TESCO Company’s Strategic Management

SWOT analysis for Tesco

Strengths Weaknesses Opportunities Threats
1. Many customers perceive Tesco’s products as having ‘value for money’. The reason is that the products are not only of good quality but they are also provided in different varieties. Shopping at Tesco is also convenient for customers due to availability of online shopping services
2. Tesco is the leading retailer in the UK
3.Tesco has developed an effective marketing strategy
4. Tesco is a powerful brand
5. Loyal customers
6. Customised brand labels
7. A huge workforce.
1.Tesco’s competitive strategy is prone to imitation by competitors
2.Stiff competition which leads to a limited access to the market
3. Competitors have many varieties of brands which limit the popularity of Tesco’s brands
4. Inability to adequately deal with the misuse of Tesco’s brand by fraudsters
5. Over-dependence on the UK market
1.Opportunity to engage in further diversification of products and services
2. Presence of expansion opportunities in Malaysia, South Korea, China, and India
3. Variety of market segments.
1. Increasing operational costs in the UK and other countries
2. Competitors offering discounted prices is a threat to Tesco’s brand and profit margins
3. Strict government regulations governing the retail industry in different countries
4. Exposure to different political environments poses the threat of instability of Tesco’s stores in countries which have unfriendly and unstable political climates.
5. Global recession which has led to decline of sales especially in the UK

Introduction

Tesco is a multinational company dealing with grocery and general retail merchandise. Its headquarters are at Cheshunt, United Kingdom (Tesco 2014). According to information posted on its website, it is the third largest retail merchandise in the world after Wal-Mart and Carrefour. Its main market is in the United Kingdom but it has grocery stores in more than 13 countries across the globe.

Tesco’s mission is to be acknowledged by its customers as the premier drilling Services Company while the vision is to become a customers’ strategic partner in elimination of non-productive time (Tesco 2014). The core values of the company include compliance to work ethics and provision of a safe work environment.

Tesco’s expansion strategy is coined to respond to the needs of all its customers, both in the United Kingdom and in other countries where it has operations (Tesco 2014). The challenges associated with entering new markets abroad were the key determinants of Tesco’s expansion strategy, where it used mergers and acquisitions to penetrate those markets.

Examples of mergers by Tesco include the partnership with Samsung in South Korea to form Samsung –Tesco home-plus merger and in Thailand where it went into partnership with Charoen Pokphad to form a merger called Tesco-Lotus. In 2005, the company acquired several companies in South Korea. With the advent of globalisation, Tesco managed to move to China where the culture and values are completely different from those of the United Kingdom. The company entered China in 2004 after acquiring about 50% of the Hymall. It also operates in various cities and towns in China such as Shanghai, Weifang, and Taizhou.

Tesco’s Building Blocks

Building blocks Explanation
Customer
Segments
Mass market and market niches for differentiated products and services
Value
Propositions
High quality and affordable products and services
Channels Retail stores and agents
Customer
relationships
Automated services, self service, and creation of communities
Revenue streams Sale of assets and usage fee for services
Key resources Employees, finance, information technology infrastructure,stock, and buildings
Key activities Continuous improvement of the quality of products and services
Key partnerships Mergers, acquisitions, and good rapport with customers
Cost structure Cost-driven

Porter’s Competitive Forces

Tesco’s strategy for success can be analysed using Porter’s competitive forces namely threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among existing competitors.

Threat of new entrants

In all major industries, there are competitors who exercise dominance. These competitors are known as the ‘incumbents’. Market analysts have however argued that the domination by the incumbents does not guarantee them a permanent stay in an industry since new entrants may express interest in the same industry. Before they enter an industry, new entrants usually invest a lot in developing entry strategies and coming up with unique approaches to gain a portion of the market and build trust with the customers. In most cases, new entrants rely on pricing, where they offer prices which are lower than those offered by the incumbents. Other new entrants use the strategy of improving the quality of their products or services to attract customers.

New entrants increase competition in an industry. As a result, some incumbents are forced to quit a particular industry, especially if the new entrants have a strong capital base. Other incumbents react by erecting barriers to entry in the industry. For instance, they may design very sophisticated and expensive technologies which are not easily available. They may also erect barriers to the access of the distribution channels so that the new entrants do not get access to supplies.

Tesco deals with the threat of new entrants through differentiation of its goods and services. In many industries, new entrants are discouraged through diversification and product differentiation. Just like Wal-Mart and Carrefour, Tesco has embraced diversification and product differentiation and as a result, the three have managed to keep new entrants at bay.

Bargaining power of suppliers

In some industries, there are monopolies in terms of supply of goods and services. In such industries, the powerful suppliers are able to manipulate the prices of the goods and services. Suppliers are regarded as powerful if, for instance, they do not depend on one industry for their revenues. Suppliers are also considered as powerful if they supply goods and services which are unique. Powerful suppliers are also those who supply goods and services which cannot be substituted.

In order to deal with the challenge of bargaining power of suppliers, Tesco has put in place a large capital base which enables it to manufacture some goods by itself. Tesco’s ability to manufacture some of its goods not only enables it to deal with the challenge of bargaining power of suppliers but it also enables it to lower its cost of production, which in turn enables it to lower its prices and gain more customers.

Bargaining power of buyers

In some industries, there are few buyers who purchase certain goods or services in bulk. Such buyers usually have a bargaining power to lower the price of the goods or services. Buyers usually have bargaining power when the cost of switching suppliers is low as well as when the goods or services in question are not differentiated or are standardised.

