Task 1: The concept, process and orientation of marketing
Definition of Marketing
Various authors have provided various definitions of marketing. The Chartered Institute of Marketing defines marketing as “the management process responsible for identifying, anticipating, and satisfying customer requirements profitably” (2009, p. 2). On the other hand, the American Marketing Association define marketing as “the activity, set institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large” (2007). Elsewhere, Kotler and Keller defines marketing as “the set of human activities directed at facilitating and consummating exchanges” (2011). Tesco is a leading UK retail store with more than 700 stores, where it has a commanding market share of 30%. Moreover, the company has a presence in 12 countries across Europe, North America and Asia. The company has attained great success largely due to an elaborate marketing process. To better gain an insight of Tesco's marketing process, the essay will examine Tesco's marketing audit process. A SWOT analysis on Tesco will also be conducted, as well as identifying Tesco's marketing objectives.
- Tesco has a commanding share in UK's retail market (30%) (Euromonitor 2010). The company's share in food will continue to grow owing to its multi-format capability. Its non-food share will also continue to grow owing to space contribution from hypermarkets. The company's ROI and general growth is also commendable. There has also been a steady increase in its international business segment, which is predicted to account for almost 25 percent of Tesco annual profits in the next five years (Tesco 2010).
- Over the years, Tesco has maintained a strong financial performance, and this is indicative of the company's strategic capabilities. By 2010, Tesco's turnover had increased by 14.9% to £54 billion (Datamonitor 2010). This growth has largely been due to Tesco's adoption of customisation of products and services in line with demands (Fame 2010).
- Tesco has managed to retain loyal customers with its 'Tesco Clubcard'. DunnHumby (2008) opines that Tesco utilises data collected form its loyalty scheme to develop various marketing and promotional techniques
- Tesco's performance over the past few years has been poorer in comparison with its competitors. Mintel (2010) states that in 2009, Tesco had to recall several of its products, and this led to not just to a financial loss, but the company's brand image was also damaged.
- Tesco has concentrated its key operations in UK's retail sector, a market that contributed to over 75 percent of the company's revenue in 2009 (Tesco 2010). However, such lack of geographical diversification could prove to be a leading weakness because the company is prone to systematic risks of the UK market.
- Tesco has enhanced its commercial network portfolio. In 2009 alone, the company opened more than 620 stores, with 435 of these being opened in the international market (Mintel 2010). such geographical diversification is important as it will enable Tesco to reduce its systematic risk exposure and at the same time, enhance its economy of scale
- Tesco.com has grown in popularity and in 2010, it had more than 1 million customers (Guardian 2010). This is a god opportunity for Tesco to increase its profits by minimising its overall costs, even as it seeks to attract new customers.
- Tesco has entered the Indian market, and this is a sign of its focus on global expansion. The limited franchise agreement between Trent and Tesco will enhance the company's entry into the Indian market, thereby strengthening its global market position (Euromonitor 2010)
- The rise in value of the food retail market segment over the past five years is indicative of further growth in the industry
- In 2009, the UK's economy contracted by 2.4 percent on account of the global financial crisis. Estimates by the International Monetary Fund (IMF) also indicated that the UK economy would contract by a further 4.2% (Poulter 2009). Seeing as Tesco is mainly concentrated in the UK market, this could have a huge effect on the company's financial position.
- There has been an increase in unemployment in the UK and while income levels appear to be declining, this has impacted on consumers' discretionary buying behaviour. This has had adverse effects on Tesco's sales, especially non-food items.
- Competition is very stiff in the UK's retail market. Other giant retail chains like Sainsbury's, Asda and Morrison have also been gaining market share at the expense of Tesco (Mintel 2010).
SWOT Analysis Summary Table
Marketing Objectives of Tesco
- To grow the core market: The UK is Tesco's core market as it is a key driver of the company's profit and sales. The company has therefore prioritised on growing this core market.
- Tesco also aspires to be a leading retailer both online and in retail stores. The company has already created profitable businesses in the European and Asian markets. 29% of the Group's profits and 32% of its sales are as a result of the international market. The company now plans to increase these levels.
- Tesco also plans to grow its retail services in its various markets. An increasingly higher number of consumers are spending more of their income of services like financial services, telecommunication, and eating out. Already, Tesco has invested in the insurance industry in the UK, among other financial businesses. It now plans to replicate this idea to its other markets.
Benefits and Costs of a Marketing Orientation in Tesco
In a market orientation, a business entity assume a philosophy whose main goal is getting to discover the needs of the market, followed by attempts to meet these needs. Certainly, such a focus would be of immense benefit to Tesco. First, it would ensure that Tesco remains responsive to the needs of the market. Organisations that have embraced a responsive orientation are also considered to be ahead of competition in regards to marketplace responsiveness. In this way, Tesco would be in a position to both develop and provide products that fulfill the needs of its customers. To do so, Tesco should focus on data-driven analysis in a bid to understand the market better.
