STRATEGIC MANAGEMENT ANALYSIS- TESCO PLC,...
Transcript of STRATEGIC MANAGEMENT ANALYSIS- TESCO PLC,...
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STRATEGIC MANAGEMENT ANALYSIS- TESCO PLC, UK
Table of Contents
Introduction .................................................................................................................................... 1
Task A: Market Environment analysis of Tesco, UK ........................................................................ 2
Macro environment analysis ....................................................................................................... 2
Micro environment analysis ........................................................................................................ 4
Critical Success Factors................................................................................................................ 5
TASK B - Resource and Capability Analysis ..................................................................................... 6
Marketing mix ............................................................................................................................. 6
Porter’s Value chain analysis of Tesco ........................................................................................ 8
Task C: Strategic fit analysis of Tesco............................................................................................ 10
Reference ...................................................................................................................................... 12
Introduction
Strategic management analysis aids in understanding the organizations current market strategy
and position and its effectiveness in utilizing its capabilities to enhance its value for achieving
the competitive advantage in the industry, observes Freeman (2010). This work has been
prepared to conduct strategic fit analysis of Tesco and the scope of this work lies in identifying
internal strength and the external opportunities of Tesco and its competitive position. For this
purpose, analysis of the marketing environment and resource of Tesco is assessed. Also, the
strategic fit analysis describes the strengths and weakness of Tesco.
Tesco is a multinational retailer having its headquarters at UK. It was established in 1919 by
Jack Cohen. The company holds the 28.6% market share in UK industry and has maintained its
brand position by adopting latest strategies’ for attracting its huge customer base (Tesco,
2014). Tesco employs around 5 lakh work forces with 6351 stores in UK and around the world.
The company was able to acquire greater level of customer satisfaction by implementing
effective strategies that developed its competitive advantages, reports Mintel (2010). Tesco is
one of the ‘Big four’ retailers of UK, apart from Asda, Morrisons and Sainsbury’s. Tesco
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manufactures variety of products which includes clothes, electronic goods, etc and is also into
banking and monetary services and sustains high quality. But suring 2014, Tesco market share
fell from 28.6 % to 28.4 %, shows The Telegraph (2015).This was majorly due to the profit
overstatement by the retailer and the growth of discounters like Aldi and Lidl and the
advancement in the online retailers (Tesco, 2014).
The strategic management analysis of Tesco is carried out in three steps. In the first step the
analysis of the marketing environment is done by evaluating the macro environment with
PESTLE analysis and the micro environment with Porter’s five forces. The resource and the
capability analysis are conducted by taking Marketing mix and Porter’s value chain analysis. And
towards the end, threshold and unique resources of Tesco, UK and its core capabilities and
competencies are highlighted. In the last step the strengths and weakness along with the
opportunities’ and threats are evaluated.
Task A: Market Environment analysis of Tesco, UK
For analyzing the market environments of Tesco, PESTEL analysis and Porter’s five force analysis
have been conducted.
Macro environment analysis- PESTLE analysis of Tesco
Political factors
Tesco provides jobs to disabled individuals, students and elderly employees with minimum
wage as a part of employment legislation and as a result, these groups of employees show high
degree of loyalty towards the company when compared to the normal employees, including
those left from the organization. With the help of job guarantee scheme, Tesco has been able
to provide jobs for more than 2000 disabled and unemployed individuals (Makos, 2014).
Economic factors
High unemployment rate in the UK economy has been the most crucial factor which has
affected the performance of Tesco. Unemployment in the economy has further reduced the
demand for Tesco products and thus has adversely affected the demand for producing such
items. Stratista (2015b) observed that, Tesco has not been able to control the influence of these
economic factors on organizational performance and these factors generate deep effect on the
marketing mix and overall performance of the company. The overall performance of Tesco is
mainly dependent on its performance in the UK market and it has almost 29% of UK market
share (Ghani, 2012). Delay in the company’s performance in UK food market has chances for
adversely affecting its overall future performance.
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Figure 1: Sales of Tesco in UK in 2014-15
Source: (Statista, 2015a)
Social and cultural factors
Due to the social changes, most of the customers in UK prefer bulk shopping and one-stop
shopping. So, Tesco concentrates more on the sales of non- food goods also. Due to the
changes in demographic factors like increase in women workers, increase in population, etc,
Tesco provides value added products and services for its customers (Tesco, 2014). In the
present world, customers have grown health conscious and from this realization, Tesco started
the sale of organic products through its stores. Tesco is the first company, which allows
payment in both cash and cheques at its checkout.
