Tesco's various marketing strategies and activities
Introduction
Sir Jack Cohen, who used his gratuity from his army service in the First World War, to start selling groceries in London's East End in 1919, founded Tesco in 1924. The first Tesco store was opened in 1929 in Burnt Oak, Edgware, London. From then on, Tesco has developed and took every opportunity to grow bigger and expand in the mainstream, responding to new opportunities and pioneering many innovations, to become one of the largest food retailers in the world, operating 2318 stores and employing 32600 people. The UK in the company's core market, where there're 1878 stores across the country, operating under four banners: Extra, Superstore, Metro and Express. Within this report, we shall try to explore the marketing policies and / or activities, which contributed toward Tesco's success.
PRINCIPLES OF MARKETING
There are 5 main principles of marketing. They are:
* Understanding customer needs.
* Co-ordinating functions to achieve marketing aims.
* Adopting a marketing approach.
* Effective customer communications.
* Constraints.
Understanding customer needs
Low prices, but nevertheless quality products, are what we, as customers want from the retailers. And Tesco has always understood ours needs, as well as identified it as a way to attract potential customers. 'Tesco' approach - 'To create value for our customers, to earn their life time loyalty.' Its two values are: 'No-one tries harder than we do for our customers', 'we treat people the way we like to be treated'1 are the evidences of how Tesco try to understand the customer needs as well as meeting their requirements. Their four Ps of their marketing mix2 is another good demonstration of it:
* PRODUCT:
All marketing begins with a product. But what's Tesco's product? Is it what they stock on their shelves? Is it the convenience of buying everything under one roof? Tesco is broadening their product, too. From mince to mortgages, in today's Tesco you can buy a whole life's worth of products!
* PRICE:
Tesco began in the 1920s selling groceries to poor people in London's east end. "Pile it high and sell it cheap" was the slogan of Tesco's founder, Jack Cohen. And price is still a big factor in its marketing pitch - though many of the items on its shelves aren't, in reality, all that cheap.
* PLACE:
Tesco's first supermarkets dominated the high street. Then they moved
out. Then they moved back in again. Now there is whole range of different types of Tesco - Tesco Extra, Metro Tesco, and Tesco Express - and they're everywhere. Tesco's aim is to get the right goods to the right customers, using a mass of research to do it.
* PROMOTION:
Tesco adverts starring Prunella Scales and Jane Horrocks are the most visible way Tesco promotes itself. But one of its most important promotional tools is its clubcard. Over 80 per cent of sales at Tesco are made using a clubcard - and since its launch, Tesco has given out over one billion pounds-worth of vouchers.
Tesco said its then new cuts would lower the price of a typical shopping basket by 11% for a pensioner, 9% for a young family and 12% for a student. Those further so look-alike 'saving' would add to price reductions totalling £411 that already made since February.3 However, some analysts did question whether the price cut was more of a marketing ploy rather than a genuine effort to reduce prices across the board. Whatever it is, it'd work on the customers as we only see what on the surface.
Co-ordinating functions to achieve marketing aims
Tesco's marketing work with a talented and effective agency team, which has shown adaptability, innovative marketing ideas over the years. This helps the company continues the remarkable feat of presenting itself to its customers in a way that makes them feel like individuals, under the theme of 'every little helps', belying its status as a retail behemoth. Tesco also managed to inspire and motivate the marketing team that not only shares brand guardianship but also is allowed to work in an atmosphere of mutual trust and respect.
It has proved a potent combination, which has seen Tesco over-taking Sainsbury's to become the market leader in the food-retailing industry. Bear in mind, Tesco was seen a second-rank player behind Sainsbury's just some 15 years ago. But now, Tesco accounts for £1 of every £8 spent in UK shops.4
Adopting a marketing approach
5
Tesco adopts the customer-oriented approach in terms of marketing, since the company was known for its customer focus. Tesco says, "Every little helps", and it really means it and the consumers love it. Analysis and sales data of the company has shown that in years of recession, customers will be very price sensitive. Thus, Tesco launched its own lower-priced private label goods. The executives at Tesco headed by Terry Leahy are not afraid to act even if it goes against the norms. In 1994, Tesco started "One in Front" policy by ...
