Market orientation is the cornerstone of marketing. It prescribes satisfying the market through an understanding and response to local needs, which include those of final and intermediate customers, competitors and the macro-environment and leads to superior performance (Narver & Slater, 1990). Due to the retail industry’s direct contact with the market and customers, it makes sense to look at market orientation as a concept to assess the success of Tesco. Market orientation is of even greater interest when entry into emerging markets is undertaken by a Western retailing firm, suggesting that a close understanding and response to customer needs is vital.
Tesco’s management places an emphasis on customer needs through the ‘Tesco Values’ philosophy, expressed as two values – “no one tries harder for customers; treat people how we like to be treated.” The values are disseminated through an internal marketing strategy, which includes distribution of company newspaper to employees. However, these values emanate from the UK and recognition of a need for country-specific practices and local can be secondary to corporate unity.
Tesco has a reputation for innovative information solutions, and its ‘Clubcard’ loyalty scheme and web sites are central to this. Tesco is the UK’s largest retailer and therefore has a significant customer base on which analysis can be performed. Because many of those customers return at weekly or similar intervals, Clubcard data and relationships are both deep and wide. Accordingly, Clubcard has significant potential to influence consumer behaviour in the UK. Staff are briefed on the importance of Clubcard, and the initial launch was preceded by fervent internal marketing. Clubcard is not only closely integrated with business processes, but aligns with the brand and brand strategy as the active expression of the brand’s personality and its values (Humby, Hunt, & Phillips, 2004).
There are different dimensions of Tesco’s online customer experience, including ease of use, speed of site, relevance, value, service, and product development. Tesco is continually developing more online products to meet the needs of the customers. For instance, Tesco has recently started offering music downloads as well as a grocery delivery service that includes wine and white goods.
Tesco uses this product range to create a strong customer experience as a customer can do a one stop shop instead of purchasing products from multiple vendors. For the online customer, ease of operations is an essential player in their purchasing decisions. Efforts have been made to decrease the amount of time it takes a customer to complete their first order. The time has dropped significantly from one hour to 35 minutes. This provides a better customer experience.
There are three dimensions to Tesco’s use of technology in marketing information gathering and planning. The first aspect is data collection, of which the Clubcard that could be scanned at the till is an important foundation. Later, ‘EPOS’ tills were installed that could collect every transaction. Clubcard engages with a large number of corporate partners in relation to the earning and delivery of rewards. Tesco allows customers to gain rewards from activities as disparate as travel, dry cleaning, and car maintenance. In addition, many of these activities will be performed in the locality of the Tesco store that the customer normally uses, and from a customer experience perspective extends their engagement with the local retailing community. From a customer data perspective, the opportunity to earn Clubcard points through partner organisations means that Tesco is able to expand its customer profiles relating to their consumption activities to arenas beyond supermarket shopping. For example, a customer who earns points though the use of Autocentre is providing the data that makes it possible for Tesco to collect data concerning the type of car that their customers drive.
The second aspect is customer interactions – customers can collect points through the scheme through transactions with various partners, and through their online purchases. Tesco manage a portfolio of interactions that the customer has with the brand, and seek to reward every interaction. Clubcard forges a strong link between the ‘click and brick’ (online and in-store) sides of the business. By collecting data through both channels, Tesco can easily see the similarities and differences between online and offline customers, in terms of what they buy, how they respond to the service and how they mix channels.
Furthermore, data collected through customer interactions with one channel, such as in store can offer valuable insights for potential new customers, and approaches to optimising operations associated with the development of other channels or services. In addition to standard direct marketing procedures, Tesco also provides special offers to its most loyal customers. These personalised offers help to bind the customer to the company. A further focus has been how to increase the frequency of customer visits. Tesco addresses this issue by sending incentives to all customers deemed dormant. The company also provides more incentives to the customer ‘after the first shop after a break’ (Chaffey, Ellis-Chadwick, Johnston, & Mayer, 2008). Tesco has thus utilised detailed customer information to go further than others whose loyalty schemes simply offer the customer a reduction of the price paid at the checkout.
The third aspect is data analysis. Tesco have paid careful attention to the design of data analysis. They have worked to ensure an adequate database, data currency, data quality and tight control of data analysis costs. A further refinement was to seek to understand why customers behaved in certain ways. This process began with profiling the attributes of products, then creating clusters on the basis of customer’s product purchase profile and using these product attributes to profile and segment customers defined in terms of the contents of Tesco shopping baskets. Each of these segments had broad similarity but with a size that made them worth addressing (Humby, Hunt, & Phillips, 2004).