Tesco’s strategy for dealing with the bargaining power of buyers is lowering the prices of its goods and services so that many people can access them. The whole idea of lowering the prices is to have a large customer base, which is not only crucial for sustainability of the business but also for generation of more revenues.

Threat of substitute products

In business competition, a substitute refers to a product or service which serves the same purpose as the original product or service. An example of a substitute in the electricity industry is electricity generated from renewable sources. Substitutes usually act as a threat to some industries, especially when the substitutes are cheaper than the original products or services. They also act as a threat when the cost of switching vendors is low. Companies can guard themselves from the threat of substitutes by differentiating their products or by teaming up to influence government policy on the introduction of substitute products and services in the market.

Tesco deals with this threat through differentiation of its products. It also teams up with other multinational companies to influence government policy on the introduction of substitute goods in the retail industry.

Rivalry among existing competitors

In any market where there are many players, it is normal for there to be rivalry among them. The reason is that every player wishes to take control of the whole market at the expense of the others. The rivalry leads to stiff competition for the customers and in many cases, the players use various strategies to attract customers. Examples of the strategies include reduced prices, improved quality of products and services, after sales services, and promotion campaigns on various marketing platforms.

Tesco has cushioned itself from the rivalry through various strategies such as having very reliable suppliers, diversification, and manufacturing some of the goods by itself. Diversification in particular has enabled it to remain competitive irrespective of the poor performance of some of its ventures.

Porter’s Generic Strategies

Tesco’s strategy for success can also be analysed using the Porter’s generic strategies framework. This framework was developed by Michel Porter in 1980s and has been useful for companies which want to improve their bottom line. At the time when the framework was developed, the business environment in many industries was relatively stable. The framework is based on the concept of differentiation. In the field of strategic management, the concept of differentiation refers to the process of making a product or a service popular among customers. It is achieved through description of the unique characteristics of the product or service being differentiated. The whole idea behind differentiation is to create a market niche for that particular product or service. When customers are made to understand the unique characteristics of different products and services, they are able to make informed decisions regarding different products and services. If done well, differentiation enables customers to purchase specific products or services in a market flooded with many varieties of products and services (Thompson & Martin 2010).

Differentiation is usually complemented by positioning, which entails using various strategies like promotion, distribution of products or services, and production of unique products to build an identity of a particular company in the minds of consumers. Positioning seeks to stabilise and retain the positions of the differentiated products for a particular company so as to retain the competitive advantage of the company in regard to those products (Ferrell & Hartline 2010).

The table below summarises Tesco’s strategies using the Porter’s generic strategies framework

Competitive scope Application
Broad To respond to the needs of all its customers, both in the United Kingdom and in other countries where it has operations
Broad Mergers and acquisitions
Narrow Differentiation and positioning of products, goods, and services
Narrow Differentiation of several products at the same time

As mentioned above, Porter’s generic strategies framework was developed when the business environment was relatively stable. However, as from 1990, the business environment was characterised by turbulence and frequent disruptions, especially due to globalisation and cultural diversity. Consequently, newer models were developed to enable organisations to respond the changes in the business environment and remain competitive. One of the newer models is the 7Ss framework. This framework is based on the principle of disrupting the status quo with the aim of creating quick business advantage for organisations. It also aims at developing new strategies for increasing customer satisfaction and reaching out to customers who are not yet reached. The table below summarises Tesco’s application of the 7Ss framework

The 7S ideas Application
Superior stakeholder satisfaction To respond to the needs of all customers at all times
Strategic soothsaying To become a customers’ strategic partner in elimination of non-productive time
Positioning for speed Development of efficient systems
Positioning for surprise Incentives given to employees to initiate creativity and innovation
Shifting the rules of competition Change from mergers to acquisitions
Signaling strategic intent Development of an elaborate communication system and a vibrant public relations department
Simultaneous and sequential strategic thrusts Regular review and change of business strategy

Tesco’s e-business model

Since the start of the 1990 decade, Tesco emerged as a global leader in e-business. Through its Information and Technology (IT) department, the company developed a vibrant e-business model which has been described as very efficient and effective. According to its IT director Mr. Mike McNamara, Tesco’s e-business model focuses on various business aspects namely marketing, e-procurement, e-training, supply chain management, customer relationship management, and online selling. According to a survey done by an organisation known as Datamonitor, Tesco accounted for more than half of total sales done online in 2014.

Through technology, Tesco has been able to boost its revenues by 60% in the past decade. The marketing strategies of the organisation involve advertisement on various platforms on the internet such as Facebook, twitter, google +, e-mail lists, and Amazon.com.

Conclusion

Tesco’s success is based on differentiation, positioning, mergers, and acquisitions. Through differentiation and positioning of its products, goods, services, and operations, Tesco has managed to place itself in a strategic position as far as competitiveness in concerned. It has also penetrated several markets across the globe through mergers and acquisitions. However, the organisation has some gaps, which if properly addressed can enhance its competitiveness in the retail industry. I would advise the organisation to invest more resources in differentiation and positioning so as to improve its future strategic position. Instead of differentiating a single product at a time, it should differentiate several products at the same time.

Reference List

Ferrell, O.C & Hartline, M 2010, Marketing strategy, Cengage Learning, Farmington. Web.

Tesco 2014, Mission, vision and values. Web.

Thompson, J & Martin, F 2010, Strategic management: awareness and change, Cengage Learning, South Western. Web.