This is a preview of the whole essay
Adopting a marketing approach
5
Tesco adopts the customer-oriented approach in terms of marketing, since the company was known for its customer focus. Tesco says, "Every little helps", and it really means it and the consumers love it. Analysis and sales data of the company has shown that in years of recession, customers will be very price sensitive. Thus, Tesco launched its own lower-priced private label goods. The executives at Tesco headed by Terry Leahy are not afraid to act even if it goes against the norms. In 1994, Tesco started "One in Front" policy by opening a new checkout counter whenever the line size exceeded two customers. Tesco knew that customers get very agitated if they wait in line for too long and this may cause some people to abandon their shopping carts. "One in Front" increased labour cost that runs by the millions but customers love this. The result was a dramatic growth in market share.
Tesco has been primarily a food retailer where in a mature market that has grown little for the past 20 years; Tesco has grown slowly but surely. That it is already a testament to consumer attraction. The only route to growth in a mature market such as retailing is by taking market shares from the competitors, and Tesco has achieved this by replacing Sainsbury's as the leading food-retailer in the UK in 1995. Listening, observing and serving their customers better than the competitors also helped the achievement. And today, the growing business has made the Tesco more confident about global expansion. This international drive has taken Tesco into Thailand, Korea, Taiwan and recently Malaysia as well as Hungary, Poland, the Czech Republic and Slovakia.
* Loyalty cards - The Tesco Clubcard
In 1995 Tesco became the first supermarket to introduce a company loyalty card, an idea developed by the then Deputy Managing Director, Terry Leahy, who now is the Tesco Chief Executive. Since then, Tesco has been running promotions base on the Clubcard, in addition to the Clubcard 1 point / £1 spending, the most recent ones including in 2003, the 'Clubcard Keys' scheme, where customers earn a key for every £25 spent on a single transaction at Tesco stores. Over a one-year period if a customer earns more than 50 keys, he/she would then qualify as a 'Keyholder', which entitles him or her to a 50% discount on Clubcard Deals. Any customer earning 100 keys or more qualifies for a massive 75% discount on Clubcard items.
However, the Clubcard only generates 1 penny for most of the customers for every £1 spent. In return, customers willingly hand over their addresses and other detailed personal information. The information is not only useful to the supermarket, but can be sold on as a valuable commodity to other marketers. And being able to monitor customer's purchases also allows Tesco to tailor make their marketing strategy to the individual. Tesco essentially splits its customers into 27 different categories depending on how, when and why customers spend they money. Once categories, Tesco then targeted customers specifically as potential buyers to various items. Once again, sales are expected to go up this way.
* Cultivating Customer Loyalty
One of the other things Tesco empathises in its marketing is to stay ahead of its competitors. Being the first supermarket to introduce a company loyalty card in 1995, as it tried to keep its customer base. How do you keep customers coming back? How do you create fiercely loyal customers who will turn a blind eye to your competitors? Tesco was doing this was offering its customers something special, something that showing they appreciation to the customers, by giving rewards to them. It might not be a big reward but as Tesco says 'every little helps', and more importantly, customers liked the idea. This loyalty card program later transformed into an invaluable tool for customer relationship management. The initiative was followed by other grocery stores such as Sainsbury's and Asda soon after. In the years that followed most loyalty schemes were deemed unsuccessful and were replaced by others - such as Sainsbury's loyalty card- but Tesco has maintained and strengthened their initial scheme. In fact, it can be said that it was Tesco's Clubcard that accounted for the company's becoming No 1 grocery retailer.
The introduction of the program also shows that Tesco understands the market, as research studies shows that it costs seven times as much to find a new customer as to retain one, and so Tesco explored all possible methods to maximising its customer base, the Clubcard being one of the most innovative and successful one.
This is just one of the many examples on how Tesco marketing itself, showing beneficial its customers, but at the same time, makes more benefits for itself.
Effective customer communications
In marketing, there needs to be effective lines of communication between both the company and its customers. Tesco does this by listening to what customers need and what they think about their products/services, this is done via several different methods, such as postal questionnaires and on line surveys, the information obtained enables Tesco to knowing what the customers want. It then communicates to the customer through advertising, sales promotions etc, aiming at a specific target market, giving consumers the information on buying their products:
* That the product exists.
* Where it can be bought.
* Details about the product/service itself, as well as its price and features. Austen
But sometimes there can be a problem with making sure effective communication takes place, for example other consumer's opinions, and critics and reviewers etc. Companies must also be aware that any impartial advice given to customers by the media or other agencies can support or damage its own marketing communications.