Analysis of the UK database has enabled Tesco to leverage benefits in innovative ways. For instance, when analysis showed that customers were not buying nappies, investigation revealed the products were being purchased at Boots pharmacies, despite a 20% higher price. As a result, Tesco created a baby club offering advice on pregnancy and motherhood. Within two years the company had cornered almost a quarter of the mother and baby market (Strategic Direction, 2008).
Tesco’s trading philosophy is based around the ‘Steering Wheel’. This comprises a Customer Plan, Operations Plan, People Plan and Finance Plan. Marketing information systems play an integral role in the formation of these plans as they are based on information gained from customers through the ‘Brand Review’. Information gained from the Brand Review is presented to the board of each country and the central board. Each country carries out separate Brand Reviews and the results are amalgamated for the central board. This results in a Customer Plan aiming to serve customer needs associated with price, service and quality. The Operations Plan looks to cut costs by obtaining better margins from suppliers through operational efficiencies. Examples of this include the deployment of new ordering or stock replenishment systems.
From 1999 onwards, Customer Panels have been operating in most countries where Tesco has a presence to enable intelligence to be communicated to Head Office. Tesco also analyse brand share and have a weekly sales report. Image research is carried out across each country and a brand image analysis is completed every six months. Questions focus on perceptions of price image, quality image, service, range and promotions. These large-scale questionnaires are distributed to catchment areas of their own and competitors’ stores. Since 2002, detailed research has been carried out focusing on the market’s biggest competitors in each country. Local research is focused on stores in specific areas of each country and examines variance. Cross-sections of customers sit with store management to describe their experiences at Tesco, in terms of price, quality, products, departments and customer services. Every year for one week each store asks every tenth customer about their postcode at the checkout. The amount spent and time/date of purchase is then analysed. Cross border research in landlocked countries such as Hungary and Slovakia looks at how more trade can be drawn from over borders. Customer complaints are recorded with the numbers of problems in each area analysed. Seasonal and pre/post advertisement research is typically undertaken through qualitative methods to aid the marketing planning process.
Tesco has embarked on a programme of development pan-regional information systems infrastructures since 1998, communicating operational capabilities for each country. However, most knowledge in developing markets continues to be shared through informal networks such as meetings and telephone calls. Tesco has a UK-based International Commercial team that works with individual country teams and in 2004 the International Support Office Marketing Team was established. This ensures that all markets Tesco operates in utilise similar strategies regarding how marketing research is used and managed, facilitating comparable results and actionable planning recommendations. The Process team works with the Support Offices in each country to develop their own capabilities and solve their own retail issues, giving a localised aspect to the utilisation of marketing information. These offices help central operations to communicate with stores, and they accumulate market research information from disparate parts of the business.
Tesco maintains a focus on innovation in products, placing an emphasis on added value for the consumer. For example, in 2006 Tesco introduced a new line of dairy products manufactured with Reducol, a phytosterol-based ingredient proved to reduce cholesterol. The product range has since expanded, helping the retailer to become a thought leader to help raise its image above those of the competition.
The strategy of developing market share for goods outside the usual supermarket arena has led to Tesco surpassing Sainsbury’s to become the biggest supermarket in the UK, and it currently holds over a quarter of the market (Strategic Direction, 2005). In 2008, Tesco launched its first in-store order-and-collect service as it attempts to take on Argos, the current leader the catalogue sector. The new service was tested at Tesco’s Cribbs Causeway store (which is used as a laboratory store for testing new products and services) and has since been rolled out to other locations. Tesco has also launched of a suite of software products for home or office use that competes directly with products from Microsoft. Tesco Complete Office includes two security/antivirus products, a personal finance application, a DVD-writing tool, and a photo-editing feature and is priced at under £20 in contrast to Microsoft Office 2007 which retails at £45.
