Executive Summary

 

The marketing audit report examines and analyzes the various factors and dynamics that impact and influence the business operations and practices of Tesco UK. It studies the range of macro-environment factors that affect the strategic business decisions and the future direction that the company will take. Similarly, the marketing audit report of Tesco also analyzes the micro environment that the company operates in and gauges the significance and the influence of its buyers, suppliers, competitors, and related actors have on the business decisions and profitability of the company. It also looks at the major threats that Tesco faces and examines the opportunities that the management can capitalize on to ensure that the company maintains its market leadership position in the retail industry. The report also examines the key resources, capabilities, strengths, and marketing strategies of the company that play an important role in the creation of competitive advantages for Tesco. Ultimately, the report analyzes the key strategic challenges that the management of Tesco faces and provides some recommendations for addressing those challenges in an effective and efficient manner.

Macro Analysis

Political Factors

The most significant political development is recent years that has the potential to impact the business operations and practices of Tesco UK is the Brexit event. The departure of Britain from the European Union will potentially result in the increment of taxes and duties. This will impact the profitability of the business operations of the company stores located in other European countries. Similarly, Brexit will also influence the cost of procurement for different products that Tesco acquires through imports. Another significant political event was the election. The policies drafted by the Boris Johnson regime will also impact the operations and profitability of the company(BBC, 2019).

Economic Factors

The economic conditions of the country play a critical role in determining the success and growth of any organization operating within its borders. For instance, the global financial crisis of 2008 brought a major downturn in the country’s economy and adversely affected many companies. Similarly, the managerial leadership at Tesco needs to be on the lookout for economic factors resulting from Brexit and other events that can impact organizational performance.

UK GDP Growth (PwC 2019)

Social Factors

The changing social trends and dynamics influence the customers and buyers significantly and, therefore, hold fundamental importance for Tesco. There has been a rise in customer awareness over the recent years regarding climate change. Many customers have become increasingly aware and critical of the practices and materials that go into the products they purchase. Similarly, the UK also reportedly has an ageing population which Tesco will have to cater accordingly to maintain its business performance(Christie, 2017).

Technological Factors

The effective utilization of technological developments is extremely essential for Tesco to ensure an efficient and sustainable business operation. Integrating technology into the supply chain of Tesco can help the company in not only cutting down the cost of operations, but it will also enable Tesco to achieve competitive advantages that are beneficial especially in a competitive sector like retail. Disruptive technologies like E-shopping and android based customer facilitation applications can be utilized to enhance organizational performance and customer satisfaction(Ramaswamy and Ozcan, 2016).

Environmental Factors

Environmental issues like global warming and climate change have attracted increased attention and coverage in the past few years all over the world. Tesco should take effective measures to ensure the implementation of environmentally acceptable business practices and operations in order to comply with the climate change standards. Tesco should also seek to cut down on the levels of energy consumption and greenhouse gases in its stores(King, 2020).

Legal Factors

Tesco, being a multinational retail chain, is affected by many laws and regulations governing its operations in different countries. The management mustalso keep up to date with the different county laws in which the company stores and outlets are located. Non-compliance with such laws and regulations can result in heavy fines and bans which will hamper the company’s operations and profitability.

Micro Analysis

Market

The retail industry in the United Kingdom is one of the most important sectors in the country. The retail sector plays a critical role in the growth and prosperity of the economy of the country. Over the period of last five years, the retail sector has grown at a steady rate of approximately 10 percent. The industry amounted for a total market value of 377 billion pounds last year. Despite the uncertainty surrounding the exodus of the United Kingdom from the European Union and the challenge of online retailing faced by the companies, the retail industry is still expected to grow to approximately 390 billion pounds in 2020.The retail sector is also reported to be the largest employer in the United Kingdom with private sector employment numbers of approximately 3 million workers.(Statista, 2019)

 