Constraints
Tesco sees that customers often want what it can be out of reach for the company to provide. However Tesco has always tried to meet the different requirements that customers have by responding to the following problems raised, or foreseeing the problems over the years:
* High quality goods and services.
There's not much hard evident on this section but surely Tesco's is up there with the best, since it has a market share of 12.5% in the retail industry in the UK and is still growing day by day. With all the regular shopper and new customers walk into Tesco store almost every second of the day, without providing a high quality goods and services, seems like virtually impossible.
* Low prices.
As Tesco is so large and successful it can afford to cut prices to a much larger extent than many of its rivals - for example in 2000, when there was a general price deflation in groceries of 2%-3%, Tesco deflation was nearly 4%.6 This just shows how determined Tesco is on stamping down prices when necessary to stay competitive, with the power it holds to do so.
Here is another good example showing Tesco relatively low prices - 'Just before Christmas, a large leisure company went shopping for 1000 televisions. As a substantial buyer, offering cash, it approached a manufacturer direct for a deal. The price quoted, per unit, was around £10 more than the sets were being sold for in Tesco.'7 The mechanics of oligopoly / oligopsony trading ensures that the super giants can secure low prices and exclusive deals with their suppliers.
Being able to offer their customers low prices, sometimes even lower prices that wholesale prices, is another sales advantage, which attract more buyers.
* Choice.
Tesco offers variety of choices in their grocery stores. It introduced the healthy living range in 1985, which became a welcome option for those people who'd like to look after their bodies, conscious on what they eat, especially it was done shortly after the government recommended that we should take steps to improve our diet by cutting down on fat and eating more fibre. And 20 years on, the Tesco commitment to Healthy Eating is stills the same, if not strong than ever.
Some of the Tesco's grocery product also gives consumers the chance choose from its own labelled Tesco Value - for those on a budget, to Tesco finest - for those wanting something special. Where the difference in prices reflects different level of the packaging of the product and their qualities.
* Efficient and convenient distribution.
Tesco.com was launched in 2000, which provides on on-line shopping system to everyone, where people can order what they wanted on the internet, placing an order and the products will be delivered to their doors. Normally delivery can be expected within 24 hours after the orders are placed.
Tesco's successful online shopping started off falteringly as an e-mail ordering system with a crude web site. That was long before the dotcom boom. Tesco just wanted to serve its customers better and by learning from its mistakes through various innovations, trials and errors, in the end resulted in an e-retailing template that became an International Standard. The company is one of the most successful "Clicks-and-Bricks" models present today. Tesco have physical stores and at the same time it is harnessing the power of online shopping for boosting sales and increasing profits.
Physical stores will not disappear and e-retailing will still continue to grow. The possibility of conjuring what was impossible yesterday is magnanimous. Consumers today rely on malls and supermarkets for their social and entertainment purposes, much the same way as restaurants supplement dining at home. The bottom line is that consumers want to shop when it is convenient for them. It is now the buyers market and not the sellers market like before. Retailers who are complacent and not refine their customer relationship pattern would pay the price of losing their market share in a flash. Consumers are becoming more sophisticated. They want to get product information, learn more about the company, ask questions, research warranties, understand return policies and buy the products whether it's six o'clock in the morning or midnight.
Tesco have since introduced other non-food products and services to the website, to form the Tescosuperstore in the virtual world.
* Imaginatively presented, detailed information about the products.
* The latest technology.
Innovative Activities
* History
Tesco's history is rich in innovative activities. It was one of the first food retailers to develop a "superstore" in the UK, it was the first to launch a cut-price policy, it was also the first to introduce the card loyalty scheme (see above) and the first as well to add financial services to it and finally it was the first to launch electronic shopping in the mid-1990's. (See above) All those activities were important to the company, in terms of marketing itself, since all were first to be done, Tesco lived up with the potential risks of all those actions but have enjoyed the benefit more. Such innovations all had their impacts on increasing the company's profile, volume of sales market etc.
* Different store concepts
Tesco have opened four different type of stores under operates under those banners; this is to suit all the customer needs so there's something suitable for everyone.
Metro
Tesco first opened metro in 1992. They sell a wide range of quality products and luxury goods, to meet the needs of people at work and those who prefer to shop in the town centre.
Express
Tesco first introduced Tesco express stores in 1994. Tesco express is a combination of a filling station and retail sites. They sell quality Tesco goods at low prices for people who want to pick up a bit of shopping as they put in some petrol.