Tesco has recently launched the ‘Discounter’ product range in order to combat the perceived threat of Aldi and Lidl. The discount supermarket sector has profited from recent economic turmoil as rising food costs have steered more people to their stores. 80% of Tesco’s sales come from areas in which Aldi and Lidl are not represented. Commercial director Richard Brasher acknowledges the “centre of gravity in the marketplace” has moved (Ritson, 2008). The forthcoming challenge is to avoid the predicament of becoming caught in the middle of the market when consumers are trading down. However, it might be contended that fighter brands created to target a specific competitor invariably fail as they cannibalise the owner’s higher-priced products rather than driving share from their intended target. Indeed it remains unclear how successful this product range has been at preventing customer defection. In the last quarter, £22m of spending moved from Tesco to Asda, with another £10m moving to Morrisons (Wearden, 2008).
Tesco has also recently undertaken significant social marketing initiatives, including the opening of a flagship environmentally friendly supermarket in Wick, featuring wind turbines, a system to gather and use rainwater, energy-saving cooling and cooking equipment and low-energy lighting. The store is designed to have half the ‘carbon footprint’ of comparable sized conventional supermarket. Exploring the value in environmentally conscious initiatives can reduce costs and please customers. However, as Tesco attempts to consolidate a position as a solidly price-conscious retailer the choice to pursue green initiatives may send out perplexing messages and this strategy should be questioned when the majority of its customers are lower middle to middle class and are changing their priorities in the current economic turbulence.
There are three dimensions that inform Tesco’s strategic behaviour regarding internationalisation. Firstly, buying successful companies is central to their strategy of overseas expansion, with greater movement into growing markets from the 1990s onwards. Tesco moved into Asia in 1998 with the purchase of a majority stake in Lotus hypermarkets in Thailand, and further developed operations in the region when they entered Malaysia in 2002, Japan in 2003 and China in 2004. The Malaysian operation was established as a joint venture with a local company Sime Darby Behad. Tesco owns 70% of the equity, but the operation is under local control. In China, Tesco signed a similar agreement with Shanghai Hymall. Tesco bought into successful companies with local operational knowledge and established market share and its expansion strategy aims at eventual market domination.
The second dimension concerns market selection. Tesco chose to enter into markets (Eastern Europe and South East Asia) where local competition was soft, away from other expanding giants such as Wal-Mart. Tesco also adapted to opportunistic events, and decided on different entry modes in order to develop knowledge.
The third dimension was that recognition that learning wouldn’t be enabled until some kind of store was opened, regardless of ultimate success of the venture. Tesco were comparatively weak internationally compared to more experienced rivals, but nevertheless decided on an aggressive expansion strategy in its target markets with a vulnerable period seen as a necessity for long-term growth internationally. Small experiential or pilot stores were therefore an integral part of the initial learning phase of expansion. These stores later might be seen as surplus to requirements and consequently divested. International retailers frequently emphasise the cognitive aspects of the retail internationalisation process. Tesco took an innovative approach to accruing marketing knowledge to aid its expansion and one example of this was the utilisation of embedded research teams within Japanese families to monitor consumption behaviour prior to their acquisition of the Japanese C2 chain.
Tesco also initiated a vigorous public relations exercise to get shareholders on board with a risky internationalisation strategy. Finally, Tesco ensured it had the best human resource to drive its expansion, with financial capital and marketing expertise considered imperative to formation of correct strategies in foreign markets. This was salient as expansion can be seen as an invasion by those in the targeted country. The adoption of an intensive PR campaign once business success started to develop overseas highlighted the need for an evolutionary marketing strategy.
Expansion into the US under the Fresh & Easy banner, however, has followed a different model. The US market is typified by extremes with luxury goods at one end and cheap products at the other. Pressure from both sides has resulted in the near elimination of the mid-market specialist. Aiming directly at this sector would therefore appear reckless. However, economist Frank Badillo asserts underlines the intelligence of their strategy, suggesting “It would be hard for Tesco to take on Wal-Mart head-on in the U.S. Instead they’re targeting a format that Wal-Mart isn’t strong in, but one that Wal-Mart is looking to get more into – smaller, convenience-driven stores.” Tesco is “beating Wal-Mart to the punch,” because the British retailer will have the capability to expand faster than Wal-Mart (McTaggart, Industry awaits Tesco’s invasion, 2006). Tesco’s entry strategy is to focus on a segment of cash-rich, time-poor customers, offering fresh products. The name ‘Fresh & Easy’ underlines the attempt to appeal to this segment.
