Marketing Report Homework Paper on TESCO

TESCO

Executive Summary

Tesco Corporation has a number of supermarkets across Europe, Asia and America. It is known as one of the largest corporation with retail stores that reaches a large number of customers. The reliability and high quality of its goods and services have also played an integral part in its popularity. This report will focus more on the Tesco supermarkets, identify factors that have promoted its expansion and development and look at the strategies that have been adopted by the corporation giving it an upper hand over its competitors. This report will introduce the Tesco Corporation and give an external analysis of the corporation’s supermarkets on the basis of micro and macro environment factors. The strategic resources of the Tesco Corporation will also form an integral part of this report. The issues that have affected the image of the corporation since its inception will also be critically analyzed. The report will conclude by focusing on the business level and corporate level strategies that have been and that should be adopted by the corporation for it to achieve its goals.

 

1. Introduction

The last fifty years have seen major changes in the way that people buy their food products and other household commodities. Most people used to buy their food from markets or specialist food shops such as green grocers, butchers and fishmongers. Presently, almost a huge chunk of money is spent on groceries and more than 80 percent of this money goes to the supermarkets that are widespread all over the world.  One of the major supermarkets in the world situated in the UK that enjoys or rather benefits from the 80 percent is the Tesco Supermarket. For the past 20 years, Tesco has brought its corporations to new heights in the supermarket industry by currently being placed as the number one supermarket in the UK and number three worldwide amongst competing grocery chains.  The supermarket’s surge of success has much to do with advancing the corporation’s technology such as the Customer Relationship Management software, which includes the highly successful Tesco Clubcard (Freel, 1997).  This has allowed Tesco to build their information technology with customer databases and also to develop their stores matching their customers’ wants and needs, an aspect that is vital to the industry. As matter of fact, Tesco is one of the largest food retailers in the world, operating around 2,318 stores all over the world and also providing employment to over 325, 000 people.  As well as operating in the United Kingdom, Tesco as a supermarket has its stores in the rest of Europe and Asia with a few stores in Africa and America.  Tesco is a wholesaler of about 40,000 food products, as well as non-food products such as clothes and machineries. The success of the corporation can be attributed to the good leadership structure that has been in existence since the establishment of the corporation several years ago. Besides, the corporation has been involved in purchases of other corporations such as the UK based T & S, the small Turkish hypermarket chain and the Adminstore among several others (Benner, 1996). Therefore, the purpose of this report is to survey the situation at the Tesco Supermarket. This report will analyze the external environment of TESCO supermarkets, that is, the micro and macro environment. This report will also critically analyze some financial indexes of the corporation.  Besides, a number of theories will also be used in this report to analyze some issues that have affected the image of the corporation, either internally or externally. The report will be wrapped up by the identification of the business level and corporate level strategies that have enhanced the development and success of the corporation.

2. Q1- External Analysis of TESCO supermarkets globally

The external analysis of the global TESCO supermarkets will involve a critical analysis of the corporation’s macro environment and microenvironment. The concept of marketing is essentially environment-based. A corporation’s marketing environment consists of forces that surround the marketing department. This so-called marketing environment is made up of two major divisions, which are, the macro and microenvironments. To begin with, the macro environment consists of the larger societal forces that affect the whole micro environment. These variables consist of political, economic, social, technological, ecological and legal forces. On the other hand, the micro environment consists of forces close to the company that affect its ability to serve its customers. This includes the company itself, marketing channel firms, customer markets, competitors and publics. For the TESCO supermarkets found across Europe, Asia and all over the world, political forces have been very influential in their success and existence. The political environment is characterized by marked volatility.  Change is the salient feature of any political milieu. This environment consists of an interacting set of laws that manage and supervise the day-to-day operations of any corporation such as the TESCO supermarkets. Trade barriers are politically driven and they are some of the factors that have promoted the development and success of the Tesco supermarkets globally. As said earlier, Tesco supermarket is one of the largest food retailers across the UK and by the year 2010, the corporation had expanded its stores across 14 other countries including Asia, Europe and the United States. The decline of trade barriers, which was influenced by political aspects, has allowed Tesco not only the ease of expanding their businesses worldwide but also incorporating global products. This has also allowed for the corporation to establish a fair trade system of their goods while maintain better relations with suppliers. Moreover, in the countries where the supermarkets exist, they have abided by the regulations of establishing businesses such as payment of taxes. This is an aspect that is decided by government officials of various countries. This is true with standard requirements of products and services to be sold to the global community. The corporation’s act of abiding by taxation regulations in various countries has done away with any political issues and this has promoted its faster development and expansion to different countries. The corporation has also abided by a number of policies such as policies on cleanliness that are often formulated by governments of countries where the supermarkets are found. Some of the policies of cleanliness that the Tesco supermarkets have abided by include selling products with correct weights, of quality, standardized, and true to what the corporation claims to its consumers (Gale, 1976).