Extra
Tesco extra is the newest and largest store format. The first Tesco extra was opened in Essex in June 1997. The ranges of goods sold vary from household goods to clothes. They have also added food courts for in-store and take away dinners. They attract customers who are at work during the day and prefer do their shopping at night.
This store concept followed after Tesco executives look to the 'street corner' strategy, as the key to continued growth in core UK sales.
Superstore
Tesco's superstores stocks highly diversified merchandise, such as groceries, books, CDs, electronics, and everything else that any other Tesco would have, in specific product lines. Those stores offer customers not just only the groceries, where it's made its name from, but also sell other non-food items and services as Tesco have expanded its market interests.
* Retailtainment
On average, Britons spend around 3% of their waking lives in supermarkets. So has Tesco been fast to realise that it pays to make them more fun. Lighting, ambience and presentation all mix to convince shoppers they are having a good time.
Tesco's latest innovation is in-store TV advertising for products, sold through advertisers JC Descaux. Adverts for products are blasted at consumers in the form of recipes and helpful suggestions. TV advertising is available in Tesco's 300 largest stores. Since 70% of the purchase decisions are apparently made in store, this gets consumers where they are most vulnerable or suggestible.
Tesco is also planning on introducing multi-function trolleys in the near future. The trolley will have simple DVD and Music players on them, to keep the children entertained while they were shopping with their parents in Tesco stores.
This latest innovations by Tesco are surely to play big roles in its marketing campaign over the next few years, in terms of keeping old customers loyal, as well as attracting new customer base.
Tesco's Business Strategy
* Strong UK core business:
The UK remains Tesco's core market with 1,878 stores. Tesco's strategy of providing customers with exceptional value and choice continues to drive its own growth.
This has been show and demonstrated in the earlier part of the report.
* Non-Food:
Tesco non-food business is becoming more popular with customers as it grows, both in the UK and in our international operations.
Tesco's non-food category includes variety of products, from fashion to photo-lads, pharmacies to electrical goods. Any substantial increase of any of those markets will contributes and increases the company's total profit.
Retailing Services:
As customer lifestyles change Tesco continue to provide new products and services, including Tesco.com, Tesco Personal Finance and Tesco Telecoms etc.
And the developments they have made on this sector have been very significant too. In fiscal 2003 Tesco finance reached the milestone of one million motor insurance policies, making it the fastest growing motor insurance ever. The group's instant travel insurance allows Clubcard holders to buy their holiday insurance at the checkout. This again also showing Tesco's 'every little helps', by providing convenience to their customers at every opportunity. Its life insurance policy was voted The Most Competitive Life Insurance Provider in the MoneyFacts Awards 2003.8 Tesco.com has now become the world's largest e-grocer.
* International:
Tesco now operate 440 stores in 12 international markets. The company employ 326,000 people world-wide, working in 2,318 stores, with total sales of £33.6 billion.
Conclusion
Having looked at Tesco's various marketing strategies and activities, we can see that its UK success has been built on low prices, cultivating customer loyalty, offering a range of a range of store concepts and expanding into retailing services, such as banking and insurance. As Tesco currently hold a 13% share of the UK retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food. So Tesco as a company would not have to rely on its food-sales as much as it does now.
Although Tesco is the biggest player in the UK retailing industry, there are also weaknesses to its company structure as a whole. As the company is still highly dependent on the UK market, where nearly 74% of its revenues of 2003 came from. While this isn't a major weakness in the short term, any unexpected changes in the UK supermarket industry over the next few years for example, like the Morrison's group successfully purchasing the Safeway chain could alter the balance of a UK supermarket power, and affect share.
* Threats
The price followers in the UK market are about to become aggressive investors in price, Safeway because of the new ownership under the Morrison's Group, and Sainsbury because of new management. Morrison is reducing Safeway's prices by up to 6% and Sainsbury is bound to see lower prices as one of the basic changes necessary to drive its recovery. With Tesco being committed to price leadership, this could result in a step down in industry profitability.
www.tesco.com
2 THE MARKETING MIX AT TESCO @ http://ourworld.compuserve.com/homepages/tvchoice/tvc87x.htm
3 How Tesco is Winning Customer Loyalty, 2004, Tim Phillips
4 www.corporatewatch.org.uk/profiles/tesco
5 www.tesco.com
6 www.clarityblue.com
7 www.corporatewatch.org.uk/profiles/tesco
8 Which? Magazine, February 2004.
