Tesco’S Marketing Strategies And The Uk Consumer Perceptions

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