Early in 1996 the supermarket giant Tesco bought over the complete Stewarts / Crazy Prices group for an investment of £641 million. By 24th November 1996 Crazy Prices, Abbeycentre had been converted to Tesco, Abbeycentre after several other branches including Carrickfergus had undergone the same changeover earlier on in the year. Although many of the objectives of the company remain the same there are noticeable changes that have occurred within the company as a whole. I will not be focusing on the past ‘Crazy Prices / Stewarts / West Side Stores’ supermarkets therefore as all of my research has been based around the newer Tesco developments
Analyzing Marketing Opportunities
When devising a market strategy for any organization it is vital that all the marketing opportunities have been fully identified and evaluated When identifying opportunities within the market it is important that the organization looks at the environmental issues mainly concerning political, economic, social and technical / natural issues involved. In order to do this it is necessary to firstly define the market through assessing the sociocultural environment involving the customers and consumers of the market and assessing the environment by looking current market needs of its consumers
Sociocultural Environment
The main importance of any organisation within a certain market is its customer base. The customers are the people who actually go to the business and pay for the services or products desired. Consumers are people who, once the product has been purchased, use or consume it. Because of this consumers are also very important within the market because they usually have influence over what the customer of the business purchases.
When looking at potential customers for the company it is important to identify what types of customer are going to do business with the firm. This can depend on a number of different aspects including the location of the customers, background and current working status. People can be split down into three different categories:[1]
- YAPS – Young Aspiring Professionals
- YUPPIES – Young Upwardly Progressing Professionals
- MUPPETS – Mature Urban Professional Parents
Tesco needs to identify these different types of potential customers. There are many different customers who would shop within the store including married, single, parents, etc. This will be looked at in greater depth when targeting the customers and their needs.
Political and Legal Environment
Examining the Political and Environmental issues when analyzing opportunities within the market is vital in any organization. It is important to determine the effects on the organization of existing and future legislation taking into consideration the effects that would come about through the change of a new government. With the continuation of the European Union it is also vital to look at the possible restrictions imposed through the single market.
The responsibilities of national governments cover areas such as contract law for the organizations in the market, consumer protection including warranties and guarantees, financial legislation, competition within the market, trading practices, and conservation and recycling.
Within any Tesco store all the products on the shelves are guaranteed to bring total consumer satisfaction to the customer. If however there are products purchased that have not been satisfactory it is the company’s policy to replace or refund that item. Their policy of refund and replacement with their own brands includes the customer not even having to bring in the original receipt as all staff are instructed to immediately refund or replace the product for the customer showing a certain amount of trust towards the customer.
Tesco has to be very careful to comply to laws in relation with competition within the retailing market. All their advertisements must comply to all the regulations set down by the government just as their numerous competitors must including mainly Sainsbury, Safeway and Iceland in Northern Ireland.
When purchasing the Stewarts / Crazy Prices group in Northern Ireland this gave the company a good head start but at the same time they must still observe the trading practices that the Stewarts group had to follow for the last number of years. Some of these trading restrictions are new to Tesco such as the restrictions that were initially held on selling alcohol within the store which must be kept as a separate area if available in the same food hall. Therefore many of the Stewarts World of Wine retail outlets have been kept by Tesco although it is uncertain as to whether the company will sell or keep these branches in the near future.
Tesco currently has an Environmental Policy in place which aims to provide the needs of their customers today without jeopardizing the environment for the future at the same time complying with the laws and regulations set down by the government.
Economic and Competitive Environment
There are four main types of competitors that exist within the economic environment. These consist of desire competitors, generic competitors, form competitors and brand competitors.[2] When looking at the competitive forces that exist within an economic environment it is important to look at Professor Michael Porter’s model of competitive strategy.
When looking at the competitive forces that exist within an economic environment it is important to look at Professor Michael Porter’s model of competitive strategy. This consists of the looking at the following areas: The threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat from substitute products / services and the existing rivalry between firms which has been fierce in the last number of years within the supermarket industry.
Technological Environment
The technological environment has had a very strong influence on most businesses with no exception to the supermarket industry. Because of computer technology, POS (Point Of Sales) terminals have been implemented in the last number of years. The new Electronic Point Of Sales scanning project for Tesco were developed towards the end of the 1970s and the first computerized checkouts started to appear in branched across the UK in 1982.
The system has been involved with faster scanning of products rather than the older method of physically entering in prices manually, feeding information on price changes, etc. all integrated with head office. The improvements have enabled Tesco to keep a closer eye on the overall stock sales, improve speed and efficiency of the service at the end of the day benefiting both the consumer and the business.