Economic forces have also played an integral role in the development and expansion of the Tesco supermarkets globally. The state of the economy affects the demand for different types of products and services. The Tesco supermarkets have been established in countries in Europe, Asia and America that have robust economies that have all along been conducive to product and service movement. This has escalated the rate at which the supermarkets expand and develop. There has also been growth in real income, pattern of income distribution and change in the expenditure patterns in the countries where the Tesco supermarkets have been established. All these aspects have played an integral role in the marketing of products and services of the Tesco supermarkets thus making them more competitive in the global market (Gale, 1976).

The other aspect of the macro environment that has influenced the development of the Tesco supermarkets is the social forces. Socially speaking, gender issues are marketing determinants in any environment. Needs and wants of women may present marketing opportunities. Since, they generally hold the purse; products although not meant for them, maybe for children, need their approval too. In most of the countries where the Tesco supermarkets exist, a large number of the populations are made up of women. Thus, the products and services from the Tesco supermarkets have ready and sufficient markets. This is the reason why there has been continuous expansion and development of the supermarkets in any country they are established. On the other hand, social aspects such as priorities of men like having a home, and preferences for television brands and type of cars have greatly determined how the products and services of the Tesco supermarkets are to be promoted (Gale, 1976).

Technological forces are also among the influential factors in the external environment of the Tesco supermarkets. New developments in technology are significantly affecting business organizations.  Whether information, communication, or production technology; these developments have tremendous impact on our lives, namely lifestyles, consumption patterns, and our economic well-being. For a firm to survive in a rapidly changing technological environment, there are technological risks that are possible.  Technology has helped provide Tesco with its global success through various ways. Firstly, the corporation has put in place information technology. This includes the Tesco Clubcard that gives the supermarkets direct access to the shopping behaviors of customers and on how to improve the stores’ products to match the wants and needs of customers. The corporation has also capitalized on retailing technology that has led to significant increase in the profits of the corporation and a large consumer base. The Tesco Corporation has tailored technology to their need by incorporating Tesco.com, Tesco Telecoms and self-checkout machines. These technology services have given the company the opportunity to branch out to their consumers shopping needs in a faster and more efficient climate. For instance, recently, the corporation invested in the first “drive-thru” supermarket in the UK. This technological advancement allowed the consumers who are time conscious and who cannot wait for their delivery of goods, the convenience of online grocery shopping with the option of the store’s drive-thru pick up service. The inception of this idea has ever since given the Tesco supermarkets an upper hand over its rival corporations (Gale, 1976).

Ecological forces have also played a significant role in the success of the Tesco supermarkets across the world. To begin with, the supermarkets’ stores are often located in strategic positions that are easily accessed by the customers. Besides, the stores are located in major cities of Europe, Asia and the US where there are good transport and communication networks that enhance the accessibility of the corporation’s products and services. As a result, this has led to the company incurring many profits thus expanding and developing at a faster rate as compared to its close rivals.

The corporation has also been successful since it has been abiding by the legal forces that are often put in place by governments of various countries. A number of governments have often emphasized on the importance avoiding environmental pollution, paying of taxes and making the market customer friendly by avoiding careless increase of prices of commodities and services. Governments are always very strict with these aspects, the success of the Tesco Corporation has been witnessed thanks to its leaders abiding by the policies, regulations, and other legal factors put in place by the governments of different countries (Freel, 1997).

The external environment of the Tesco Corporation also includes the micro environment factors. These are the nearby factors for instance, the factors that surround the day to day operations of the Tesco Corporation that affect its ability to serve its customers effectively and efficiently. One of the micro environment factors that have promoted the development of the Tesco Corporation is the suppliers. Suppliers are individuals or businesses who provide the needed raw materials to other companies to be able to produce the goods and services they sell. They may be large of small companies or merely individuals that enable the company to generate merchandises to satisfy the needs of consumers. The Tesco supermarkets spread across Europe, Asia and USA, have been very successful because their suppliers often sell to them quality and not substandard raw materials, adequate and not deficient in weight, and complete and not short of contents. The Tesco Corporation has to a large extent been dependant on its suppliers. This has led to the consistency of the corporation thus making it establish a large customer base (Gale, 1976).