The dynamic rise in the trends and practices of internet based technologies and online shopping continues to be a significant opportunity for the retail sector in the country. The growth of mobile and internet based shopping is slated by many analysts to be a key driver behind the rise in E-commerce based purchasing in the coming years. Approximately half of all the retail sales in the United Kingdom are projected to be online by 2028. The companies and businesses, therefore, need to adapt to this emerging dynamic in order to sustain and enhance their business operations in the future.  (Deloitte UK, 2020)

Customers

Tesco categorizes its customer base into different segments on the basis of various dynamicssuch as demographics, social, financial and economic factors, gender, family size, education levels, age, and the cultural and ethnic backgrounds. The target customer segment for Tesco can be identified as buyers seek shopping convenience, low prices, high quality, and a variety of products and services at one place. The implementation of the Tesco Club Card policy is the primary source for the managerial leadership of the company to gain valuable insights regarding the buyers. It enables the management to make informed decisions and draft effective strategies to segment and target the buyers in an efficient manner. (Tesco Plc, 2018)

Competitors

The retail industry in the UK is dominated by four major players, Tesco, Sainsbury ASDA, and Morrisons. The competition in the industry is high as these companies compete fiercely on pricing and market share and incorporate innovative business strategies and technologies to attract new customers to their fold. ASDA occupies the second largest market share after Tesco. It is a subsidiary of Walmart and operates with over 600 retail stores in the country, offering the lowest prices amongst the big four retailers. Sainsbury and Morrisons are the other two major competitors for Tesco, operating with over 1300 and 500 retail stores in the country respectively. Some other retail companies include Aldi, Lidl, and Waitrose.(Statista, 2019)

 

Market share of retail chains in Great Britain from August 2012 to August 2019

Internal Analysis

key resources

Tesco has developed a strong procurement system for its business operations that helps the company in meeting the quality standards that Tesco is known for. A strong procurement system not only helps Tesco in achieving low costs of production, but it also enables the company to attain a competitive advantage that drives it ahead of the competition. The company has also incorporated the use of technology into its supply chain operations and activities. Tesco is amongst the leading retail companies in the country that utilizes RFID technology for supply chain and procurement practices. The management has also implemented various values and principles of lean management in an attempt to reduce waste and improve quality of its products and services(Zhao, 2014).

Key Strategies

One of the most significant business strategies that translates into a major competitive advantage for Tesco is its customer centric approach to business operations and activities. The buyer focused approach has enabled Tesco management to focus exclusively on the needs and wants of local customers. The business strategy has enabled Tesco to drive sales in both its local and foreign markets. Another operational strategy that is critical to the success of Tesco’s business operation is the use of cross docking practices. It has enabled the company cut down on inventory levels, reduce storage costs, and consolidate products in an efficient manner. Similarly, the implementation of Collaborative Planning, Forecasting, and Replenishment (CPFR) concept is also an important business strategy that contributes to business results(Damron et al., 2016).

 Key Tactics

Since Tesco operates in an intensely competitive industry, pricing becomes the most important dynamic that determines the growth and success of the company in the long run. Due to Tesco’s capabilities in procuring quality materials at low costs, the company has been able to offer high quality products and services to its customers at low prices. Tesco is able to edge out its competitors and maintain a market leadership position in the retail sector over the years primarily due to its pricing and product quality. The implementation of effective and efficient employee practices, supply and procurement activities, waste reduction, and technological integration for customer facilitation has enabled Tesco to keep its prices low and attract customers(Palmer, 2005).

TOWS Matrix

While Tesco has benefited from diversifying and expanding its operations and business practices into other geographical locations, it also constitutes one of the major threats to its operation. The variation in exchange rates and recent uncertainty surrounding Britain’s proposed departure from the EU are primary threats to Tesco. The intense competition that the company faces within the country is also a major threat to Tesco. The rise in the use of internet and E-commerce is a major opportunity for Tesco to attract more buyers by capitalizing on such trends. Tesco can also increase the number of organic products it offers and implement more eco friendly business practices in order to appeal to this segment of the customer base effectively. Incorporating disruptive technologies into its business operations can also enable Tesco to strengthen its market standing even further.