Selecting Target Markets
The whole process of selecting the target markets can be split down into Segmenting, Targeting, Evaluating and Positioning (STEP). The whole idea of identifying the target market is to allow the business to determine the needs and wants of its consumers in order to satisfy them meeting the profit goals of the firm.
We shall firstly look at how to segment the market in order to identify the consumers of the market. There are three main ways to define customers when recording information for the research. Geographically, Demographic and Geo-demographic. Geographically is according to the location of the person whereby Demographic looks at information on the persons age, sex, race, income, etc, and Geo-demographic consists of more detailed records stored through higher technological methods.
Therefore it is vital that the organization can identify the needs and wants of its customers and fulfil these needs accordingly. All consumers have different needs and wants and it is not always possible to please all the people at all times.
Tesco has tried to cater for most people not only through product sales, but services offered to their customers while shopping in their stores. There are various services available such as crèches, baby trolleys, grocery packing (for elderly people), baby rooms, etc. For any suggestions or feedback from customers, Tesco customer services deal with all comments
Another way of finding out more about their customers, Tesco would conduct in-store customer surveys. This is done to try and obtain information on age, sex, social class, household size and structure, frequency of shopping in Tesco, travel, amount they would spend in store and lastly the payment method. This helps to identify and focus more on local customers, which is very important to all Tesco stores.
By catering with a wider range of products for a huge range of people with different attitudes towards health and food the company can meet the needs of most customers. Tesco has many leaflets containing information for ‘Healthy Eating for the Elderly’, ‘Animal Welfare’, ‘Tesco against Animal Testing’ and lots more. By creating the image of caring for peoples perceptions can lead to more business within the organization.
It is important to consider the buying behavior of customers in relation to the business. The behavior of a customer can vary through many different factors including familiarity to product, shop, expertise on product, etc.
Tesco have been involved with conducting a range of both qualitative and quantitative research to determine customer behavior concerned with loyalty to the company and the overall company image. A way of determining the company’s image and perception to it’s customers, Tesco has looked at other retailers in different areas concerning themselves with the various strengths and weaknesses of the retailers. Research may often be conducted when a store is planning to open in a certain area, however this research is on going and continues even after the store is open.
When the market segment opportunities have been looked at the company must then target the segments. There are three main approaches that can be used. These include[3]:
- Undifferentiated Strategy
- Differentiated Strategy
- Concentration
Undifferentiated approach assumes the market is one unit with no significant differences between individuals within the market. Therefore a single marketing mix is required which serves the needs of the entire market.
Differentiated approach however involves the development of a number of individual marketing mixes, each serving a different segment. This is the strategy that Tesco has had to implement in order to keep it’s customer satisfaction and loyalty. It has done this through introducing a vast range of different products and services to suit each individuals needs by identifying their customer base as mentioned earlier through surveys and other research. Finally the concentrated approach is the most focused because it involves specializing in serving one specific segment.
When evaluating the strategy to be implemented it is important to take into consideration the costs endured, the effect in the overall company’s revenue and whether or not the strategy will effect organizational growth in the nearby future. From this it is then decided as to whether or not the organization will proceed with the chosen strategy stated above. Once decided to accept the strategy the product has to be positioned correctly. Product Positioning can be defined as ‘The way a product / service is defined by the consumers on important attributes relative to competing products / services.’ The decision of correctly positioning the product could affect the overall product life and resilience to the market over a period of time.
The actual positioning process can be broken down into 3 main stages[4]:
- Identifying competitive advantages on which to build a position
- Select appropriate competitive advantage
- Effectively communicate, advertise and deliver the final chose concept
Products and Services
‘A product is a physical good, service, idea, person or place that is capable of offering tangible and intangible attributes that individuals or organizations regard as so necessarily, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value in order to acquire it.’[5]
A product can be split down into four main areas:
- Core product
- Tangible product
- Augmented product
- Potential product
The core product represents the heart of the product, i.e. the main reason for it’s existence and why it would be purchased by a consumer. The main reason for Tesco’s existence is to supply a wide range of goods to the consumer at a competitive price all under the same roof at shopping hours that would meet the needs of most customers. The tangible product is the actual product that can be seen and touched by the consumer. Tesco is involved with supplying a vast amount of different products to the consumer. These different products can be split into different departments within the company:
- Foodhall
- Dairy Department
- Produce (Fruit and Veg)
- Butchery Department
- Fish Department
- Hardware Department
- Bakery Department
- Frozen Foods
- Provisions Department
The augmented product consists of additions to ensure sale of or increase value of product, e.g. warranties, after sales support, etc. Tesco offer many high quality products that are guaranteed to bring total satisfaction to the consumer and if not, the company will offer a refund or replacement at the customers discretion. Finally, the potential product highlights what is to become of it in the future. Most products bought from Tesco would be short-term perishable goods with no real future unless it is a hardware or durable item.