Technological factors
The major macro environment variable that influence the creation of several products of Tesco
are its technological factors. Tesco uses many technologies like wireless devices, self- checkout
machines, intelligent scale, Radio Frequency Identification (RFID), Electronic shelf labeling, etc.
The utilization of Electronic Funds Transfer Systems (EFTS), Electronic Point of Sale (EPS) and
electronic scanners helps the company to improve stock activities and effectiveness of
distribution (Tesco, 2014).
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Environmental factors
As a part of Corporate Social Responsibility, Tesco decided to reduce carbon footprint by 50%
by 2020. By enhancing social conscience among customers, Tesco has been successful in
reducing wastes in its stores (Makos, 2014). But on the other hand, the UK Government charges
fat tax for fatty and processed foods advertisements of and this has affected the fatty and
processed foods sales at Tesco and also its customers-suppliers relationship.
Legislative factors
Many policies and legislation of government makes direct impact of Tesco’s performance. For
example, Food Retail Commission (FRC) banned many practices of retailers including ban of
alteration of product prices without pre-informing the suppliers. Tesco introduces many
promotion offers and reduction in fuel prices for facilitating these policies of government
(Ghani, 2012).
Micro environment analysis- Porter’s Five Force Analysis on Tesco
This model is mainly used for examining the competition within the organization and the
development of business strategy. It is mainly used for analyzing the micro environment of the
organizations, states Freeman (2010).
Threat of substitutes
Tesco offers quality food products at reasonable price for its customers, so, threats from
substitutes like organic shops, small convenience stores etc does not affect the performance of
the company (Martin, 2014). But Tesco faces fairly high threat of substitute for non-food items
like cloths. During the economic recession, customers preferred discounted products and it
generated threat for the company.
Threat of new entry
As per The Telegraph (2015), the major food retail industries in UK are Tesco, Morrison’s, Asda,
etc and these companies have high brand image in the UK market. Beating the brand image of
these companies and setting up of new company with huge investment in UK market is a
difficult task. So, threat of new entry is very low for Tesco.
Degree of rivalry
Tesco currently faces high degree of competition from its rivals including Sainsbury’s, Asda,
Waitrose, Morrison’s, etc. Competitions are mainly obserbed in the products, price, marketing
activities etc of the retailer (Makos, 2014). Even though, there are many competitors, Tesco
has been able to maintain high market share in the UK market as depicted below:
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Figure 2: Market share of grocery stores in UK
Source: (Makos, 2014)
Bargaining power of buyers
As per Euromonitor (2012), customers’ bargaining power in Tesco is very high. In the present
world, switching cost is very low and retention of customers in firm is a difficult task. Tesco uses
policy of low price, online trading facility, etc for attracting and retaining customers.
Bargaining power of supplier
In Tesco, suppliers bargaining power is comparatively low. Suppliers of major food retailers in
UK have the threat of losing their business if they make higher bargaining and in such a
situation, they makes positive negotiations for getting products at most possible low price
(Dhabalia, 2012).
Critical Success Factors
The above analysis shows that the following stands as the critical success factors of Tesco:
Reputation and brand image: Tesco provides good quality and trustworthy products at
fair price and it ensures value for the money. So, the company is able to maintain good
brand image and reputation in the UK and other operating markets.
Customer loyalty: Tesco provides high quality services, online trading facility and
customer loyalty cards for its customers and it helps the company to generate high
loyalty among the customers of the company. Due to high competition and change in
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preference of customers, company follows innovative methods for maintaining
customer loyalty.
Improve the efficiency of production and distribution channels: For generating good
impact on customers and for improving the brand image of the company, Tesco
reorganizes the production and distribution channels of the company. This helps the
company to improve its product lifecycle management process and for improving its
supply chain management process.
Integration of IT in business: Presently, in all kind of business, IT and internet facility
have an important role for maintaining record and for creating good relation with
customers. Tesco has taken proper care on using such facilities for the success of
business.