One of the biggest weaknesses of Tesco is that the company operates in the highly saturated retail market which translates into lower margins. Due to its low pricing strategy, it can result in significantly decreased profits for the company. The accounting scandal of 2017 also poses a significant weakness for Tesco as the company was heavily fined for false profit declaration(Kukreja and Gupta, 2012). The biggest strengths for Tesco are its highly effective and efficient procurement and sourcing systems, waste reduction and inventory management practices, and the development of a diversified business operation. The low pricing, high quality standards, customer focus business approach, and technological integration also constitute its major strengths and make Tesco the leading retail chain in UK(Ahlert et al., 2009).

Strategic Challenges

The biggest strategic challenge that Tesco faces is failing to maintain a coherent and an engaging connection with its customers. It will result in an unsatisfactory shopping experience for the buyers and the company will eventually lose its market share in such a scenario. The achievement of transformation and technological implementation targets in an effective and efficient manner is also a significant strategic challenge for Tesco. The continued development and enhancement of buyer trust, brandreputation and good will along with the creation of effective strategies for tackling increasing competition in the sector are some fundamental strategic challenges for Tesco management. Similarly, the failure to utilize the dynamic technological trends, failure to protect sensitive customer data and information gathered through its mobile applications, and failure to attract and facilitate the right people are other substantial strategic challenges for the business. (Tesco Plc, 2018)

 

Recommendations

 

• The managerial leadership at Tesco should focus on the creation effective and attractive customer propositions should enable the company to attract more buyers to its stores.
• Market research should be carried out in order to develop customer segments and understand the needs and wants of the buyers in a better way.
• Proper transformation objectives and monitoring mechanisms should be established in order to ensure that the company is able to attain its business goals.
• The management of Tesco should develop a mechanism to closely observe the various factors that affect and influence the purchase decisions of the buyers.
• Tesco should look to utilize cloud computing and blockchain technologies in order to protect and safeguard important customer information from cyberattacks and data loss.
• Talent development programs and other initiatives should be established in order to foster a sense of ownership in the employees.

 

References

Ahlert, D., Olbrich, R., Kenning, P., Schroeder, H., Huang, Y., Huddleston, P., 2009. Retailer premium own‐brands: creating customer loyalty through own‐brand products advantage. Int. J. Retail Distrib. Manag.

BBC, 2019. Tesco faces Brexit deadline headache. BBC News.

Christie, S., 2017. Tesco slashes prices on hundreds of fruit and veg products. The Sun.

Damron, T., Rupp, W.T., Smith, A.D., 2016. Inventory control in the retail sector: case studies of best business practices. Int. J. Procure. Manag. 9, 354–371.

Deloitte UK, 2020. Retail Trends 2020 | Deloitte UK [WWW Document]. Deloitte U. K. URL https://www2.deloitte.com/uk/en/pages/consumer-business/articles/retail-trends.html (accessed 1.29.20).

Hill, C.W., Jones, G.R., Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning.

King, M., 2020. Go green and make money with this energy-efficiency investment trust. MoneyWeek.

Kukreja, G., Gupta, S., 2012. Tesco Accounting Misstatements: Myopic Ideologies Overshadowing Larger Organisational Interests. Wall Str. J.

Ma, Y., Ding, J., Hong, W., 2010. Delivering customer value based on service process: The example of Tesco. com. Int. Bus. Res. 3, 131.

Mintel, 2019. UK Online Retailing Market Report (Updated 2019) | Mintel.com [WWW Document]. URL https://store.mintel.com/uk-online-retailing-market-report (accessed 1.29.20).

Munusamy, J., Wong, C.H., 2008. Relationship between marketing mix strategy and consumer motive: an empirical study in major Tesco stores. Unitar E-J. 4, 41–56.

Palmer, M., 2005. Retail multinational learning: a case study of Tesco. Int. J. Retail Distrib. Manag.

PwC, 2019. Retail outlook: 2019 retail predictions [WWW Document]. PwC. URL https://www.pwc.co.uk/industries/retail-consumer/insights/retail-outlook.html (accessed 1.29.20).