Product Classification
Product classification is important when examining products within a market environment in order to group products that have similar characteristics or generate similar buying behavior into different categories. Products can be split down into three main areas. Durable products, non-durable products and service products.
Durable products are goods that can be re-used. Within Tesco the hardware department contains a wide variety of durable goods including electrical goods, music tapes and CDs, gardening equipment in the summer seasons, increased selection of toys in the winter, etc. Although most sales revenue generated through the supermarket is for non-durable consumables a large percentage of sales can be accounted for in the non-food hall (Hardware) departments.
Non-durable products can consist of mainly goods that can only be used once or twice before having to be replaced including food, office consumables and stationary. Tesco main sales comes from it’s food hall including dairy products, fruit and vegetables, bakery, butchery, fish and hot food departments. Other non-durable products could include household products such as tinfoil, kitchen towels, dish cloths, etc.
Finally service products comprise of activities, benefits or satisfactions that are sold to the customer, but are not physical goods. Examples of services are holidays, Internet subscriptions, personal services, etc. Tesco, Abbeycentre and most other branches has a crèche service available to all customers at no cost and also facilities for mothers. Services offered to staff could include pension schemes, profit sharing schemes, etc.
A product manager is required within an organization to follow tasks including the development of competitive strategies and plans consistent with the company’s objectives.
They must also product annual marketing plans, forecasts and budgets and design and develop support strategies for the sales and distribution team. Finally they must gather primary and secondary data on a product, market and competitors and manage the product in terms of innovation, modification and deletion.
It is vital that the product manager is involved and correctly carrying out their tasks in order to ensure the products are sold in the most efficient manner to ensure maximizing profits.
Price
A price is a value or a sum of money of which a supplier of a product or service and a buyer agree to carry out an exchange transaction.[6]
Cost is the floor below which the price of a new product cannot fall, at least in the long run in order for a firm to survive. (Hisrich & Peters).
There are four main types of price:
- Economic Price – Profitable to produce and sell a good
- Opportunity Price – Price people are prepared to make a money sacrifice
- Psychological Price – Attracts buyers for some special reason, i.e. esteem value, good buy, etc.
- Market Price – Price people expect to pay for purchase
The impact of costs on pricing consists of the ration of fixed assets to variable costs, the economies of scale available to the firm and the cost structure in relation to those of competitors.
There are many objectives when concerned with price making. I have listed several below which in turn relate directly to Tesco:
Generate Value for Money image
The overall image of Tesco has tried to portray high quality goods at a very competitive price.
Growth
The overall expansion of the organization can be determined through the correct pricing policies in place ensuring maximum profits with more investment for the future.
Be considered trustworthy by their competitors
It is quite important that an organization can be trusted by it’s competitors in order to reduce loosing revenue over a price war. However in the supermarket industry this is not usually the case as competition is quite fierce between many of the top sellers including Safeway, Sainsbury and Tesco.
Discourage New Entrants
In order to reduce the chance of other entrants coming into the market, the prices within the supermarket industry are usually kept extremely low creating a barrier of entry to any new company wishing to enter.
When it comes to methods of pricing an organization can employ either Cost-based methods or Market-based methods. Cost based methods are mainly employed by organizations because they look scientific, logical and are based on fact. These can include:
- Cost Plus – Selling price for a unit of a product equal to total cost and amount to cover anticipated profit on the unit
- Break-even analysis – involves developing tables and charts to help the organization what level of output revenues will equal costs.
Place
In 1997 Tesco had 75 stores in place in the Republic of Ireland, 103 in France, 43 in Hungary, 31 in Poland, 6 in Czech Republic, 7 in Slovakia and 568 in the UK comprising 490 superstores, 42 metro stores, 22 express stores, 2 pharmacies and 12 home and wear stores.
During 1997 Tesco bought over the complete Stewarts / Crazy Prices group for an investment of £641 million. Before buying out the group, Tesco had to be sure they were going to receive a return in their investment and therefore conducted a vast amount of research into the opportunities within Northern Ireland. This buyout has therefore added greatly to the above figures mentioned including all the Northern Ireland stores, Stewarts, Crazy Prices, West Side Stores, Bloomfields and Quinnsworth in the Republic.
When Tesco began to move into Northern Ireland last year, it open four branches in the province. The first store to become Tesco in Northern Ireland was in the Belmont Road, which was a former Stewarts branch closed in 1996 due to sales decrease. £ other followed including Abbeycentre, in the following weeks. Even today more stores are continuing to open across Ireland.