The concept is a convenience format that emphasises simplicity from merchandise displays to the checkout (customers at Fresh & Easy can take use ‘assisted self checkouts’ or do it themselves). Most people in the US live close to a large supermarket. However, Tesco believes many will prefer the convenience of a smaller store providing the store caters for their needs. Although relatively small, the stores are large enough to stock a much wider product range than is the norm for similar US outlets, many of which don’t look beyond convenience store mainstays such as alcohol, frozen foods and snacks.
Tesco has also capitalised on concerns about obesity levels and the growing interest in healthy eating. Fresh & Easy offers a range of additive-free ready meals common in the UK but relatively unheard of in many parts of the US. Despite this, Tesco has been able to keep costs relatively low, at around 20% less than the major supermarkets. Tesco started its expansion into the market in California, as marketing research indicated a large population of health-conscious shoppers. In terms of experiential marketing, Tesco has aimed to hire local people so customers feel comfortable in the new environment.
Most retailers aim for a certain demographic segment in the market, particularly in the UK. For instance, Sainsbury’s targets middle-to-upper-income customers, while ASDA aims for lower-to-middle-income customers. Tesco’s targeting, however, is more inclusive and they remain committed to a broader reach. This has been possible through inventive segmentation and targeting. The most recent example of this has been the introduction of the ‘Discounter’ range of products to appeal to customers currently shopping at Aldi and Lidl. Since Wal-Mart purchased ASDA in 1999, Tesco has widened its market share advantage over ASDA by 2.5%. This is attributed to a strategy negating ASDA’s perceived price advantage. At the same time, Tesco increased its food advantage in terms of depth of range, quality, perception, and other attributes.
Tesco is also the world’s leading internet grocer, and it runs a highly successful financial services arm through a joint venture with the Royal Bank of Scotland. In contrast, Wal-Mart has been unsuccessful at entering the banking business in the US. Outside of the UK, Tesco’s most market presence is powerful among developed countries is in Thailand, South Korea, Hungary, Czech Republic, Slovakia and Poland. A strategy of entering markets where competition is weak or fragmented and there is no presence of established global retail giants such as Wal-Mart has contributed to the success of Tesco’s internationalisation. Tesco has shown great adaptability. For example, it’s highly successful Clubcard scheme was not introduced in the US because research showed consumers there to be cynical about the concept and already felt they had too many loyalty cards.
Tesco has also demonstrated astute response to perceived opportunities and threats. For instance, Tesco entered the UK convenience market with the Express format in 1995. In 1999, after refining the format, Tesco began opening a new generation of Express units, which included some prefabricated facilities (prebuilt and simply lowered onto the site). In 2003 Tesco bought the T&S chain of around 2,000 convenience outlets. Although it later sold some, it converted many others to the Express banner. Although investors were initially sceptical about Tesco entering this market, Express now has a higher return on investment than other Tesco formats, driven by sales densities as high as £30 per square foot per week. Tesco’s speedy realisation of ideas such as this, driven by the fear of copycat ventures, gives it first mover advantage.
However, attempting to introduce its UK model in other markets (particularly the US) is not without risks. Many Tesco convenience stores in the UK benefit from close proximity to public transport. This is thought to encourage more frequent shopping trips and a preference for perishable products over the meals typically sold in US supermarkets. An insurmountable challenge may be to persuade US consumers to behave likewise.
References
Chaffey, D., Ellis-Chadwick, F., Johnston, K., & Mayer, R. (2008). Internet Marketing: Strategy, Implementation and Practice. Harlow: Financial Times/Prentice Hall.
Humby, C., Hunt, T., & Phillips, T. (2004). Scoring points: how Tesco is winning customer loyalty. Sterling, VA: Kogan Page.
McTaggart, J. (2006). Industry awaits Tesco’s invasion. Progressive Grocer , 85 (4), 8-10.
Narver, J. C., & Slater, S. F. (1990). The effect of a market orientation on business profitability. Journal of Marketing, 54 , 20-35.
Ritson, M. (2008, October 29). Tesco takes fight to Aldi. Marketing, p. 20.
Strategic Direction. (2008). Tesco’s American dream. Strategic Direction, 24 (2), 11-15.
Strategic Direction. (2005). The secrets of Tesco’s expansion success. Strategic Direction, 21 (11), 5-7.
Wearden, G. (2008, December 2). Discount drive hits Tesco sales. Retrieved December 2, 2008, from Guardian.co.uk: http://www.guardian.co.uk/business/2008/dec/02/tesco-discount-sales
