment shaped by influences [including ...
This means that Tesco who are currently the UK’s biggest retailer will leapfrog Carrefour by 2012 to become the second largest retailer in the world after WalMart (Hall, 2008).
Within the UK, Tesco employ over 280,000 employees and have over 2,100 stores. Tesco stores have four different formats (See Appendix 1).
These are the express stores which sell a range of up to 7000 products with the first express store opening in 1994. The metro store first opened in 1992 bringing the convenience of Tesco to town and city centre locations.
The Tesco superstores began in 1970s and in recent years these stores have been introduced to a number of new nonfood ranges such as DVD’s and books. Finally the Extra stores have been operating from 1997 and offer the widest range of food and nonfood lines. These products range from electrical equipment to homewares, clothing, health and beauty and seasonal items such as garden furniture. Along with food and nonfood products in different stores, Tesco also offers retailing services (See appendix 2).
Tesco Personal Finance (TPF) has the choice of 26 products within their successful market.
These range from their savings accounts and credit cards to car and travel insurances. Tesco’s strategy for growth (see appendix 3) has been well established and consistent which has allowed them to expand into new markets. ‘The rationale for the strategy is to broaden the scope of the business to enable it to deliver strong sustainable long term growth’ (Tesco Strategy, 2008).
2. 2 Competitive Positioning ‘Competitive positioning emphasizes the importance of the environment and provides useful tools for analysing the business in the context of its industry’ (Campbell et al, 2002 p. 298).
Competitive positioning is the degree of difference in choice of product or service against the competitor (Lynch, 2003).
The competitive positioning approach used by Porter, argues that the position of an organisation is successful if it places itself towards the environment (Campbell, 2002).
Positioning within any organisation is achieved through the minds of the consumer and this is what enables businesses to gain a competitive advantage over their rivals (Darling, 2001).
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A strategic fit is used between an organisation and the environment which again is a way to gain competitive advantage. This is based on Porter’s generic strategy Framework (Campbell et al, 2002).
2. 3 Identification and application of the models, concepts and theories used in competitive positioning within Tesco 2. 3. 1 Porter’s Five Forces The five forces framework (see appendix 5) was developed by Porter and is used in most industries to analyse competition, as it is of value to most organisations providing a useful starting point for strategic analysis (Campbell et al, 2002).
Porter suggests that ‘it is the structural characteristics of an industry (the five forces) that determine the relative success or failure of a firm’ (Jenkins & Ambrosini, 2002 p. 124).
The five forces framework is complex in that different industries could be emerging, maturing or declining and Porter is able to recognise that his competitive strategies would need to vary accordingly (Jenkins & Ambrosini, 2002).
He believes that ‘competition in an industry is rooted in its underlying economic structure’ (Jenkins & Ambrosini, 2002 p. 29).
Johnson et al, 2008 define the five forces as: · The threat of entry into an industryThe threat of substitutes in the industry’s products or services · The power of buyers of the industry’s products or services · The power of suppliers into the industry · The extent of rivalry between competitors in the industry A criticism of the five force framework is that Porter implies all competitors within an industry are equal. However, this is not always true as it could be the size of the industry which is causing the threat. Also the macro environment must be regularly reviewed due to the continuous movement as the five forces cannot be applied in isolation (Campbell et al, 2002).
This would mean that Tesco has the advantage of buying in bulk giving them economies of scale (321 Books, 2007).
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The power of the buyer in Tesco can force down the price of products, as if buyers want products they know they can get cheaper in another supermarket it is more than likely that the buyer will move to the other supermarket. This means that supermarkets have a disciplined approach to setting the price of their products. Supermarkets destroying each other over profits are prevented due to the discipline used within Tesco (Research Papers, 2007).
Tesco uses the power of the supplier to their own advantage. However, the price of products are demanded by the supplier otherwise the retailer will not be delivered the goods to sell (Research Papers, 2007).
This would create poor customer service and a bad relationship with the suppliers. With Tesco being a larger supermarket, it has an advantage over smaller shopkeepers as they can dictate the price they are prepared to pay the supplier, as if they do not agree to this they will lose business in the long run (321 Books, 2007).
Tesco has a very high competitive rivalry in food retail with competitors such as Asda, Sainsbury’s, Morrisons and Waitrose. All these competitors compete on price, products and promotions periodically (321 Books, 2007).
The five force analysis is also complemented with another technique know as a SWOT analysis which is used to create synergy. A SWOT analysis of Tesco can be found in below. In order to gain new sales opportunities the major retailers in the UK such as Tesco must expand their product categories which is causing intense rivalry between the UK supermarkets (Hackney &Birtwistle, 2006).