Ramaswamy, V., Ozcan, K., 2016. Brand value co-creation in a digitalized world: An integrative framework and research implications. Int. J. Res. Mark. 33, 93–106.

Reuters, 2020. Tesco PLC Profile [WWW Document]. URL https://www.reuters.comundefined (accessed 1.23.20).

Statista, 2020. Tesco Profile.

Statista, 2019. Retailing: market value in the UK 2015-2020 [WWW Document]. Statista. URL https://www.statista.com/statistics/491377/retailing-united-kingdom-uk-market-value/ (accessed 1.29.20).

Tesco, 2020. About Us [WWW Document]. Tesco PLC. URL /about/ (accessed 1.23.20).

Tesco Plc, 2018. Tesco Strategic Report.

Zhao, S., 2014. Analyzing and Evaluating Critically Tesco’s Current Operations Management. J Mgmt Sustain. 4, 184.

 

Appendix 1

Company Overview

            Tesco is one of the biggest retail chains in the world. It was founded in 1919 by Jack Cohen as stall that sold surplus groceries. Today, Tesco is the largest retail chain in the United Kingdom operating with a network of over 3400 stores all over the country and 300,000 employees amongst its ranks(Tesco, 2020). The company has approximately 7000 stores all over the world. It commands the sector with a market share of 26.4 percent followed by Sainsbury, ASDA, Morrisons, and Aldi who have a market share of 15.4%, 14.9%, 10.1%, and 8.1% respectively. The company has diversified its operations from just being a retail chain and is also engaged in retail banking and insurance practices as well. The business of the company can be categorized into three major segments. The domestic segment includes the local markets in the UK and Republic of Ireland. The international segment includes foreign operations located in Thailand, Malaysia, Czech Republic, India, Poland, Slovakia, and Hungary. The third segment is the Tesco Bank that comprises of the insurance and retail banking services under the Tesco brand name.

The primary business of the company is selling food and food related products and services. Tesco also offers two food brands of its own in the UK marketapart from other food products and brands. These two brands are Finest and Exclusively at Tesco. The company also offers two non-food brands to its customers in F&F clothing and Fox & Ivy. Other than food and clothing, Tesco is also engaged in providing different banking and financial services to its customers including credit cards, personal loans, club cards, and mobile services(Reuters, 2020).

 

Appendix 2

The political uncertainty, changing regimes and regulations, constantly changing customer purchase attitudes and behaviors, the evolution of technology, and the calls for eco friendly business practices constitute the major threats for the companies operating in the retail industry in the country. Apart from these challenges, customers continue to expect “unique experiences, both in store and online. Whether that be through curated marketplaces, connected spaces or digital journeys, customers are wanting to have an emotional connection to their shopping experience”(Deloitte UK, 2020). The incorporation and utilization of innovative technological developments and advancements into the business practices has become significant for any company to sustain and expand its operations as the customers are expected to rely heavily on internet and mobile based shopping platforms in the coming years.

“With social media and smartphones feeding the demand for instant gratification the retail industry has seen a shift in shopping habits. Rather than spending their money in bricks and mortar shops, consumers are now shopping online with ‘clicks’.This, in part, has caused physical stores to struggle. Shoppers are making fewer visits to the high street meaning that stores have seen a huge decline in footfall as customers increasingly choose to shop online. A decline in physical sales has inevitably led to store closures, creating more empty shops than ever before – making the high street even more unappealing.”(Mintel, 2019)

“Brexit has started to affect how much people spend and on what —varying significantly by region and demographic group.  27% of consumers say they’ve already changed their spending because of Brexit, and 13% say they will do so in the coming months.” (PwC, 2019)

Similarly, the increased global awareness regarding the environmental and climate conditions all over the world has become an area of major concern for the retailers in the country. The retail industry continues to be at the forefront of the global carbon emission. The retail companies are under increased pressure to adapt their business practices and operations in order to comply with the changing global environment. “The retail manufacturing industry is one of the most polluting industries on the planet and an increasing awareness of environmental issues, and the retail industry’s contribution to these concerns, has created more conscious consumers. Customers are increasingly asking if products have been responsibly sourced, if they’re Fairtrade and if they can be recycled before they shop. Sustainability is important to young consumers and moving forward fashion retailers will need to take responsibility for the waste they produce”(PwC, 2019). While such a paradigm shift poses a massive challenge for the Tesco management, it is also a great opportunity for not only enhancing the loyalty of existing customers, but to also attract new buyers to its stores.