Another benefit of marketing orientation to Tesco is that such a process would ensure that the company attains constant improvement in its systems and processes as it encourages a “culture of experimentation.” (Kumar et al. 2011). By embracing this approach, functional departments and company leaders at Tesco would constantly assess opportunities to improve the products and services that they offer to meet the current and future needs of the market.
On the other hand, Tesco would have to incur significant costs by implementing a marketing orientation approach. For example, the company would have to invest a lot in marketing intelligence so as to gather the necessary data to respond to customers' needs (CA Technologies 2014). This would also entail investment in technological infrastructure to facilitate in the collection and compiling of customer data. Also, Tesco would be forced to continuously change its work processes and products to suit the changing needs of the market. This calls for further investments.
How Tesco would benefit from building customer satisfaction, relationship marketing and customer retention
As the global market becomes increasingly competitive, companies have been forced to embrace relationship marketing in a bid to ensure improved customer satisfaction and customer retention. Such an approach would also suit Tesco as it would act as a key driver to the company's enhanced competitiveness, overall success, and long-term results. Besides, such an effective marketing strategy would suit Tesco as it endeavours to remain competitive after the recent economic and financial crisis (Kotler & Armstrong 2010) that had a negative impact on its core market (the UK market). Besides, embracing this concept would also enable Tesco to forge stronger ties with its customers, demonstrate commitment to them, and build trust (Payne 2003). Besides, retention of valuable customers would mean increased profits for Tesco. Payne and Frow (2005) note that over the past few years, a lot of organisations have demonstrated increased interest in customer relationship management. Murphy et al. (2007) contend that relationship marketing translates into enhanced technical, economic and social ties between the various stakeholders in an organisations. Besides, it improves the exchange efficiencies and minimises the cost of transaction.
Task 2: Segmentation, targeting and positioning
Identification of the macro and micro environmental factors influencing marketing decisions in Tesco
In order to identify the macro and micro environmental factors affecting Tesco's marketing decision, sue shall be made of PESTLE analysis and Porter's five forces.
Tesco's PESTEL Analysis
- The removal of barriers to trade by the Chinese government, coupled with its ascension to the WTO is an opportunity for Tesco to enter into a profitable market
- Various government are promoting free trade blocs to enable business benefit from globalisation. More countries are joining the European Union and such a platform would enable Tesco to expand its operations (BBC 2009).
- The decision by the UK government to reduce interest rates in 2009 has resulted in increased consumer spending power (Euromonitor 2010). However, the financial uncertainty is still high, and this could see consumers reducing their spending on premium products like prepared meals and organics. This could negatively affect Tesco's sales margins and values.
- An economic recession means that more customers stop eating out more, in favour of home cooked meals. As such, Tesco could cash in on its grocery sales (Guardian 2010).
- The population of the Baby Boom generation in the UK is higher than that of children and this is not good news for Tesco because older people tend to eat less. They are also less likely to shop at supermarkets than the younger generation (Turban et al. 2001).
- A lot of consumers are becoming health conscious as their attitude towards food changes. In response to this, Tesco has had to increase its supply of organic foods.
- The internet has had an effect on the operations of supermarket chains like Tesco. Consequently, Tesco has been forced to embrace online grocery retailing and already, there are signs of steady growth. Statistics show that nearly 70% of the UK population is using the internet (Office for National Statistics 2010).
- Tesco has rolled out loyalty programs to discourage customers from moving on to competitors (Sun 2009).
· Tesco has been using mobile technology such as the New Wine App that enables customers to select and purchase Tesco Wine using their mobile phones (Tomlinson & Evans 2010).
- The UK is promoting reduced packaging and environmental friendliness. The Office for National Statistics (2010) reports that there has been an increase in the number of customers using reusable bags from 71% to 74%. More customers have also minimised the number of plastic bags they use for shopping.
- Tesco is also creating awareness to it customers on carbon footprint (Wood 2009) , a move that has seen the company add carbon footprint data on such products as potatoes, dairy products, and orange juices (Tesco 2010).
- Tesco has launched the green Clubcard points to reward consumers who recycle aluminium cans, shopping bags, and mobile phones (Tesco 2009).
Tesco's Porter's Five Forces Analysis
Threat of substitute services and products
- Medium to high of substitutes for non-food items like clothing (Financial Times 2009), and comparatively low for food items
Threat of entry on new rivals
- Low threat of entry of new rivals in the food retail industry due to the high capital investment needed not just to create a brand but also to remain competitive
- Obtaining planning authorisation by the local government is involving both in term of resources and time, and hence a key barrier to new entrants
Buyers' bargaining power
- Relatively high
- Low switching cost for most standardised products or those with a slight differentiation.
