This report will therefore analyze what extend of effect that ecommerce and technology can make on retailers, taking Tesco as a case study.

by dracolkh (student)

University Degree Business and Administrative studies

Introduction

Change occurs from time to time and is inevitable to all organisations, notably technology. It is undeniable that E-Commerce is a useful tool for companies to break the restriction on area, time and space to expand their business. Electronic commerce is about “the whole online process of developing, marketing, selling, delivering, serving and paying for products and services transaction with the support of worldwide networked” (O’Brien & Markas, 2011). Tesco may be a good example of how business integrates in-store and E-Commerce well through technology development. This report will therefore analyze what extend of effect that e-commerce and technology can make on retailers, taking Tesco as a case study. It will first of all describe the business modal of Tesco. Secondly, an assessment of Tesco’s competitive environment will be analyzed. Finally, two new recommendations will be given to adapt to Tesco’s potential growth.

Business Model

Timmer (1998) defines the ‘business model’ as an architecture for product, service and information flows which encompasses descriptions of the roles and the potential benefits of the different business actors and the sources of revenues. In other words, business model is a summary of how a company is going to generate revenue by identifying customer needs, organising resources and etc.

According to Appendix 1, Tesco’s business model is divided into three vital parts – core activities the virtuous volume circle and enablers – whilst the core purpose is to build the valuation of customers to gain their eternal loyalty.

Core activities

Value proposition is one of a component of business model. Tesco undertakes various types of attempts to combat problems from the customers and products. For instance, in 1995, Clubcard was commenced and in 2008, Tesco launched the ‘Every Comment Helps scheme. Clubcard is a success which was widely credited in boosting sales and turnover and strengthens their ranking in the world, by working with dunnhamby (Townsend, 2010). Dunnhamby uses the data generated from the feedback and loyalty scheme that assists Tesco in focusing customer first in business to make improvements to overcome the issues rose from the customers. In Tesco annual report 2011, customers satisfaction had increased 7% from 2010.

Virtuous volume circle

This virtuous circle is designed primarily for Tesco to manage its resources by continuously developing the relationships with not only customers but also suppliers to create mutual benefits. Moreover, owing to the fact that Tesco is an outstanding business, especially in the UK, Tesco can definitely benefit in economies of scale by buying products from suppliers in low prices and thus provide low price products and rewards to retain customers instead of finding a new one.

Enablers

The enablers encourage the maximisation of the possible core activities and assure that the activities are undertaken in a system that can be continued for the advantage of the customers. Tesco’s concept is to make things better, simpler, cheaper and faster. These attributes are implemented in Tesco as a whole that enhance the value chain structure.

Tesco reveals that its distribution system is performed in two ways.

“First, we forecast what customers will buy, using sophisticated, detailed models to consider variables such as seasonality, weather forecasts and likely response to promotions. Second, our ordering systems automatically update in real time based on what customers do actually buy, so that we can quickly and accurately supply stores with the right products at the right time.”

(TESCO PLC Annual Report and Financial Statements 2012)

For instance, the usage of energy is alleviated by approximately 45% in a new distribution centre that was built in Jiashan, China (Tesco plc, 2012).

Williamson, Harrison and Jordan (2004) indicate that Tesco Information Exchange (TIE) allows Tesco to exchange trading information with suppliers in a real time basis which saves time and enriches the quality and efficiency of service, production as well as distribution.

Tesco brand is one of the core activities that are focused at the moment. It is immensely useful for Tesco to focus on the market segment. Tesco bank is another good illustration. It offers good deals by charging no interest on balance transfers for 22 months with a 2.9% balance transfer fee (Tesco Bank, 2012). Insley (2012) believes that Tesco Clubcard credit card is one of the best credit cards for huge spenders who intend to pay their debt gradually.

This business model has found that generally Tesco is implementing the CRM system supported by three phases mainly to increase profitability and focus more on customer need. Tesco has undertaken various schemes include sales, marketing, customer service and support, retention and loyalty program and so forth which are tailored specifically for the customers to ensure revenue generation and margin. In 2011, Tesco has purchased BzzAgent worth £37m (Chapman, 2011). It clearly shows that a good business model with high quality of information system is an integral part for an e-commerce organisation by acquiring then enhancing and most importantly retaining the customers. ...

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An assessment of this organisation’s competitive environment.

Competitive Environment

In the competitive grocery market, high-tech use by supermarkets is an inevitable trend to reduce the cost on operating activities and, more importantly, to manage customer relationship. Aiming to catch up with the technology-oriented trend, grocery companies are developing their own technology cooperating with other technology entities. The following part will describe an assessment of Tesco’s competitive environment using the SWOT analysis.