TASK B - Resource and Capability Analysis
An internal environment analysis is a process of identifying the strengths that helps to develop
and the strengths that are to be surmounted (Henry, 2011). The analysis of the entire
characteristics of an organization is involved in this process. This process analyses the
strategies, objectives, plans, competencies, operations, policies, resources etc of an
organization. In this section marketing mix and value chain analysis is used.
Marketing mix
Marketing mix is a marketing tool that is implemented in the business and it plays a crucial role
in establishing a product or brand, reports Martin (2014). It usually deals with the 4 P’s – price,
product, promotion and place. In order to achieve the competitive position and to satisfy its
target customer base, Tesco concentrates in developing the marketing mix in an appropriate
manner.
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Figure 3: 4 P’s of Marketing mix
Source: Dudovskiy (2014)
Price: ‘Every Little Helps’ is the marketing message of Tesco and it is on this the pricing
strategy depends upon, reports Tesco (2014). The pricing strategy determines the
profitability and sales of a company. Tesco implements its pricing strategy according to
its business ethics and maintains the competitive advantage. Zhao (2014) observes that
in order to satisfy the customers the management of Tesco decreases the operation cost
and purchase cost by enabling the customers with cost advantage and by sustaining the
brand image through strong sale growth.
Product: Tesco advertises the quality of the product along with low prices for attracting
the customers, reports Mintel (2010). The company efficiently communicates with the
customers about the various products and services through advertisements in
newspapers, TV, radio etc. Tesco offers its customers with variety of services and
products such as clothes, electronic goods, food, monetary services etc. Latest
innovations with advanced creativity are synchronizing in the products of Tesco (Ghani,
2012). Tesco balances both the product quality and price for sustaining the competition
prevailing in the industry and also provides better customer service for satisfying the
customers.
Promotion: Tesco adopts various promotion techniques by focusing on the prime
marketing objective of maximizing the profit and enhancing the brand image in both
short and long term perceptions, observes Henry (2011). The promotional techniques of
Tesco includes charity, advertising through media, point of sales, providing discounts
and offers, sponsorships etc. The successful promotion and marketing tool of Tesco ,
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Tesco club card was introduced as a loyalty scheme for influencing the customers by
providing extra points and discounts on the purchases (Jenny, 2015). This club card
aided Tesco to understand the customer’s viewpoint and information to improve their
marketing strategies.
Place: Tesco has adopted online and offline methods to make its products and services
reach its customers in an efficient manner (Martin, 2014). Place in the marketing mix is
defined as the location from where the products and services of Tesco are available.
‘Tesco Direct’ is the online sales channel of Tesco related to www.tesco.com the official
website. Tesco superstore, Tesco express, Tesco compact and Tesco metro is the offline
sales channel of Tesco.
Hence from the above analysis it can be concluded that reduced cost with high product quality
and the Tesco club card the effective promotional tool are considered as the Tesco’s important
internal characteristics’.
Porter’s Value chain analysis of Tesco
The strategic evaluation tool that links both the primary activities with the supporting activities
of an organization is defined as the value chain analysis (Aboubacar, 2012). According to
Freeman (2010) value chain analysis aids in identifying the strengths and weakness in the value
adding processes of organizations. Porter’s value chain links the primary and the supporting
activities by focusing on the customers and also reveals consequence that it makes on the
profits and costs. Here the business activities are divided into two sections- primary and
supporting activities.
Figure 4: Porter’s generic value chain of Tesco
Source: Aboubacar (2012)
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Primary activities
Inbound Logistics
An effective role is played by inbound in the value chain of Tesco. Brand image with leading
position and the economies of scope are used by Tesco as the tool for bargaining low cost to
the suppliers (Kotler et al, 2012). The delivery of the product at the right place on right price
with proper price is readily assured by Tesco. The inbound logistics of Tesco helps to maintain
its competitive advantage and mainly considers the product selection, scheduling staffs, storing
and the stock.
Operations
For developing the low cost leadership strategy Tesco utilizes its IT systems the Tesco Digital
program in an efficient manner. This system manages the operations of Tesco and is regarded
as company’s third generation ERP solution which has gained high profitability by reduction in
the stock holdings (Jenny, 2015).
Outbound Logistics
Due to the efficiency of the outbound logistics, Tesco is able to maintain its brand position both
in the online and offline segments. In order to reach its large customer base Tesco have
distributed its stores as Superstores, Home plus, Express and Metro (Duncan, 2015).
