Technological factors - Tesco should expand on their web usage in America. Ordering online should become available. Market research should be carefully conducted on what U.S consumers would expect. Also self service machines could be implemented.
The Micro environment
This involves a firm’s internal environment that has a direct impact on a firm’s strategy. The customers that Tesco are targeting are those of a lower income who are looking to cook a quick and cheap meal. Tesco has suppliers which will be happy to move to the U.S. However there may be higher prices charged for this which in turn will affect the retail prices of the products.
If competitors cut prices, it could ruin Tesco if they do not act effectively. For this reason thourough research should be conducted about competitors.
Consumer behaviour
This focuses on how individuals or groups behave when purchasing a good or service. In the case study one consumer says: “I like the wider range of foods I can find here” (at Publix), however she goes on to say that she does not visit the publix store for other essential items and she has to travel far to get them. The general behaviour of U.S shoppers is that they want convenience and something which is relatively cheap and easy to prepare. They would rather shop in one single store to get all their needs and wants. Shoppers like healthy organic foods with choice and low in price. Publix is currently remodelling some of its stores to sell natural and organic foods. Tesco will have to meet this desire of consumers for organic products and implement this in their advertising strategy.
Customers in the U.S have a brand loyalty it seems. As one customer said that they have shopped at Publix all their life and even though the prices are a little higher, the service is outstanding. Tesco need to break the chain of customer loyalty by offering more than their competitors with better standards and quality.
SWOT ANALYSIS FOR TESCOS
Strengths
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Well established- Tesco’s is already a well established name in the UK with a market share of 28%.
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Clubcard - Will give a real insight into customers shopping habits.
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Tesco’s online- Tesco’s online is the world’s biggest online supermarket.
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Strong brand image- Tesco also has a strong brand image and people relate the business with high quality and reliable goods which represents excellent value for money.
- Offers low prices and quality products which is to be the focus if they break into the U.S market.
Weaknesses
The weaknesses for Tesco’s are as follows:
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Reliance upon the UK market- Even though Tesco’s it well established internationally it still highly dependant on the UK market.
- Completion will be fierce as they are new to the U.S market and it will be hard to establish a good company name.
Opportunities
The opportunities for Tesco’s are:
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Health and beauty- Tesco’s health and beauty range is at present the greatest growing skincare retailer in the market.
- Develop their web services for convenience of consumers.
- Expansion into other markets such as clothes or personal finance.
Threats
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Wal-Mart/Asda Challenge- Since the US shopping giant Wal- Mart purchased Asda it has been a threat for Tesco as Asda are closing in the gap between these two supermarkets.
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International growth- Expanding the business internationally can be a very expensive process. Entering new markets is important that it has heavy investment and extra operating expenses. This might mean that Tesco’s debt will increase even ore before it can even decrease its debts.
In order for Tesco to consider entering the US food retail sector it has to consider a lot of things such as competitors and customer loyalty. Each of these questions may have a positive and negative aspect to it which we will be considered below.
Firstly we will take a look at the strengths of Tesco’s as we already know Tesco’s is a very well established business in the UK it is ranked number 1 supermarket. However this doesn’t necessarily mean that it will be a success in the US as customers may want to stick with their local supermarket. So Tesco’s may have to cut down prices or use a USP to attract its customers to shop in Tesco’s.
Secondly it has its own website. This will help it gain more customers as people can shop from the comfort of their own home and Tesco’s can deliver it for them. This will encourage customers into shopping at Tesco’s as local supermarkets do not have these advantages and people sometimes may not have time to go for a large amount of shopping so it is convenient for them.
Tesco’s final strength is that it has a strong brand image people already know that Tesco’s sells good quality products. So customers will want to shop at Tesco’s knowing that it has good quality products and services.
Market Segmentation
This is a strategy that involves dividing a larger market into subsets which cause consumers to have the same or similar products. It helps the company to understand the needs of consumers and create products which suit a particular type of consumer the best. It current market in the UK are 24% upmarket, 53% mid-market and there are 23% who are less affluent. The up-market prefer finer foods and healthy. The mid-market prefers convenience and traditional products but are now growing more towards healthy foods. Less affluent consumers are extremely price sensitive. The case study suggests that Tesco is going to approach the U.S market by creating convenient products that are cheap. Tesco’s own brands will most probably be focused on in this case. This will be aimed to the mid-market and less affluent consumers. However they will also stock foods for the more affluent consumers such as organic.