The other aspect of the microenvironment that is beneficial to the Tesco Corporation is the marketing intermediaries. These intermediaries include middlemen, physical distribution firms, marketing services agencies, and financial intermediaries. For the Tesco supermarkets, they have put in place a number of intermediaries that have played an integral role in marketing their products and services. They have helped the corporation in terms of promoting, selling and distributing goods and services to prospective buyers. Generally, just like other companies, Tesco Corporation uses middlemen to help it find customers and make sales. These middlemen may be business firms too. The middlemen buy the products from the Tesco supermarkets spread across Europe, Asia and the USA and then they sell them. At times, the corporation stocks goods and moves them from their origin to their destination. Physical distribution firms also perform these functions. The Tesco Corporation has also put in place marketing services agencies such as marketing research firms, advertising agencies, and media firms and marketing consulting firms that primarily help the corporation to target and promote its products and services to the right markets. In addition, the Tesco Corporation has also collaborated with financial institutions that act as financial intermediaries that have helped the corporation to finance transactions or insure risks associated with the buying and selling of goods. The financial intermediaries include banks, credit companies, insurance companies and other companies that are involved in the financing and insuring activities. As a result, the success and goals of the Tesco supermarkets have been achieved thus promoting its rapid expansion and development (Gale, 1976).

Without forgetting, one important aspect of micro environment that has been beneficial to the Tesco Corporation is customers.  Competitors continuously compete to capture a bigger share of the market. Customers are the persons who are involved in the purchase of goods and services and also patronize them regularly. They are also known as the end users of certain products. Customers are the very reason why companies pursue new developments and differentiate their existing products and services. They are the focus of their business plans and programs, and the thrust of their strategies. Without them, companies have no reason to be in existence. Thus, the Tesco Corporation has been successful and it continues to expand rapidly as it has a larger customer base. The customers are also loyal to the corporation and this has enabled it to be more profitable and expand more rapidly as compared to its competitors.

3. Q2- Resources and Capabilities theory and strategic Resources of Tesco Corporation

The resources and capabilities theory states that the case for making the resources and capabilities of any firm or corporation for its long-term strategy rests upon two premises:  first, internal resources and capabilities provide the basic direction for a corporation’s strategy; second, resources and capabilities are the primary source of profit for any corporation. The resources and capabilities of the Tesco Corporation have been beneficial in that they have acted as a source of direction for the corporation. The starting point for the formulation of strategy for the Tesco Corporation is a statement of the corporation’s identity and purpose that takes the form of a mission statement. The theory goes ahead to state that in a world where customer preferences are volatile, the identity of customers is changing, and the technologies for serving customer requirements are continually evolving, an externally focused orientation does not provide a secure foundation for formulating long-term strategy.  When the external environment is in a state of flux, Tesco Corporation’s own resources and capabilities may be a much more stable basis on which to define its identity (Porter, 1985).

The resources and capabilities of the Tesco Corporation have also acted as a basis for profitability of the corporation. The ability of the Tesco Corporation to earn a rate of profit in excess of its cost of capital depends upon two factors: the attractiveness of the industry in which it is located, and its establishment of competitive advantage over its rivals. Industrial organization economics emphasizes on industry attractiveness as the primary basis for superior profitability, the implication being that strategic management is concerned primarily with seeking favorable industry environments, locating attractive segments and strategic groups within industries and moderating competitive pressures by influencing industry structure and competitors’ behavior.  Yet empirical investigation has failed to support the link between industry structure and profitability. Several studies show that differences in profitability within industries are much more important than differences between industries. The reasons are not difficult to find: international competition, technological change, and diversification by firms across industry boundaries have meant that industries that were once cozy havens for making profit are presently subject to vigorous competition. The finding that competitive advantage rather than external environments is the primary source of inter-firm profit differentials between firms focuses attention upon the sources of competitive advantage. Although the competitive strategy literature has tended to emphasize on issues of strategic positioning in terms of the choice between costs and differentiation advantage, and between broad and narrow market scope, fundamental to these choices is the resource position of the corporation for instance the Tesco Corporation. For example, the ability to establish a cost advantage requires possession of scale-efficient plants, superior process technology, and ownership of low-cost sources of raw materials or access to low-wage labor. Similarly, differentiation advantage is conferred by brand reputation, proprietary technology, or an extensive sales and service network (Porter, 1985).