Strengths

Tesco, not only beating its competitors with its high market share, but is also still leading a changing role in information and technology development. According to Mike McNamara (2012), the chief information officer, new retail technology development in Tesco is aiming at personalising customers.

Firstly, Tesco is stepping up to win the commuters with the Commuter Zone (Quinn, 2012). The function of the zone is to group together the high-quality products and sort them for busy commuters. This technology is to meet business people’s need on quick and easy access to great food at great value. Secondly, Tesco is improving its online shopping service by nearing the 3D ecommerce offering. According to Chapman (2012), by integrating the online experience and the traditional in-store shopping trip, a virtual Tesco store has been built for customers to shop through their TV. With greater bandwidth, availability of motion-sensor technology, on devices such as the Xbox, and the rapid used of HTML5, shopping for 3D products is becoming possible. Furthermore, The Scan As You Shop is a very popular one which enables customers to scan their shopping instead of leaving all at the end for check-out. As an advanced innovation in supermarket checkout system, it saves customers’ time without queuing and also adds some fun in their shopping.

On the other hand, Tesco has been running its own customer relationship well by keeping customer interaction through various channels like phone, e-mail, clubcards and mobile devices. To sum up, Tesco is integrating information technology with customer service with innovation to keep its leading position

Weaknesses

However, the cost of research and development is very high which will, as a result, decrease the company’s profit. Sometimes, the input on technology may not match the preference of the market and customers, which means there may be no use and even a waste.

Opportunities

It not only provides customers an enjoyable shopping experience, but also gives Tesco another breakthrough point to improve its e-commerce service to retain old customers as well as attractive new customers. For instance, online shopping is becoming increasing popular since more customers prefer to shop without stepping foot inside a grocery store (Hartman Group, 2012). Online shopping module can create a convenient and enjoyable experience for customer. On the other hand, it can expand the customer base to remote area and break the restriction on storage space. Furthermore, companies can collect data easily for analysis so that they can find out customers’ shopping habits and preferences to set new strategy. Overall, high-tech use is a win-win tool for both companies and customers which gives Tesco potential growth opportunity.

Threats

With competitors developing innovative IT, not only at an incredibly fast speed, but also at various range of service, Tesco is having the risk of lagging behind at some point. For instance, to compete with Tesco, Sainsbury has launched a new technology called brand match since 2011(J Sainsbury plc, 2012). Brand match helps customer to check prices of their products with those of Tesco and Asda immediately. Customer will get a receipt which shows the differences of prices and will be given voucher if the goods are more expensive than the same one in Tesco or Asda. For Marks and Spencer, the entity has installed an initiative called browse and order point across 40 stores in UK in the first half of 2012 (M&S, 2012). With the help of it, customers could browse more of the product category and buy the products, which are even not in store (Ryan, 2012).

Both of them are increasing their competitiveness by new technology. As far as Sainsbury concerned, brand match has constructed a database of prices to ensure that customer buy the same quality good in lower prices. Also the outputs of information from the database are telling them the service they are enjoying, which could be promotional. For Marks and Spencer, browse and order points are using application software, which not only helps customer to scan through products but also enables the entity to distribute their goods on time. The application of software creates a different shopping experience to customer and breaks the area limitation of shopping.

As can be seen from the SWOT analysis above, even facing various threats and internal weaknesses, it is still not so difficult for Tesco to find opportunities and make good use of its unique competitiveness, strong customer loyalty base and advanced technology development. Overall, Tesco is on an advantageous position in the competitive environment.

An assessment of the potential for growth through agility and adaptation

Web Collaboration Tools

Web collaboration tools can expand organisation in new position of market and enhance customer satisfaction. It can be described as a backend software or service that allows company to share information with customers. (Warren., 2011)

The challenge of Tesco is the effectiveness to work across its geographically dispersed organization. International growth depends on a large extent upon rapid and successful adoption of the Tesco operating model. However, manage its process in a timely and cost efficient way will become harder by continued expansion. Therefore, Web Collaboration Tools is used to support rapid international growth that can allow Tesco to lower their costs of operation and to pass on saving to their customers with lower retail prices. This assessment will describe internal and external collaboration.

External collaboration:

Tesco, in 2011, has performed 10% and 40% growth in UK online sales and international online sales respectively (2012 annual report). Hence in order to maintain and develop the online services, Tesco invested £65m on cloud-based IT service to drive online expansion with probable future benefit expected. (.

