Business / Tesco’S Marketing Strategies And The Uk Consumer Perceptions

Tesco’S Marketing Strategies And The Uk Consumer Perceptions

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Autor:  anton  08 July 2011
Tags:  Tescos,  Marketing,  Strategies,  Consumer,  Perceptions
Words: 2970   |   Pages: 12
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TESCO’s Marketing Strategies and the UK Consumer Perceptions

Introductory Background

According to the report by Solar Navigator (2007) Tesco was founded by Jack Cohen, who sold groceries in the markets of the London East End from 1919. The Tesco brand first appeared in 1924. After Jack Cohen bought a large shipment of tea from T.E. Stockwell, he made new labels by using the first three letters of the supplier's name and the first two letters of his surname forming the word "TESCO". Tesco’s first store was opened in 1929 in Burnt Oak, Edgware, London; and the firm was first floated on the London Stock Exchange in 1947. The first Tesco self-service store opened in 1948 in St Albans and is still trading in 2005, while its first supermarket was opened in 1956 in a converted cinema in Maldon, Essex. Tesco is the U.K.’s largest grocery chain.

Tesco’s marketing activities have evolved substantially over the decades (Reed, 2006). In 1974 it hit the big market and began selling petrol and its annual turnover reached one billion pounds in 1979. Also In 1975 Tesco opened one of its first Hypermarket's in Irlam, and in 1995 it introduced a loyalty card branded 'Clubcard', and later an Internet shopping service. During the 1990s it expanded into Central Europe, Ireland and East Asia. In July 2001 it became involved in internet grocery retailing in the USA when it obtained a 35% stake in Grocery-works. In October 2003 it launched a UK telecoms division, comprising of mobile and home phone services, to complement its existing internet service provider business, and in August 2004, it also launched a broadband service (Solar Navigator report, 2007).

The Corporate and Marketing Strategies of TESCO

Going by the company’s Mission Statement which is embedded in their Core Purpose stated as:

'To create value for customers to earn their lifetime loyalty'.

This is expressed as two key values: �No-one tries harder for customers’ and �Treat people as we like to be treated’ (http://www.tescocorporate.com). The company, through its CEO - Sir Terry Leahy, has taken the bold step of trying not to focus on the usual corporate mantra of �maximising shareholder value’, but focus more on the customers. The company believes that there is a clear focus on customer service at the top level management. What remains is whether Tesco will be able to maintain this focus now that it has gain popularity as a great corporate success story in UK, or if it will succumb to corporate arrogance as sometimes happens to dominant companies (Solar Navigator, 2007).

Tesco's growth over the last two or three decades has involved a transformation of its strategy and image (GE Matrix: attractive industry). Its initial success was based on the "Pile it high, sell it cheap" approach of the founder, Jack Cohen. The disadvantage of this was that the stores had a poor image with middle-class customers. In the late 1970s Tesco's brand image was so negative that consultants advised the company to change the name of its stores. It did not accept this advice, but instead modified it, and in 2005 emerged the largest retailer in the UK.

Tesco as a firm also has its competitors (swoT) and has maintained a closer watch at its external marketing audit, hence this consciousness has kept its strength (SwoT) going for ages now. By early 2005 it had 29.0% share of the grocery market in UK, according to retail analysts TNS Superpanel, compared to the 16.8% share of Wal-Mart-owned ASDA, and 15.6% share of third-placed Sainsbury's, which had been the market leader until it was overtaken by Tesco in 1995 (Solar Navigator, 2007); and the key reasons for Tesco’s strength and success have been visible.

Tesco adopts a slogan called the �inclusive offer’ which has been an inspiration for appealing to upper, medium and low income customers in the same stores. By this Tesco has appealed to all �segments of the market’. This is different from ASDA whose marketing strategy is focused heavily on value for money, which can undermine its appeal to upmarket customers even though it actually sells a wide range of upmarket products. Sainsbury on the other hand, during its long term dominance of the supermarket sector, retained an image as a high-priced middle class supermarket which considered itself to have such a wide lead on quality that it did not need to compete on price, and was indifferent to attracting lower-income customers into its stores.