In respect to this theory, it would be worth noting that the Tesco Corporation has a number of key strategic resources that have played an integral part in the development and expansion of the corporation. The strategic resources include human resources, economic resources, technological resources and financial resources. To start with, the human resources that have enabled the success of the company include the large numbers of employees who work hand in hand with the management of the corporation to ensure that responsibility and reliability forms part and parcel of the corporation. There are also leaders in all sectors and departments of the corporation who control the day to day activities in each sector or department. This has ensured that in terms of operation, no stone has gone unturned. Actually, leadership is the core or the most important element when it comes to the management of corporations or firms (Porter, 1985).

The other strategic resource for the Tesco Corporation is the economic resource. Corporations or firms to meet the needs and desires of human beings use these commodities or services. The major economic resources for the Tesco Corporation include labor and capital. That is to say, the corporation has recruited a number of employees in its various supermarkets and they have played an integral role in ensuring that the vision and goals of the corporation are achieved.  Besides, the corporation has to have capital for the purchase of goods and services that are to be sold to the customers. For any corporation or firm to be successful, capital is one of the necessary aspects that have to be put in place or else the corporation would not go any inch further (Porter, 1985).

Technological and financial resources such as ensuring the adoption of technology and having financial institutions that gives grants and loans to the corporation have also led to the rapid development of the Tesco Corporation. In fact, as a result of the financial resources, the corporation has recorded positive financial indexes in terms of investment as seen in the table below.

% Change of Tesco’s Investments over 10 years

	% change of Total Inward Investment	% change of Total Outward Investment	% change of Total Investment
2000
2001	17.63	28.91	19.51
2002	6.12	35.16	11.35
2003	18.43	42.91	23.78
2004	6.45	8.38	6.94
2005	2.81	18.32	6.78
2006	66.26	93.71	74.04
2007	8.22	15.46	10.50
2008	17.49	29.95	21.59
2009	53.35	51.43	52.68

 

Evidently, Tesco Corporation has established a good rapport with a number of financial institutions. This has given it an upper hand or rather a competitive advantage over its competitors. This is because the corporation is easily granted loans that have stimulated its faster financial growth in the past decade. The major competencies of the Tesco Corporation is that it has established a large and loyal customer base, it has a large number of employees who have enhanced its fast growth, it sells goods and services that are reliable and are of high quality and the corporation has also put in place technological advancements that have made shopping easier for its customers. All these competencies have led to competitive advantage.

4. Q3- Issues that have affected the image of the Corporation

A number of issues have affected the image of the Tesco Corporation since it was established. To begin with, the corporation has had an issue with its entry behavior in new markets. When entering a new market, Tesco has always followed an acquisition model, except when it was entering the United States. Tesco decided to pursue an organic growth entry mode, which has proven to be so far, unsuccessful and costly for the company. By entering in a limited scale by opening shops across California, placed Tesco in a high-risk operation, where profit turnover would need to be quick and incur large revenue of profit. By expanding into the US market would not only create profits for Tesco but there would be a high reward of further establishing the competition between Tesco and other corporations  such as Walmart. The entry behavior in the new market affected the image of the corporation as it lost about 208 million dollars in its first year of operation (Nilsson & Rapp, 2005).

The other issue that has affected the image of the corporation is that it has had some struggles with sustaining their low prices to consumers as the recession increased inflation amongst various countries. Low prices are vital as they attract customers to a certain corporation. Though the Tesco Corporation has been offering products and services of high quality, the struggle to sustain low prices of their commodities has been a great challenge to the corporation. In fact, this has driven away some customers.

The other issue is that in certain occasions, the corporation has failed to fully understand its consumer base or global recession. For instance, in 2007, Tesco launched its supermarkets in the US as a convenient store. Since the opening of the supermarket in the US, the stores have received poor performance levels and non-profitable returns. This was attributed to the fact that the corporation did not fully understand its American consumer base and this greatly affected the image of the corporation (Nilsson & Rapp, 2005).