There is also rivalry with competitors over the operation of online facilities, although Tesco has been proven to be the most successful in implementing their strategy. Due to this it means Tesco can sustain a competitive advantage. Sustaining a competitive advantage can be gained in three different ways (Hackney & Birtwistle, 2006).
2. 3. 3 Porter’s Generic Strategy Porter’s generic strategy framework is used to gain a competitive advantage and is the oldest approach based on an outside in approach.
It is known as this as it examines the environment and then decides how to achieve a strategically desirable position (Campbell et al, 2002).
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However due to the recession the economy is in at present, the question relating to Porter’s generic strategy is it possible that Tesco can afford to look into the environment? (McNeilly, 2008) Generic strategies are used to attain above average performances within an industry in order to gain a competitive advantage. The generic strategies contain cost leadership, differentiation, cost focus and differentiation focus and can be found in appendix 4 (De Wit & Meyer, 2004).
Porter has argued that businesses should not get ‘stuck in the middle’ so must choose either a differentiation or cost leadership strategy (Campbell et al, 2002).
Competitive advantage within the broad segments of an industry include the cost leadership and differentiation strategies whereas the narrow segments of an industry aim to gain a cost advantage and include cost focus and differentiation focus. However, different industries will vary widely meaning the generic strategies must relate to that particular industry (De Wit & Meyer, 2004).
The Tesco generic strategy which is used will have to be cost leadership unless they can successfully differentiate their line of clothing so that they can begin to charge a premium price (Johnson et al, 2007).
A critique of Porter’s generic strategies by Bowman is that he believes competitive advantage should be more effective within an organisation than its competitors in order to provide customers with want they want or need. Due to this criticism Bowman developed the strategy clock (Johnson et al, 2008).
Positioning and competitive advantage can be gained using the strategy clock as it makes managers aware of how changing requirements of their markets and choices can be made (Johnson et al, 2008).
In relation to the strategy clock developed by Bowman, Tesco adopts the hybrid strategy as it accepts elements of both cost leadership and differentiation (Campbell et al, 2002).
A hybrid strategy ‘seeks simultaneously to achieve differentiation and a price lower than that of competitors’ (Johnson et al, 2008, p. 230).
However, it could be argued that the price of products used by Tesco should not need to be lowered if differentiation can be achieved.
The reason behind this is, Tesco should be able to obtain their prices at least equal to competitors such as Asda and Morrisons if not higher due to them being market leader (Johnson et al, 2008).
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For the purpose of this assignment, I am assuming myself as the owner of a plastic molded toy company in United States that manufacturers, and distributes plastic molded toys through retailers across the country and around the world. The company is capitalizing on the strong growth in the children’s toys segment and planning to expand in an aggressive manner throughout the nation. The company ...
Johnson et al, 2008 believe that Hybrid strategies can be advantageous for a number of reasons as detailed below: • Tesco is achieving a high standard of market share in the UK. This is due to the grater volumes being achieved over their competitors, meaning their margins could still be superior due to the lowcost base they have.
Hybrid strategies can be used as an entry strategy in the market where there are established competitors. Tesco adopts this strategy when developing their global strategy. It allows them to target competitors and enter the market in different geographical areas with superior products at low prices. This enables them to get established and gain customer loyalty. 2. 4 Identification of market segmentation ‘A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market’ (Johnson et al, 2008, p.77).
The advantages of market segmentation are many. Typical bases for segmentation of markets are: Demographic variables which include difference of age, stages of the family life cycle, gender, income, occupation, education, race and religion. Geographic variables such as difference by country, region, type of housing/neighbourhood Psychographic variables which exploit the lifestyle, personality or intelligence differences between people Behavioural variables such as attitudes to brand loyalty, frequency of use, consumption occasion (Campbell et al, 2002, p. 95).
Tesco appeal to all customers as the products they sell attracts customers from low incomes to those who are more affluent (McNeilly, 2008).
Their product choice is increasing in diversity which ranges from healthy living products, free from products, special healthy kids snacks, organic products and fairtrade products (Tesco, 2008).
This means they segment successfully which is shown in their profits (McNeilly, 2008).
Due to segmentation, Tesco have recently identified a few gaps in the market which has enabled them to react to these particular markets before competitors notice them.
The first gap they identified was the music download service which will have a major impact on Apple’s position as it will allow people to legally purchase and download (Beaumont & Warman, 2008).
Tesco digital is there new venture and plans to play Apple at its own game (Beaumont & Warman, 2008).
Another area were Tesco has identified a gap in the market is with cheese. The Dairy Farmers of Britain (DFB) have added a range of four different cheeses to their portfolio which they have launched in 650 Tesco stores. These are known as the 1 st grade range and include mild, mature, Ploughman’s vintage and red Leicester.