Conversion rate plays a crucial role in information system which can be defined as the ratio of visitor who converts casual content view or website visits into desired actions based on subtle or direct requests from marketers, advertisers, and content creators. (Wiki, 2012).

There are two ways that can be utilized to achieve better financial performance by applying this conversion rate, which are increasing sales with converse rate optimization and cost minimization with future sales expectation.

Conversion rate optimisation is essential to Tesco’s online shopping service, because it enables the company to achieve much higher sales volume without allocating more investment expense on attracting more potential customers or on developing new business area. According to Fireclick’s benchmark index (2012), only 2.9% visitors actually place the purchase online, therefore most companies mainly focus on how to increase the number of visitors to their website. 2.9% of 1000 visits anyhow brings more profit than 2.9% of 100 visits. While trying to increase the website traffic may be worth the effort, the more effective way can be focusing on improving the conversion rate.

According to Newsle, the CEO of LiveChat, Mariusz Cieply, offers nine ways to improve the conversion rate of e-commerce website: make life easy for your shoppers; show what’s popular; engage shoppers while they are hesitating; be as personal as possible; always be available; remember that internet never sleeps; experiment to evolve; listen and learn from customers (Ray, 2011).

On the other hand, future sales volume of different goods can be predicted by applying conversion rates on commodities, which enable Tesco to further cut the inventory cost. As knowing the probable future sales volume, Tesco may keep the inventory at a minimum level, hence high inventory turnover ratio can be expected. For Tesco, a retailer whose major commodities consist of daily food, high inventory turnover ratio directly implies that more healthy and fresh food will be supplied to customer and positive faster operating cash flow will be generated for company. Moreover, since the future sales volume can be proximately forecasted, goods then can be distributed from supplier to local store far before placing the order by customers. Besides, data analysis on the IP addresses of clicking on different goods may identify the distinct needs of customers from place to place, as a result, distribution system will be improved to be more efficient. Therefore after calculating the future sales volume, better quality goods will be more quickly and precisely distributed to customers while the inventory cost has been greatly minimized.

Internal collaboration:

Extend communications

A project team can develop Web collaboration tools, such as discussion forums and blogs. Establish unified communications for teams in IT, IOD, and HSC. Discussion forums and blogs emerged as the tools that people like and want to use. Suppose 500 people took part in discussion forums on 78 topics. Therefore, it can help staffs discuss together with reliable and advanced communications capabilities. Moreover, video communications can optimise the efficiency of Tesco network management. They can share video and documents on forums and blogs.

Benefits of Cisco TelePresence

The impact of using Cisco TelePresence in Tesco might be immediate and overwhelmingly positive. Duke University, Cisco’s success case study, has saved 2.5 million annually in communications system support costs and extended interactive classroom experience to people (Collaboration Case Study, 2011). Therefore, Tesco can combine IT with international operations development (IOD), which response for the company’s business processes, provide continued monitor and support by assisting global organisation and optimise model. It can help Tesco lower 20% of administrative costs, such as traveling fee, in order to simplify operating structure thus motivates faster decision making and increased profit.

Cumulative Benefits

Tesco will gain significant benefits from its early use of collaboration tools, particularly the productivity benefits in its expansion of the international operating model. The impact on the business is expected to be substantial over time, in terms of faster time to market, improved productivity and cost reductions. Moreover, Tesco can anticipate greater value from the more structured approach which will come from its embedded collaboration framework.

Conclusion

Tesco, a multi-national company, has become the 44th largest company around world by implementing its business model that contain three vital parts – core activities the virtuous volume circle and enablers. The current situation of Tesco in this competitive atmosphere can be identified by the SWOT analysis, which reveals both advantages and potential threats, including improved shopping experience in both shops and online by applying the edge-cutting technologies, and some threats from competitors as well. Nevertheless, external and internal collaboration will ensure the future development, utilizing the up-to-date technologies, such as increasing of and analysing on conversion rate, using of modern communication tools and implementing advanced online management system will helps Tesco progress in the right direction and in a leading position in retail business.

References

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Dunnhumby, a data crunching company, analysed data from over 400 million people in 28 countries that assists the enhancement of customers’ retail and brand experience. Dunnhumby is now owned entirely as a Tesco subsidiary. (dunnhumby, 2012)

BzzAgent – a business that specialises in word-of-mouth marketing by sending products to advertise in its social media sites as an advocacy platform (Chapman, 2011)