Type: Research Essays
Sample donated: Kelvin Mills
Last updated: December 28, 2019
Introduction Tesco is a British multinational grocery and general merchandise retailer.
The company has the largest market share in the UK with a 28.0% share of the UK grocery retail market. Despite Tesco’s success within the UK market the brand has failed to enter many other key markets globally, specifically the Chinese marketSitualtional AnalysisA situation analysis may create an overview of Tesco that will lead to a better understanding of the factors that influence the organization’s capabilities and potential when looking to expand. A situational analysis includes a thorough examination of the internal and external factors that may affect the organisation using several methods of analysis. This report focuses on the SWOT and PESTLE analysis.SWOT AnalysisStrengths Tesco continue to grow year by year which indicates the organisation is employing a strong marketing strategy in the markets they operate in currently. Tesco sales for the 2016/2017 financial year rose 4.3 per cent to £49.
9bn ( Cox, 2017)Tesco focuses on the adaptation of product and services in accordance with the market demands of a unique market. Tesco’s also focuses on product affordability as the brand believes customers should be able to buy products for a price that that is within budget. Tesco business strategy can be described as cost leadership and its motto ‘Every Little Helps’ guides its business strategy to a considerable extent (Dudovskiy, 2016) Economies of scale is one of the main competitive advantages exploited by Tesco due to the large scale of its operations Tesco has functioning world wide. Tesco also has a successful customer retention strategy with its loyalty scheme ‘The Tesco Clubcard’. Tesco use the data collected from this loyalty scheme within their CRM systems which use the data for effective direct marketing and many other promotional techniques. (McCabe 2014)WeaknessesTesco’s key operations are focused in the UK where the organisation recorded more than 60% of its total revenue during the year 2017. The company recorded a revenue of up to 38 million in the UK compared to the 11 million recorded outside of the UK (Tesco). This lack of geographic diversification should be seen as a weakness for Tesco as it subjects the organisation to the systemic risks of the UK market.
Tesco have grown so much within the UK that it must expand globally to continuously improve growth figures. Expansion may prove to be very problematic as it will be hard to replicate domestic success in a foreign market. Their an increased downside risk as it is hard to keep up and maintain standards.OpportunitiesThere are opportunities for alliances with other brands and admired companies to offer more products and attract more consumers in the Chinese market.
For example Tesco could look to align themselves with the Chinese e-commerce giant Alibaba.In a country such as China there could be opportunities for joint ventures in which the local companies can help with market research and market intelligence to improve performance in those areas.The online market also seem to be a growing opportunity for Tesco. Due to the growth of the internet, greater smartphone usage, more focused investment from retailers and shifting demographics, IGD forecasts online grocery in China to grow by almost 32% year on year by 2020. (IGD)Threats The unpredictability of the chinese customer will definitely be a threat to Tesco. The chinese customer is known to have no significant loyalty to any one specific retailer. Research was carried out by Warwick business School in an Asian market with similar demographics and purchasing power to that of china’s large cities, ‘research found that consumers were ill suited to the clubcard approach as 63% of consumers with a loyalty programme had loyalty cards for four or more retailers. They believed a larger choice of cards gave them power and a chance to have a more satisfying shopping experience (Qing Wang, 2013).
This would significantly impact Tesco’s customer retention strategy as it would affect the reliability of the organisations CRM systems. Failure to listen to the chinese consumer and understand the changing marketplace could leads to a loss of market share as consumer purchases would be made with competitors. PESTLE analysisPoliticalAs Tesco is a global company, global political factors directly influence the performance of Tesco. These include, tax rates, acts of legislation etc. China’s accession to the WTO has promoted a free flow of foreign trades by removing all barriers encouraging Western companies, like Tesco (Caporale, 2015). EconomicEconomic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers. The boom of the Chinese economy has clearly passed as the economy has been on a steady decline as of recent.
Tighter regulation in the property market and stricter environmental regulations will exert downward pressure on the growth of the economy. FocusEconomics panelists forecast that the economy will grow 6.4% in 2018, which is unchanged from last month’s forecast. In 2019, the economy is expected to grow 6.2% 0.2% down from the previous year. (FocusEconomics, 2016)With the chinese economy on a steady decline their has been a modernization of the chinese customer evident in the change of spending habits. Customers in China are becoming more selective about where they spend their money, shifting from products to services and from mass to premium segments.