 

Appendix 3

 

Market Competition

The retail market in the UK is characterized by intense competition. The market is dominated by major retail chains like Tesco, Sainsbury, ASDA, and Morrisons. These companies intensively compete with each other on prices and promotions in a bid to attract buyers to their stores and outlets. Tesco is the market leader in the retail sector with a reported market share of 26.4% but it continues to face extreme competition from Sainsbury, ASDA, and Morrisons (Statista, 2020).

Power of Customers

Most of the products at offer in Tesco stores are materials of regular use and consumption for the buyers. These products do not have high differentiation and comprise of low switching costs. The buyers can easily switch from one brand to the other while making the purchase. Retail companies focus on keeping the prices low in an attempt to attract customers to their stores. The bargaining power of customers is therefore high (Munusamy and Wong, 2008).

 Power of Suppliers

Tesco is one of the biggest retail chains in the country and, therefore, is an important client for the suppliers. They are not in a position to significantly change their prices and dictate terms to Tesco as the retail giant can easily enlist other suppliers for its business. The suppliers also have to comply to certain quality standards set by Tesco so that the quality of the products offered at its stores is maintained. Hence, the bargaining power of suppliers for Tesco is low.

Threat of Substitutes

The threat of substitutes is relatively low as there are not many substitutes for the food products offered at Tesco. The substitutes primarily comprise of organic products and those offered by small convenience stores. Since Tesco offers low pricing on such products, the convenience stores and organic shops cannot compete effectively with Tesco. The threat of substitutes for non-food products is relatively higher as customers can easily switch between different brands offering less differentiated products (Ma et al., 2010).

Threat of New Entrants

Entering into the retail sector requires a substantial amount of investment. Similarly, any new entrant would also need a significant amount of time in order establish its brand name and achieve economies of scale for competing effectively with retail giants like Tesco. The new entrants have to offer products at exceptionally lower prices or with high differentiation in order to capture the attention of buyers. Therefore, the threat of new entrants in the sector is low (Hill et al., 2014).

 

Appendix 4

Strengths   ·         Tesco occupies the largest market share in the retail sector of the country. ·         A strong and efficient procurement system enables it to pursue a low pricing strategy. ·         The Tesco shopping experience is built on high quality and low pricing. ·         Diversified operations including insurance and retail banking. ·         Wide network of stores and outlets allow superior customer reach. ·         Biggest private sector employer in the country. ·         Leading user of technology and innovation in its business practices and operations. ·         Established network of retail operations in other European and Asian countries. ·         Established private label brands allow for higher diversification and customer loyalty. ·         Tesco Club Cards are an effective source of collecting insightful customer purchase data.

Weaknesses   ·         Tesco still relies heavily on the domestic UK market despite diversifying and expanding operations. ·         The accounting scandal has severe implications on brand reputation and company image. ·         Weak presence in emerging markets of the world as compared to competition. ·         Failure of operations in the United States and Japan resulted in heavy losses. ·         Lack of measures taken for climate change and eco friendly business practices. ·         Club card system has attracted criticism and scrutiny for data protection.

Opportunities   ·         Capitalize on changing retail trends and purchase behaviors by drafting effective business strategies. ·         Targeting new generations for market expansion and sales growth. ·         Developing effective and efficient shopping platforms to capture the online retail shopping share. ·         Incorporating innovation automation and intelligence technologies to facilitate customer interaction and improve value chain activities. ·         Expanding business operations in emerging markets to diversify operations. ·         Increasing business operations in the insurance and financial services sector. ·         Developing quality non-food private label retail brands to enhance customer loyalty.