Internal Layout of the Stores
Store layouts are vitally important within any supermarket. Layouts effect the way customers move around the supermarket therefore effecting the overall profits made through sales. There are three main types of store layout that are most common to today’s retail outlets. These include:
- The Grid Layout – Adopted by most supermarkets including Tesco, systematically arranging aisles. These lead the customer around the shop in a predictable route covering most of the store. Tesco and other supermarkets try to prevent the customer taking short cuts through spreading out essential items normally bought together across the store.
- The Free Flow Layout – More irregular, variety of different sized displays, and heights, etc. Customers can take any route looking at everything or only certain things.
- Boutique – Free flow layout, however the customer perceives selling area many small spaces unlike the free flow layout above which gives total impression as one single selling space. Can be used to separate different departments giving them their own unique character.
Displays are also vitally important within a supermarket environment. There are different types of display, which mostly include the following:
- Open display – makes goods easily accessible
- Theme display – creates focal point to attract customers attention
- Life-style display – Creates a more natural setting for the product
- Co-ordinated display – similar to lifestyle and theme bringing together related goods
- Classification dominance display – aims to suggest specialisation and expertise
Tesco has used most of these displays shown above for different products available within the store.
Promotion
Tesco promotes itself usually through the use of advertising. The company suggests there are three main reasons for them to advertise.
- To communicate the changes that Tesco has undergone and to reflect the character of the company as it is now
- To communicate the on-going value-for-money available to Tesco
- To support special promotions
From these tasks Tesco has split their advertising into three main areas:
- Image Advertising – Showing the effort that Tesco makes to find the best quality products. Also that things other than goods are important such as environmental and health issues.
- Price Advertising – Reflecting ‘Value for Money’ usually on the television, national and local press.
- Special Promotions – Advertising special promotions such as the current ‘Computers for Schools’, informing people of the promotion.
When deciding whether to advertise in the press, TV or posters, different tasks are allocated to each:
Television Advertising
This has the highest impact and allows the advertiser to reach a large number of people. Therefore the press and posters can be used as support of the advertisement on TV. The purpose is to quickly bring perceptions of Tesco in line with the stores and product offers as well as the current offers / promotion.
Press Advertising
The Press is a more ‘considered’ medium and allows for more information to be brought across. E.g. 3 items may be advertised on television to the equivalent of 9 in the Press.
Posters
Usually seen by a large number of people and try to convey one simple message as this is a much as people can take in. It is difficult to stand out in the press therefore posters are used more often.
In my opinion I believe that this is the best method of allocating possible advertising materials to different mediums available to the company. From the advertising, Tesco must therefore measure the result as to how successful the advertisement was and this can be done through a number of different techniques.
The simplest way to measure is to look at the success of one particular product, however the most accurate way is through research by conducting surveys, etc.
Many of the product promotions available within Tesco include hundreds of multi save, link save, and special offer monthly promotions available in every store.
Another method of promotion within Tesco, which has certainly taken off in the last few years since it’s launch in 1995 is the Tesco Club Card. Not only has it helped increase sales within the company but because each member has to submit information about themselves, has allowed Tesco gain a greater understanding of their overall customer base. Information gained through this promotion could involve amount of vegetarians, single / married people, background, etc.
The Promotional Mix
There are many factors for consideration when looking at the promotional mix. These include the following:
- Market size and segmentation
- Correlation with product life cycle stage
- Product / service complexity
- Level of service
- Competitors promotional mix
- Budget
- Corporate objectives and culture
There are promotional strategies that including the Push and Pull Strategy. These are mainly used to control the overall flow of products and communications within the business organization.
Conclusion
I believe that Tesco has taken the correct approach to marketing in the UK, Ireland and Europe. It has demonstrated the ability to remain the number one supermarket retail chain in the UK and profits have increased in Abbeycentre and I am sure many other branches that were formally Crazy Prices.
I have hopefully outlined the most important areas of the company’s marketing strategy within this essay. I would have liked to go into greater depth in some of the areas, but unfortunately I had to cut out a lot of sections in order to keep the essay to the required length.
References
- Frances Brassington, Principles of Marketing, Pitman Publishing, 1997
- Marsaili Cameron, Marketing, Penguin, 1988
- Robert Heller, The Supermarketers, Sidgwick, 1987
- John Saunders, The Marketing Initiative, Prentice Hall, 1994
- Frank Jefkins, Public Relations for Marketing Management, Macmillan, 1983
- Tesco Student Pack, 1997
- Tesco Environmental Policy, 1997