Different ages will be more inclined to go for different types of food. Affluent consumers will generally by older then the less affluent and the less affluent are most likely to be students aged under 25. It is not just one segment that Tesco is aiming at, but it is trying to satisfy all types of consumers – there are different foods for everyone.
The marketing mix is
Tesco is involved in seven areas of marketing mix and these are:
- Promotion
- Product
- Place
- Price
- People
- Physical evidence
- Process
Promotion
This is the intangible aspect which includes things like service and customer care. This seems to be heavily important to U.S consumers and having this will benefit them greatly. Advertising is used so the
- Customers about will have a knowledge about the new product
- Encourage customers to switch to a different brand
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Remind buyers where to find a product
The role of advertising is to create demand for a product.
Product
Tescos product will be sold inside Tesco supermarkets on the shelves. However Tescos product is not only what they sell in the shelves, Tesco is increasing their product range. The product must be of good quality and appealing to consumers.
Price
If the price of the product is too high the company can lose market share, if it’s too low then they will be losing out on a lot of potential money if demand is still not met. If prices are low it may psychologically enable a customer to think that it is low quality. Pricing strategies also play an important part in every organisation.
Micro marketing is when local managers adjust prices by using the information’s from the checkouts regularly. Not all Tesco products are the same price in every other Tesco stores. For example for the same product you can pay 9% more in Tesco stores but however this would be in different parts of countries.
Place
Place is when a company sells its products to their customers for example; wholesales and retailers.
Tesco’s first supermarket had began in High Street after a while they have moves out from the High Street but however they have moved back in again. Now there are different types of Tescos for example Tesco Extra, Metro Tesco, Tesco Express and it is so likely that you would come across one everywhere you go. By using the right research Tescos target is to get the right goods to the right customers.
People
Customers’ perceptions of a company or product can be easily influenced by staff attitudes. 63% of customers do not come back to shop in a retail store because of a bad experience with a staff member. It is vital that employees are trained adequately.
Physical evidence
This includes the environment and atmosphere surrounding the store such as window banners, interior and if the store is generally kept tidy and items are relatively easy to find.
Solutions to some of the problems mentioned:
- Distribution – they will need to have good and effective channels. Producing the correct products, at the right time and developing effective promotional plans will need to be addressed. Market research will need to be carried out.
- Competition – Walmart is the biggest competitor with 31% of market share. A USPwill need to be focused on and adhered to. Once a reputation falls, it is hard to climb back up to the top so it needs to be maintained. Selling fresh and easy products is the main focus. The American culture is crying out for more healthy foods to be promoted and Tesco may be the one to break that barrier.
- Land space – 3,000 square feet for each store. They need to be careful about not breaking any laws and need to be environmentally friendly. If not their will be protests and that will ruin the company’s reputation.
- Tesco is going to be a small store compared to the stores that Americans are used to. It will have 7,000 products stocked and the size of the store may not be big enough for stock levels. Also people may not like the change of going to smaller stores and may see it as cheap and low quality.
Overall we think that Tesco should break into the US market. The benefits outweigh the negative points. Expansion in the UK is not possible as there are laws to stop them having a higher market share. It has worked wonderfully in China and twelve other countries where Tesco has opened and we don’t see why not in America. The key to Tesco’s success is knowing what their consumers want and simply producing it with quality and low prices. As suppliers have already moved to Tesco they are gambling it is going to pay off. Approximately 2,500 jobs will be created in the first year and this will be beneficial to residents. Tesco has also said that it will look after its staff and pay a higher wage then Wal-mart.
If it does open in the US maintaining its grab and go concept may be difficult. Reasons are because consumer needs and demands may change and Tesco have to adjust to this. If this does happen then their USP will no longer be this. Currently this concept has a direct appeal to the US as their primary concern is convenience. Tesco has the direct power to compete with restaurants if the grab and go concept does well. The market share will look to increase drastically.
Breaking into a new market also has many negative sides. If the correct research is not done then Tesco could be in trouble. Tesco need to forecast sales realistically and focus on their primary objectives. The competitors can easily drive out any new firm breaking into the market and tesco need to be prepared for this and have contingency plans.
Bibliography
Internet
- http://www.perishablepundit.com/DailyPundit/TOPICROUND-UPS/TescoComesToUSA.htm
Books
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Principles and Practices of Marketing 5th edition- David Jobber
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Essentials of Marketing Reasearch by Joseph E Hair, Jr, Mary F Wolfinbarger