5. Q4- Business level/ Corporate level Strategies of the Tesco Corporation

Business Level Strategy

Tesco maintains a transnational strategy, with an emphasis on local markets and cost reduction pressures, especially from their consumers. This is the optimal strategy for businesses and the right strategy for Tesco. Thus, it is very important for Tesco’s business to continue focusing on local market needs and cost pressures specifically from their consumer’s viewpoint, to provide low prices to their products, as this strategy helps the business grow and develop while maintaining their high position in the supermarket industry (Plunkett, Attner, & Allen, 2008).

Corporate level strategies

Just like other corporations, Tesco has put in place corporate level strategies that have helped promote its expansion and development. To begin with, the strategy of market penetration has been very beneficial to the corporation. Tesco examines stores that are underperforming in hopes to acquire them for potential profit growth. It has done this by attaining favorable markets where the economy is stable and the political environment is secure. Besides, Tesco has penetrated markets early before other corporations and this has helped increase its turnover (Plunkett, Attner, & Allen, 2008).

The other corporate level strategy that Tesco has used is that it has entered new markets on a large scale entry method. For instance, when it was entering China and other Asian countries, Tesco entered on a large scale entry method to stay ahead of competition, such as Walmart and Carrefour, and to expand international stores. Besides, Tesco also used several millions of pounds buying and acquiring the T & S stores that are located in China. In South Korea, Tesco also invested many funds doing purchases. In the end, the large-scale entry method played an integral role in the rapid expansion and development of the Tesco Corporation (Plunkett, Attner, & Allen, 2008).

Product development is the other corporate level strategy that Tesco Corporation has used in all its new markets. That is to say, when the corporation enters into a new market, it has done a lot to develop its products and services so that they can offer stiff competition to the existing products and services offered by competitors in the new market. This strategy has contributed to the rapid expansion and development of the Tesco Corporation as more customers are attracted to the reliable and high quality goods and services.

In order to promote its development, it would be advisable for the Tesco Corporation to adopt more corporate level strategies.  First, coming into mergers with other corporations would help Tesco Corporation reduce costs thus saving and enhancing its development. The other strategy that the corporation should use is differentiation. This means that the corporation should improve the quality of its goods and services to overcome its competitors. Moreover, the Tesco Corporation should outsource employees from other corporations in the new markets. This will also give the corporation a competitive advantage over its competitors in the new markets (Strategic management concepts, 2006).

6. Conclusion

In conclusion, Tesco supermarkets is one of the biggest retail stores in the world offering employment to employees slightly over 300, 000. The corporation is deemed as one of the most successful globally due to a number of factors.  There are macro environment factors such as political, economic, social, technological and ecological factors that have in one way or another contributed to the success of the corporation as stipulated in this report. Besides, micro environment factors such as customers, marketing intermediaries and suppliers have also done a lot to put the corporation to where it is presently.  The corporation has also come up with business level and corporate level strategies as articulated in this report.  This report also suggests that more strategies such as franchising, mergers and acquisitions and outsourcing of employees among others should be formulated and implemented so that the development and expansion of the corporation should be promoted.

 

7. REFERENCES

 

(2006). Strategic management concepts. Mason, Ohio, Thomson/South-Western.

BENNER, D. (1996). Tesco Corporation (TEO – $15.20). [Toronto], RBC Dominion Securities.

FREEL, D. (1997). Tesco Corporation (TEO-T $23.50): investment highlights. Toronto, Loewen, Ondaatje, McCutcheon.

GALE, J. D. (1976). Macro-environmental analysis systems for corporate planning: an information-flow model and technological developments for the political sector. Thesis (Ph.D.)–UCLA, 1976.

NILSSON, F., & RAPP, B. (2005). Understanding competitive advantage the importance of strategic congruence and integrated control. Berlin, Springer. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=304658.

PLUNKETT, W. R., ATTNER, R. F., & ALLEN, G. (2008). Management: meeting and exceeding customer expectations. Australia, Thomson/South-Western.

PORTER, M. E. (1985). Competitive advantage: creating and sustaining superior performance. New York, Free Press.

 

8. APPENDICES

 

 

% Change of Tesco’s Investments over 10 years

	% change of Total Inward Investment	% change of Total Outward Investment	% change of Total Investment
2000
2001	17.63	28.91	19.51
2002	6.12	35.16	11.35
2003	18.43	42.91	23.78
2004	6.45	8.38	6.94
2005	2.81	18.32	6.78
2006	66.26	93.71	74.04
2007	8.22	15.46	10.50
2008	17.49	29.95	21.59
2009	53.35	51.43	52.68