One major aspect of Tesco is that it uses its own-brand products, including the upmarket "Finest" and low-price "Value" ranges. The company has taken the lead in overcoming customer reluctance to purchasing own brands, which are generally considered to be more profitable for a supermarket as it retains a higher portion of the overall profit than it does for branded products (Porter’s Generic Strategies).

TESCO Plc and its Competitive Activities

According to Hackney et al (2006) the UK grocery industry is notable for its maturity and concentration, with the four biggest retailers controlling 73.4 per cent of the market (TNS, Super panel, 2004). Among the “big four” supermarkets (Tesco, Sainsbury, ASDA and Morrisons), Tesco has a market share considerably larger than any of its competitors. In its interest to explore more opportunities and to maintain hegemony in the grocery market, Tesco has adopted several approaches targeted at crippling its competitors. Like the case with Sainsbury, Tesco adopted a strategy where different products were made available in the same shop for different class of consumers; whereas Sainsbury focused mainly on the middle class majority (Ansoff’s Matrix: strategy to exploit new markets). The end result was the dethronement of Sainsbury by Tesco (Solar Navigator, 2007). Taking a micro look at Tesco, it seem to have a weaknesses with the staff (SWOT). According to Burrage (2005) only rarely is it also noted that Tesco, like its main competitors, offers well-defined and nationally led staff training and development; the pay may not be especially good (for the junior staff), but the opportunity to move up the ladder is certainly there.

Hackney et al (2006) identified four factors as being responsible for Tesco’s competitive strengths and opportunities (SWOT): its profit model focus (ambition); smart mover entry (first mover); leveraging ability and affiliations; strategic positioning; and its brand power. According to Peston, R. (BBC, 2007) the big four have given new meaning to the retailers' axiom that their business is all about property and location. The Competition Commission has found evidence that they buy up land around superstores as a defensive barrier to prevent rivals muscling in on their territory, and first in the list has been Tesco (Porter’s Five Forces: threat of entry).

The mechanics of oligopoly trading ensures that the supergiants can secure low prices and exclusive deals with their suppliers. Londis, the cornershop brand, has admitted that it is cheaper to buy brands from Tesco and resell them than to get the items from its wholesalers. Musgrave, who own Budgens, claim that Tesco buys from wholesalers 11.5% cheaper than independent retailers (Corporate Watch, 2006). Tesco has been able to achieve this through its close relationship with its suppliers, which sometimes may not favour the suppliers due to lack of choice. Perhaps, in such an oligopoly structure the buyer has more power than the supplier to determine price.

According to Tesco’s corporate website (http://www.tescocorporate.com) the company has a long term strategy for growth, based on four key parts: growth in the Core UK by moving into the convenience-store sector; to expand by growing internationally; to be as strong in non-food as in food; and to follow customers into new retailing services. In addition to opening its own stores, Tesco has expanded by taking over other chains such as: Victor Value, England (1968); William Low, Scotland, 1994; T&S Stores (2002); Hillards, North of England (1984), and others include those outside the UK (Solar Navigator, 2007). Because of this attitude Budgens called on the Competition Commission for the review of Tesco’s acquisition of the T&S Stores (PR Newswire, 2007).

How TESCO dealt with its Competitors

It is not just the independent grocery retailers who are suffering, but also Tesco's key competitors. As the supermarkets move back onto the high street and into non-food goods, other major nationwide chains are feeling the pain. In January 2004, Boots blamed 900 job losses on the tough competition from the supermarket chains. Earlier that month, Tesco, which sells more medicines and toiletries than Boots and Superdrug put together, announced that on a basket of 12 baby products, including baby powder and rusks, a customer could save 11% over a similar shop in Boots (Corporate Watch, 2004).

Verdict Research says that more than 600 chemist shops will close (5% of the current network) over the next five years. Tesco has been able to move into this area due to the unexpected 'deregulation' of the pharmacy sector. There are similar stories in other sectors from clothing newsagents. Matalan, New Look and Marks and Spencer are all struggling in their clothing ranges. WH Smith and even Argos were hard hit over the Christmas period 2003-2004. With their products in direct competition with the supermarkets, they have to be able to offer something quite different to woo the busy shopper back out of the supermarket and into their stores. Many different groups have been opposed to Tesco's takeover of c-store chains including the Association of Convenience Stores (which represents around 31,500 stores), the Federation of Wholesale Distributors and Bill Grimsey, chief executive of the Big Food Group which owns Iceland and Bookers wholesalers (Corporate Watch, 2004).

