Tesco: The Marketing Environment and Customer Relations
Instructions:-
Choose a Supermarket (can be anywhere in the world), for analysis
(1) Collect data/information regarding this company from published material (online or otherwise).
(2) Use relevant concepts and models to:
a. describe and critically analyse the marketing environment of this company;
b. identify and critically evaluate the company’s strategy in building strong customer relations.
- Please submit the report as if you are submitting it to the Managing Director of the organisation on which you are performing your study. It has to be in the style of a Business Report, and not an academic essay. Bullet Points are acceptable where necessary, but obviously will need to integrate with the report as a whole.
- The report (analysis and recommendations) have to be coherent and flow logically.
- Referencing is a requirement, and where material is being quoted from elsewhere, it must be acknowledged.
Solution
Tesco: The Marketing Environment and Customer Relations
Executive Summary
Tesco Supermarket is the leading retailer in the UK and operates
numerous stores in eight countries around the world. The success of the company
is attributed to the adoption of effective strategies that ensure expansion,
profit efficiency, returns on investment, and the creation of shareholder
wealth. The effectiveness of the Tesco’s market entry, marketing, and pricing
strategies in the UK is unparalleled when compared to other retailer companies.
What is interesting, however, is the efficiency and effectiveness in
implementing its comprehensive marketing strategy and the continued effort to
build stronger customer relations. This report acknowledges the importance of
excellent marketing and customer relations to promoting an organization’s competitiveness,
operational efficiency, profitability, and growth. It offers a comprehensive analysis
of Tesco’s marketing environment by looking into the technological and
socio-cultural aspects, the measures it has taken to outline and address the
needs, preferences, and concerns of the customers adequately, and the role of
technologies in advancing its competitiveness, cost-effectiveness, operational
efficiency, customer satisfaction, and market share. Most importantly, it
offers a critical and in-depth analysis of the Tesco’s effort to build strong
customer relations. The report recommends the need to invest more on technology
for shopping, payment, rewarding loyalty, and pushing for fostering
cost-effectiveness, the need to devise new ways of rewarding loyal customers,
and improving customer involvement/engagement.
Introduction
As the leading retailer in the UK, the Tesco Supermarket has implemented numerous strategies that promote its competitiveness, operational effectiveness and efficiency, great customer relationships, and the services that meet the needs and expectations of the customers. The success of the business relies greatly on the effectiveness of its marketing strategy. Tesco has adopted and implemented different strategies in accordance with the opportunities and challenges present within the market to build better customer relations, meet the needs of the market and provide quality services and products. According to Shaw (2016), market effectiveness plays a fundamental role in promoting the business success by improving market share, profit efficiency, competitiveness, and returns on investment. Tesco’s marketing effectiveness is unquestionable, how its marketing environment and strategy show significant room for improvement. Additionally, Tesco has a comprehensive strategy for building stronger customer relations. The integration of the customer relations strategy into the marketing strategy increases the supermarket’s competitive edge as a leading retailer in the UK. This report outlines and offers a critical analysis of the marketing environment and the customer relations strategy in a way that identifies the strengths and shortcomings and offers recommendations that are critical for improvement.
Tesco’s Marketing Environment
The effective marketing environment within which Tesco operates has ensured a continued improvement in the profitability of the retailer. The 2016 and 2017 Tesco PLC annual reports and financial statements show an improvement in sales, profitability, an increase in the number of shops, and the reduction in debt. The reports point out while the group sales amounted to £48.4 billion in 2016, they have increased £49.9 billion in 2017. The improvement in sales is a predictor of an effective marketing strategies. Additionally, Tesco PLC recorded an increased in profitability and shops around the world. According to the annual reports and financial statements of 2016 and 2017, show that in 2017, the company’s statutory profit stands at £145 million (before tax), statutory revenue £55.9 billion, operating and group operating profits are £1,017 million and £1,280 million respectively, and a net debt of £3.7 billion. The 2016 report and statements show that initially the group operating profit was £944 m, statutory operating profit was £1,046 m, and a net debt of £5.1 billion. The figures show an improvement in profitability and reduction in the net debt showing the effectiveness of sales and the marketing strategy. However, the company recorded a decrease in the number of the shops around the world from 6,902 in 2016 to 6,809. The success of the company shows the implementation of effective strategy but a decrease in the number of outlets shows the need for adoption of effective strategies that promote sakes and encourage expansion.