Consumers are seeking a more balanced life where health and family take number one priority before luxury (McKinsey, 2016). It should be noted however that grocery are still an everyday necessity for the average consume and should be one of the last areas that consumers cut back spending on.SocialChina’s population is growing older at a higher rate than almost all other countries. The effects of China’s 36-year one-child policy, along with vast improvements in health care, have contributed to increases in life expectancy and decreases in China’s birth rate. During the years that the one-child policy was in affect, life expectancy in China improved from 67 to 75 and fertility rate decreased from 2.8 to 1.7.
China’s looming demographic shift presents considerable social and economic challenges.The ageing population maybe discouraging for the food retailers like Tesco as older people tend to eat less. They are less likely to travel to supermarkets compared to the younger consumer. TechnologyOne of the key environmental factors that can directly influence Tesco is technology. The operation of supermarkets are being affected by the use of the internet through online grocery retailing, which is showing steady growth. China easily has the most Internet users in the world with a staggering number of 710 million. China is also No.
2 in online spending globally with $967 billion being spent in the year 2017. (Flannery, 2017)Mobile technology has also taken off as a platform for distribution within food retailing. The New Wine App developed by Cortexica Vision Systems has been used by Tesco since 2009 which enables customers to buy selected wine directly from their mobile phone. China would be the perfect place for Tesco to capitalise on the technological opportunities that have been presented with such rapidly growing market.LegislationLegislations also directly impact the performance of Tesco.
For example, the Food Retailing Commission (FRC) in 2004 suggested a Code of Practice should be introduced which would ban many current practices, such as changing prices without notice or demanding payments from suppliers (BBC, 2010).Environmental FactorsCompanies such as Tesco are being pressured more and more to be more eco-friendlyand address environmental issues adopting ways of operations which can benefit society.For example Tesco have recently focused on reducing its carbon footprint by 50% by 2020.(Tesco) The Marketing Mix and RecommendationsProductTesco offers a wide variety of products including food, clothing, cosmetics, electronics etc. Tesco caters to every possible need of customers. The company offers products from great brands in almost every product line. In China tesco must look to adapt a variety of products towards the needs and wants of the Chinese consumer. A recent report from Beijing-based Horizon Research and Horizonkey found as many as 80 per cent of consumers in China worry about food safety within the country (Hongyi, 2012).
Due to this consumers in China are more willing to spend on more westernized brands.With information like this Tesco should look to provide organic products to cater to the need of the chinese consumer.PriceTesco also employ a cost leadership pricing strategy. As a result Tesco maintains a low price for products without any compromise with product quality.
Tesco works continuously with suppliers to make the supply chain efficient to reduce prices. This strategy should also be replicated in China in order to compete with new competitors within the chinese market as a cost leadership strategy may potentially help secure the loyalty of consumers.PlaceTesco uses two main channels of distribution namely online and offline.When looking to pen stores in China Tesco should look into investing into some of the poorer provinces within China. Such an action may grant favour amongst the public as they recognize the business can bring many jobs to the provinces and also help redevelop the area.
Creating a good public perception for the brand is of key importance within the Chinese market. PromotionTesco uses newspapers, television and other media sources to deliver the companies message to consumers. Other than advertising Tesco uses other forms of sales promotion. For example Tesco often provides buy one get one free offers for some of its products. Tesco has a loyalty card as well gives consumers points each time they shop which they can redeem to get discounts. These promotional strategies should also replicate success in china and hopefully secure loyalty from potential consumers as well.PeopleApproximately 460,000 people work in Tesco. Tesco has a great number of customer assistants who play an important role in the success of the company.
Tesco invests a huge amount money and time in employee training and development. Within China Tesco should look to employing a local marketing team in order to get a better understanding of the foreign market as entering a market as unpredictable as China may prove to be very volatile.Physical evidenceTesco stores are easy to navigate with all products well displayed and categorised to make it easy for customers to locate products. The Tesco website is also looks attractive and it’s very easy to operate. Within China all retail staff must speak Chinese in order to communicate well with customers. The online site as well must have the option to be translated into the Chinese.