Tesco’s desperation over market opportunities has remained a major threat to the grocery giant’s future survival (SWOT analysis). Just recently, Tesco’s property website has been threatened with legal action as thousands of estate agents demand that Tesco’s housing stock be removed. Solicitors for Hannells, an 11-branch company in Derbyshire, have written to Tesco demanding an undertaking that it will not again show 1,100 houses on the tescopropertymarket.com website that had appeared this week. Tesco launched its property portal five days ago, listing details of more than 300,000 homes for sale, mostly provided by the fish4homes website. By Tuesday, fish4homes had terminated its agreement with Tesco amid complaints over Tesco’s strategy for the site (Rossiter, 2007).

TESCO and Government Regulations

The American Wall-Mart’s CEO - Lee Scott, speaking in-behalf of ASDA, put the message straight to the Office of Fair Trading (OFT) — �You have let Tesco buy convenience stores, so you should do the same for us’ (Sunday Times, 2005). The OFT is responsible for ensuring fair play in the industry, but some think it should be renamed �Only Fair to Tesco’. The regulator may well have stopped Tesco from buying Safeway, leaving the field open to Wm Morrison. But it has done nothing to stop Leahy (of Tesco) hovering up scores of convenience stores (Sunday Times, 2005).

Perhaps, Tesco seems to be very manipulative with the law - (PESTL analysis). Times online (July 15, 2007) has it that 14 Tesco stores closed yesterday after a security alert were open and back trading normally today after being given the all-clear by police. Although the nature of the threat from Hertfordshire police remained a mystery and the police said there was no reason to believe that it was linked with Tesco’s extremisms. The story later has it that, it was a speculation suspected to have been financed by the animal rights groups, which includes Viva that claim the store has been selling live turtles at outlets in China.

Corporate Watch report (2004) has it that local councils have traded community facilities, memorial gardens, allotments, social housing and an old soldier's club in order to facilitate Tesco. Similar stories abound from Hadleigh in Suffolk to Shaftesbury in Dorset. In Hadleigh, Babergh district council has altered the district plan so that Tesco can build on a flood plain – directly against national policy. This shows the level of political status and arrogance Tesco has reached (PESTL analysis). Many grassroots campaigners feel let down by the Government's proposed changes to planning policy statement 6 (PPS6) that will favour large edge-of-town developments. Already local planning authorities are giving planning permission for stores even though it is clear that there will be a negative impact on the town centre (Corporate Watch, 2007).

The CSR Concept: TESCO and Consumers/Host Communities

Despite the claims made by the Tesco’s Corporate Responsibility Committee, the host communities see its actions differently. According to Corporate Watch report (2004), Tesco claims to be working with National Association of Farmers’ Markets in Uttoxeter to develop a farmers’ market in its car park. As it turns out this is no longer true: FARMA, the merger of National Association of Farmers’ Markets and the Farm Retail Association is not working with Tesco on any projects at the moment. According to the local tourism office, Tesco does have a farmers’ market in its car park, which presumably also promotes great trade for Tesco too. Tesco present these communities leaflets containing other vague assertions about �our local store teams being at the heart of the community that they live in and serve’; which is interesting when you look at Tesco's agreement with North Norfolk district council and Norfolk county council to buy up the community centre, fire station and a block of flats used for social housing in order to secure a prime location for a superstore in Sheringham, North Norfolk. Sheringham is one of the last towns in Britain not to have a supermarket. This town of 7000 residents will soon have a superstore catering for 38,000 people in the region (Corporate Watch, 2004).

Competition policy has failed small communities too. There have been further issues with the Tesco takeover of c-store chains, since in the conversion of former T&S stores to the Tesco Express format, in-store post offices have been closed down leaving isolated communities without easy access to a post office. This has been the case in Chalkwell Road, Sittingbourne, Shaw Village Centre, Swindon, Lisieux Way in Taunton and four One Stops in the West Midlands. It could also be the case in the two edge-of-town stores in Witney, Oxfordshire, that have been taken over by Tesco. Some local campaigns have been successful in persuading Tesco not to close their post offices including Longlevens in Gloucester and Jersey Farm, St Albans. With the Post Office 're-invention' closing many small post offices and causing a huge furore, one wonders whether the Post Office is working in cahoots with Tesco. If Tesco closes a small post office because 'it wants to make more space for shelving', the Post Office doesn't have to take the rap. Tesco is big and ugly enough to take the criticism as it knows that in most cases it has a captive market (Corporate Watch, 2004).