Threats   ·         The uncertainty and confusion posed by the impending departure of UK from the European Union. ·         Constantly fluctuating exchange rates and changing business regulations in different markets. ·         Increased competition and rivalry in the UK market between major retailers. ·         Failure to effectively adapt to changing customer preferences and attitudes. ·         Failure to incorporate technological advancements into business operations. ·         Failure to maintain and improve the competitive advantages that enabled the company to become the leading player in the retail sector. ·         Failure to develop carbon emissions and climate change practices.

 

7Ps Analysis

• Product

Tesco operates in the retail market offering a wide range of products and services for its buyers. The products available at Tesco stores and outlets include food, electronics, clothing, cosmetics, non-food products, and financial services. Tesco has also diversified its operations in order to provide different insurance and retail banking facilities and services to its customers. The Tesco stores offer many high quality brands in almost every category at affordable pricing. The company also offers its own brands under the name of F&F Clothing and Fox & Ivy, which are non-food brands, and Finest and Exclusively at Tesco as its private label food brands. (Tesco, 2020)

 

• Price

The primary strategy of Tesco when it comes to pricing can be categorized as a cost leadership business strategy. The company aims to provide high quality products and services to its customers at lower and affordable prices. The low pricing is one of the major drivers of Tesco’s growth over the years and has enabled to company to establish a loyal customer base for itself. The cost leadership strategy has allowed Tesco to accumulate the largest market share of the retail sector in the country and gain a competitive advantage against the intense competition in the industry. Tesco actively engages with its suppliers in order to bring down the cost of production so that the benefit can be translated to its pricing. (Christie, 2017)

 

• Place

Tesco maintains both physical and online presence in the marketplace. The company operates with a network of over 3400 physical retail outlets spanned all over the country. The wide spread store network helps the company in expanding its reach to customers located in geographically dispersed regions and localities in an effective and efficient manner. These stores and retail outlets can be divided into six major categories such as Tesco Superstore, Tesco Homeplus, Tesco Extra, Tesco Express, Tesco Compact, and Tesco Metro. The internet and mobile based retail platforms of the company are known as Tesco Direct. The online and physical retail stores help the company in facilitating its buyers effectively and maintain its market position.(Tesco Plc, 2018)

 

 

 

• Promotion

Tesco is one of the oldest and most reliable retail operations in the United Kingdom. The company has established a strong brand name and reputation for itself over the years. The strong brand name helps the company against its competitors as the customers have become loyal to the products and services offered by Tesco as compared to the competition. It also helps the management to engage in various promotional and marketing activities through the utilization of different advertising channels and mediums. Similarly, the development of Tesco Loyalty Cards and Tesco Club Cards are other promotional features introduced by the company for its customers. (Tesco Plc, 2018)

 

• Processes

The processes at Tesco stores can be categorized into two primary types on the basis of the functionality of the retail stores and platforms. The physical retail stores allow the customers to review and analyze the products on offer themselves. The company is committed to providing a complete and fulfilling shopping experience to the customers through its retail stores and supermarkets. The online shopping platforms and the mobile applications are the other significant processes and experiences that the customer go through while making a purchase. Tesco is the leading incorporator of technology into business operations in the retail industry of the country. (Zhao, 2014)

 

• People

Tesco is the biggest private sector employer in the retail industry of the United Kingdom. The company has over 460,000 individuals on its books that play an important role in making Tesco the leading retail chain in the country. The development of effective hiring and training policies and programs at Tesco has enabled the company to develop a highly skilled and competent workforce that has put Tesco head and shoulders above the competition. (Tesco, 2020)

 

 

• Physical Evidence

The physical evidence of the marketing mix gauges the effectiveness of the different tangible assets and representations that are associated with the company. The Tesco stores and outlets are designed in a manner such that the customers feel at ease while shopping and making purchase decisions. The outlets of the company are open and the buyers can easily navigate and find the products that they want to purchase. Similarly, the logo design is also effective and vibrant and distinguishes Tesco from the competition efficiently. The website and other digital platforms also provide and effective and easy online shopping experience. (Tesco Plc, 2018)