PEST Factors at Tesco PEST factors (also known as the macro-environment) are four external factors that any business, especially large multinationals like Tesco should always monitor and take into consideration when running the business. The PEST factors that affect Tesco are: Political – Marketing decisions are strongly influenced by changes in the political environment. Changes such as new legislations put forward by councils and governments, not just in the UK but also in the other thirteen countries that Tesco operates in. One legislation that affects Tesco rather predominantly is planning permission; a law heavily regulated in the UK, and as Tesco has approximately 2.75 million metres of shop space (inc. car parks and stock rooms). Owning so much space and with so many large superstores can make this factor a very difficult one to overcome. Furthermore, to make matters worse for Tesco, in 2004 ‘The Planning and Compulsory Purchase Act” was introduced, with its main aim to listen and work with the public for what they want, along with many strong opposition groups hindering Tescos plans for expansion. Before Tesco enters a new nation, it needs to be aware of any political instability that is happening or has happened in the past, and is likely to affect its trade. The thirteen countries in which Tesco operates are all politically stable and are not in danger of any threats which may lead to its stores getting shut down. Economic – The economy is different worldwide and fluctuates constantly, which makes this factor so complex for large multi-nationals like Tesco to tackle. To maintain maximum profitability
overall, Tesco needs to raise its prices in accordance with inflation rates. If however prices are raised higher than the rate of inflation, customers may be urged to go somewhere else or spend less, and if the prices aren’t raised high enough, they may not compensate with the rate of inflation and decrease the products profit margin. As there are people on different budgets, Tesco tries to accommodate for everyone, which is why over recent years they have introduced many different price-based ranges. In 1999 they targeted people with a little more disposable income by launching their very successful ‘Tesco’s ...
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overall, Tesco needs to raise its prices in accordance with inflation rates. If however prices are raised higher than the rate of inflation, customers may be urged to go somewhere else or spend less, and if the prices aren’t raised high enough, they may not compensate with the rate of inflation and decrease the products profit margin. As there are people on different budgets, Tesco tries to accommodate for everyone, which is why over recent years they have introduced many different price-based ranges. In 1999 they targeted people with a little more disposable income by launching their very successful ‘Tesco’s Finest*” (higher quality) range for those who had a little more disposable income. On the other side, their “Tesco Value” (lower quality) range was introduced in all stores to offer something to the less wealthy on a more basic budget, regardless of the current economy. Their non-food products are more likely to be affected by the economy, seeing as these are generally luxuries, and not needs. People need food, and will therefore always spend money on food, however they won’t go buying clothes and electrical products if there is an economic crisis affecting their budgets. On the other hand, a bad economy could present Tesco with more custom in their non-food markets. People may swap from buying high priced goods with competition to the lower priced goods available in Tesco stores (e.g. People would prefer to buy the hugely popular ‘Tesco’s basic’ £4 jeans than Gaps £40 jeans.) The economy can also strongly affect profit margins and pricing for products sold in Tesco stores, through exchange rates. As currencies are different in different countries, their values fluctuate constantly depending on that countries economy and for Tesco to import certain products into countries it operates in could prove to be either very expensive, or very cost effective. For example, if Tesco wanted to import 2000 mobile phones from Japan for ¥2m to their UK stores, they would have to be bought with the Japanese currency; the Yen (¥JP). This would mean having to trade in ¥2m worth of British Pounds (GB£). If the £ was to fall in value due to bad British economy, Tesco would have to spend more £’s, resulting in the mobile phones costing more. On the other hand, if the £ was to rise in value due to bad Japanese economy (or better British economy), Tesco would be able to spend less £’s to make up the ¥2m, thus reducing cost and increasing profit.Bad economy can lead to high unemployment rates in certain countries, and although unethical, can be easily exploited by multinationals such as Tesco. India for example, has a very high unemployment rate, and because of this, Tesco was able to base its sourcing offices there and pay its 3000+ workers cheaply, to save on wage costs. This does however bring bad publicity to businesses that can result in a loss of custom, so practices (such as the ‘fair trade’ initiative) have been put in place with certain businesses to benefit the Indian workers, paying a reasonable price for the service they offer.Social – What people buy, and where people go are based upon social factors. One attribute that everyone has seemed to adopt over the last few years is that of convenience, due to the fact that lifestyles are becoming much more hectic and people having less spare time for things such as shopping. Tesco have done a great job over the past few years through expansion with Tesco stores such as ‘Tesco Express’ and ‘Tesco Metro’ opening at petrol stations and in city/town centres, along with many more superstores and ‘Tesco Extra’ stores opening. This brings the shops closer to the customer, increasing the chances of them shopping there over competitors. As stated by Tesco on their corporate homepage, over 2100 stores in the UK (many open 24hrs) are now open, with many more on the way!Companies such as Tesco have to be constantly aware of changes in current trends to keep up with customer demand and competition. Such trends can come about due to strong media coverage. Tesco launched its ‘Healthy Living’ range of healthier foods and a Healthy Living Club for customers six years ago, because around the 1970’s and 80’s people have become more aware of their health due to media coverage and government persuasion to live healthier lifestyles.Tesco is located in many different countries, and those countries have different laws and ways of life, meaning Tesco will have to accommodate for these differences in the different parts of the world. For example, Tesco in the UK does not sell halal meat, as the percentage of Muslims in the country is so low, however in Turkey an astounding 98.8% of the total population worships Islam, and for that reason Tesco will sell a lot of halal meat and very little alcohol, to accommodate for the majority of the country.Technological – In a world rapidly evolving with technology, not just businesses but every person in the modern world have had their lives influenced by technological advances. For such large businesses as Tesco, new technologies can hold the key to a much more efficiently, simpler and productive way of running such a large company. This technology can come in many different ways, from online shopping, to robots (in manufacturing), to Tesco Clubcards.Tesco started out selling online and by catalogue with their service ‘Tesco Direct’; which was offered to everyone throughout the UK in their own homes. Tesco Direct started out rather low-key, offering only 8000 products online, and 1500 by catalogue, which has speedily expanded and now offers over 11,000 products online and 7000 by catalogue. This expansion is due to the increasing popularity in online shopping, with people choosing convenience, and their enhanced trust in giving out credit card details over going out in their car for the weekly shop. The internet and online shopping is one of the largest technological advances in the world, which makes it vital for Tesco to do well in this sector, mainly done through marketing, and Tesco spend approximately £20m per annum on Tesco Direct – well worth it to say Tesco have just announced a turnover of little under £180m; making Tesco the worlds biggest internet grocer.Complex information technology (IT) incorporating state of the art management and communication systems are also in place throughout Tesco stores and offices globally, making store and stock management much more straightforward. Tesco have the option of self-serve checkouts, reducing the need for counter staff and significantly improved their E-commerce (Tesco.com).Tesco also offers a loyalty card scheme (The Tesco Clubcard) – which uses highly sophisticated information gathering technology in order to find out information about customers and buying trends. The Tesco Clubcard is explained in further detail under the ‘Market Research’ section.