Only about a year has Tesco started taking a different step towards CRS, and this was because of endless pressures from the public. According to Tesco’s corporate website (http://www.tescocorporate.com/communityplan.htm) the company’s corporate responsibility focuses on Customer priorities such as recycling, local sourcing, organics and the Computers for Schools scheme; Staff concerns in training and charitable giving; Government requirements in the refrigerant use and energy efficiency. The truth still remains that this has not been in the Tesco corporate culture, and its host communities, judging from past records, have found it hard to believe what Tesco claims and doubts how long it would last. One of the threats facing Tesco is that it does not have absolute trust from its customers (SWOT analysis), and perhaps “customers’ lifetime loyalty” which its mission statement emphasised. According to a Labour Report in Bristol South (Oct 2007) (http://www.dawnprimarolo.labour.co.uk) a number of residents were very concerned at the implementation of the new waste collection system last year saying, �we wanted to make sure that residents of Bristol really had a say in the future of these essential services’.

The quest for more opportunities (SWOT) is taking Tesco into new territories where it risks antagonising consumers unused to seeing its red and blue colours. Plans to build stores over railway lines have already backfired, and the move onto street corners is becoming an issue. Consumers have long had a love-hate relationship with Tesco — they adore the quality of the food and pricing, but detest the lack of choice of store (Sunday Times, 2005). Perhaps, it appears that Tesco may have sinned in several ways against the UK laws and especially the Competition Commission; but its strong affiliate with top government functionaries has kept it faraway from chains. According to the Tesco’s Chief Executive’s comments, Tesco �seems’ to be enjoying a cordial relationship with its Suppliers, Employees and shareholders (maybe) but from the perspective of the consumers, it is a different story. Perhaps, one thing that has maintained Tesco’s hegemony in the grocery industry, and also untouchable, is its domination over major suppliers coupled with its romance with regulatory agencies and key personalities in government; and this aspect of the story is what can never be told by the media.

Bibliography

Bristol South Labour Report (Oct 2007) �Labour: Working Hard for Bristol South’. http://www.dawnprimarolo.labour.co.uk/?PageId=45b2e6bb-20ac-0754-098c-635747c3f4ac

Burrage, H. (2005) The Tesco Effect. [Online from: November 13, 2005 11:21 PM). http://www.hilaryburrage.com/2005/11/the_tesco_effect.php

Corporate Watch (2004) �TESCO: A Corporate File (Corporate Crimes)’ [Online: Oct 2004]. http://www.corporatewatch.org.uk/?lid=255#retailers

Hackney et al (2006) The UK grocery business: towards a sustainable model for virtual markets. Emerald [Online]. http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/0890340407.html

Peston, R. (2007) Supermarkets' land battles. BBC News [Online: 31 Oct 07, 08:11 AM]. http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/10/land_battles.html

PR Newswire (2007) Budgens calls for competition commission review of Tesco acquisition. http://www.prnewswire.co.uk/cgi/news/release?id=94275

Reed, K. (2006) Profile: Andrew Higginson, Tesco group finance and strategy director. Accountancy Age. http://www.accountancyage.com/accountancyage/features/2170516/profile-andrew-higginson-tesco

Rossiter, J. (2007) Estate agents angry at Tesco property website. Business Times: July 7, 2007. http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article2039766.ece

Solar Navigator Report (Online: 5 Nov 2007) �TESCO’. http://www.solarnavigator.net/solar_cola/super_markets_stores/tesco.htm

Sunday Times (2005) �Too big and arrogant - is it Tesco or Wal-Mart?’ [Online: August 28, 2005]. http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article559773.ece

Tesco’s corporate website: http://www.tescocorporate.com

Times Online (July 15, 2007) Tesco Stores Reopen after Security Alert. http://www.timesonline.co.uk/tol/news/uk/article2078869.ece



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