- Entry of hard discounters like Lidl and Aldi during the recession could give buyers more bargaining power
Suppliers' bargaining power
- Reasonably low suppliers bargaining power since Tesco is a large supermarket
Intensity of competitive rivalry
Comparatively there is high intensity of competitive rivalry in the grocery and food retail sector.
Tesco has to contend with stiff competition from such direct competitors as Sainsbury’s, Waitrose, Asda, and Morrisons.
Tesco's main market segmentation
Tesco has embraced a demographic segmentation of its customers. This decision was reached following the research analysis of of data collected from the company's Tesco Clubcard holders, who are more than 10 million.
The data analysis revealed that 24% of Tesco's customers were upmarket, 53% were from the mid-market, while 23% of the customers were less affluent. The data analysed further revealed that the customers differed in terms of the benefits that they sought from Tesco products. Accordingly, Tesco developed brands to feel their needs. 19% of the customers desire finer foods. The company has developed Tesco finest, and Tesco fair trade brands to fulfill this segment. A further 17% of the customers desire healthy foods and for these, the company has developed Tesco organic, Tesco healthy living, and Tesco free from brands.
The Tesco brand is meant for 16% of the company's customers who desire to remain traditional. However, the mainstream segment that accounts for 24% of the customers is targeted with the Tesco kids and Tesco brands. In addition, there is a segment of the market that goes for convenience (9%), and these are also targeted with the Tesco brand. Others are also price sensitive (16%), and for these, the Tesco value brand has been developed.
Tesco's targeting Strategy for Tesco premium
This is the finest premium range of food products under the Tesco brand. This product should target the upmarket segment with higher income. Such individual are always conscious of their lifestyles and so, will always purchases the best. Therefore, they deserve the best. The company can position the product through differentiated targeting. That is, this product should be regarded as special for special customers. In addition, the product should be exclusive to Tesco stores only.
Positioning of Tesco in the market in comparison with other supermarket chains
Over the past few years, Tesco has emerged to be the market leader in the food retail segment in the UK (Datamonitor 2010). Tesco has a commanding market share of 30.6%. the market shares of the other three leading supermarkets in the UK are provided in Figure 1 below.
How buyer behaviour affects marketing activities in different buying situations with examples of Tesco products/services
Buyer behaviour entails external and internal factors that explain the reasons for consumers to use or buy certain services or products. Suppose we have 2 customers who want to buy a food product from Tesco. One is from an affluent background, and the other one is from a less affluent background. There are a lot of factors to consider while the two are making their purchase decisions. For example, the affluent customer will consider the quality of the brand, the design of the brand, the package, and the ingredients. As such, he/she is likely to go for Tesco Finest, products with “superior” ingredients. On the other hand, the less affluent customers will be concerned about cost and convenience, and so will go for Tesco brand, an own label standard brand.
Task 3: Individual elements of the extended marketing mix
Tesco stores have a wide range of products and services for customers to choose from. For example, there are over 40,000 product lines to choose from. Also, under the “Healthy Living” products categories, customers can choose from over 400 products. This wide variety of products leads to increased customer satisfaction (Tesco 2010).
Tesco is aware that a large portion of its customers are price sensitive. Therefore, the company tries to maintain reasonable prices for its products despite the challenge of increasing energy costs. On the other hand, there are high-end customers who do not mind paying higher prices for premium products. Tesco has made arrangements to cater for this segment as well.
Tesco boasts of an evenly spread store network throughout the UK. Therefore, customers find it easier to locate stores. Tesco stores are also differentiated by product range and size.
Tesco relies heavily on Television ads to promote its products and services, in addition to creating value. The company's Club-card loyalty scheme is another promotional strategy whereby customers can accumulate points for money spent at a Tesco store (Tesco 2010). They are can then claim such rewards as dry cleaning services, travel, and car maintenance. The physical and online presence of Tesco store is also another promotional strategy.
Consumer perception depends certain aspects of service provision, such as store design. Although Tesco has not invested heavily in store design, nonetheless, its stores are not noisy, while the store layout is appealing, attractive and clean (Tesco 2010). The company's website is simple and friendly.
Tesco invests heavily in training and development of its staff. This is aimed at increasing service provision to customers and hence, customer satisfaction. The company is also dedicated to improving staff skills and behaviours.
Tesco has developed a robust IT infrastructure to support its operations. The company has also adopted a customer-focused approach. In addition, Tesco dedicates part of its revenue towards research and development.
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