Marketing and Sales
In order to boost the demands of the customers Tesco introduced price campaigns’ by proving
products at lowest prices but with high quality, observes Dhabalia (2012). Tesco club card is
such an effective loyalty scheme of Tesco which gained the company with huge customers.
These have helped Tesco to become as a competitive retailer by enhancing its position in the
market.
Service
The first online shopping was started by Tesco in UK which enable customers to save their time
and cost by purchasing clothes, electronic goods etc. The effective implementation of the dual
strategy the cost leadership and differentiation with efficient customer services has made Tesco
reach the top most position (Freeman, 2010).
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Support activities
Firm infrastructure
In order to save the time and cost Tesco has implemented warehouse and single vehicle
system. Also it has expanded its stores as warehouses for the online customers to collect their
products from the store nearby, observes Martin (2014).
Human resource management
Tesco provides its employees with effective training, personal development programs, rewards
etc to retain the talented staffs and for recruiting new staffs (Dhabalia (2012).
Technology development
Tesco adopts latest innovations and advanced technologies for improving their services and
products offered to the customers. The online system of Tesco has enhanced its competitive
advantage, reports Datamonitor (2011).
Procurement
All the supporting activities finally arrive in procuring better services to the customers. It has
been found that Tesco spends more on the procurement of goods and services.
The threshold and unique resources and core capabilities/competencies of Tesco are evaluated
on the basis of internal analysis and they are noted below:
Successful inbound and outbound logistics.
Effectiveness in operations
Excellent and talented staffs
Efficient customer service
Price campaigns based marketing and sales
Club card loyalty scheme
Efficiency of the marketing mix involving 4P’s
Task C: Strategic fit analysis of Tesco
According to Zhao (2014), the ability of the organization to match the threats and opportunities
created by the external environment with the capabilities and resources of the company is
known as strategic fit. This section examines the strength and weaknesses of Tesco on the basis
of threats and opportunities in the market environment. The major findings of micro and macro
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environment analysis of Tesco and internal environment analysis of Tesco are used for
analyzing the strategic fit of Tesco.
While analyzing the strategic fit of Tesco, it was understood that, the company has excellent
strategic fit in UK market. The main indicator of this strategic fit of Tesco is its strong brand
image and reputation. With the help of economies of scale, company is able to achieve
competitive advantages over competitors. The major threat of Tesco is the highest degree of
competitions from rivals like Asda, Sainsbury’s, Morrison’s, etc (Mintel, 2010). However, the
company is able to control all competitions over Tesco and the company is able to maintain
major market share in the UK market. Changes in demand and preference of customers are
considered as another major threat for the operations of Tesco. For overcoming this threat, the
company has introduced innovative food products by considering the needs of the customers
for attracting and retaining customers.
For enhancing the market share and for increasing the market position of Tesco in the UK
market, company adopts new strategies. For improving its position in the market, company
should have to concentrate on private label products. Comparing to branded product, these
products have higher margin and the private label sale will help the company to generate high
degree of loyalty from customers. The loyalty schemes and sophisticated scanning will provide
opportunity for Tesco to improve its strategy (Aboubacar, 2012).
The UK food retail market provides many opportunities and strengths for the growth of Tesco
and the company now concentrates on online sale, international sales and non- food sales. The
company achieves highest profit from its UK market and uses this profit to widen its business to
other countries.
The economic crisis in UK will affect the UK business adversely and it will negatively affect the
overall growth of the company (Freeman, 2010).
From the market environment analysis, it was identified that, the food retail industries have
opportunities in the healthier food items but most of the companies expect growth from the
sale of non- food items (Kotler, et al, 2012). Tesco has a strong brand image and reputation in
the market. So, concentration on healthiness and beauty products will improve the success of
the firm. For overcoming the competition in the market, company should concentrate on online
trading and it will help to change the small scale nature of the company.
It was also found that, effective utilization of online distribution channels and online trading will
help Tesco to achieve potential growth in business (Jenny, 2015). For recovering the current
weaknesses of Tesco, it is recommended that the company focus on healthy products and
services.
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It was identified that, in the near future, online purchases will be more than store based
purchases and the popularity of online trading will be high in future, as stated by Duncan
(2015). The major strong point of Tesco is that, it produces goods and services according to the
preference of the customers. So the company can utilize this opportunity effectively for
attracting more customers.
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