Tesco has integrated new and effective technological approaches into marketing, improving its marketing effectiveness significantly. The utilization of social media marketing, mobile marketing, and the incorporation of online shopping into its marketing strategy in the recent years has contributed to an improvement in sales, profits, and its market share (Keszthelyi, 2014). The supermarket has recently focused on the adoption of technologies that promote cost-effectiveness and convenience in shopping (Keszthelyi, 2014). The use of technologies such as the IFTTT allows connection of devices and creates a solution for shoppers to use numerous connected devices. The IFTTT operates in a way that connects the different social networking sites such as Facebook and Twitter in a way that allows a change in profile image on Twitter cause an automatic change on Facebook (Sillitoe, 2016). The implementation of the technology has explored the depths of social media marketing allowing the company to benefit significantly from the process (Sillitoe, 2016; Russell, 2016). While the Tesco continues to record higher sales following the implementation of technologies that maximise the benefit of social media, there is a need to continue investing on social media and technologies that promote effectiveness, convenience, and ease of shopping.
Additionally, the adoption of technologies such as the Tap & Tag technology that allows the use of digital receipts instead of the traditional paper receipt. The technology allows customers to tap on the Tap & Tag console using NFC enabled phones or contactless bank cards (Hobbs, 2016). The technology sends the digital receipt to the client’s app, email or web portal depending on the customer’s preference. The importance of the technology in Tesco’s marketing environment is its ability to allow the integration of promotions and offers (Sillitoe, 2016; Hobbs, 2016). The digital receipts have a function that allows the attachment of promotions and offers thus contributing towards attracting and retaining customers. The importance of the technology proves the strengths the technological environment of Tesco’s marketing environment offer and the contribution of such contributions towards the attainment of the retailer’s objectives (Shaw, 2016; Keszthelyi, 2014). Importantly, the integration of technologies such as the Tap & Tag among others reduces the cases of fraud and theft thus saving the supermarket a significant amount lost to the vices. However, the poor reception and application of the technology continues to make its use limited.
The mobile technology has revolutionized the marketing environment of Tesco. According to Sillitoe (2016), mobile marketing and use of the technology in business has improved effectiveness in business marketing, shopping, and payment significantly. The extensive use of smartphones has increased the number of people with access to the internet at any given moment significantly in the last decade. Tesco has exploited the opportunity presented by the mobile technology to improve its sales, profitability, and increase shareholder wealth (Sillitoe, 2016; Russell, 2016). Tesco utilizes extensive social media marketing, targeted marketing using different applications, and explores the different platforms presented by the mobile technology to market and ascertain convenient and fast shopping and payment. According to Marketing Week (2016), Russell (2016), and White (2017), the future of Tesco depends greatly on the ability of the management and staff to create effective marketing strategies. The exploitation of the mobile technology for marketing will increase the company’s sales and profit efficiency immensely. The ongoing discussions and implementation of the Techno mobile site with give consumers and potential customers a chance to access and shop from the supermarket. Most importantly, Tesco acknowledges the importance of integrating the mobile technology into payment and utilizes the PayQwiq mobile payment platform that allows easy and faster payment and collection of loyalty points (Sillitoe, 2016). However, the management has not exploited the opportunities of mobile payment presented by Apple Pay, Samsung Pay, and Android Pay among others.
Tesco segments the market for effective marketing in accordance with the socio-economic and cultural aspects of the markets it ventures into. As a global supermarket operating in more than eight countries, Tesco understands the socio-economic needs of the markets and focuses on addressing customer needs and preferences adequately. According to Shaw (2016), culture and socio-economic status of the populace influences the needs, preferences, and purchasing power. The supermarket acknowledges the role of the different elements in influencing the marketing strategy, sales and profitability (Tesco PLC, 2017). Pricing, marketing, distribution and sales strategies align with the customer preferences, needs, and their purchasing power (Tesco, 2016; Russell, 2016). The management continues to employ techniques that promote customer satisfaction and experiences to retain and attract new consumers. For instance, in venturing into the Malaysia, Ireland, Thailand, and Slovakia among the other countries, Tesco undertakes an extensive market research to understand the market and how to tap into the potential it holds. The socio-economic and cultural aspects of the target market plays a critical role in defining the marketing approaches the supermarket takes to attract and maintain customers (Marketing Week, 2016; Tesco PLC, 2017).
Tesco’s Strategy in Building Strong Customer Relations
Today’s business environment is radically different from that which prevailed just a few decades ago. The average consumer today is much better informed and has a greater awareness of the market, including products, prices and available alternatives. Consequently, this has led to stiffer competition among organizations, induced by the enhanced awareness of consumers. Thanks to the advent and spread of information technologies, consumers are able to obtain information and share their experiences. For organizations, the consequence is that they have to constantly be on the lookout, seeking for ways to improve the experience of their consumers. Mollah (2014) notes that consumers today are constantly seeking better offer. If organizations are to remain competitive then, they must seek to satisfy consumers and ensure their loyalty. According to Mollah (2014) one of the ways that organizations can do so is by building relationships with their consumers. This approach helps organizations to establish long term relations with clients, thereby facilitating a permanent competitive advantage. This long term relationships are also vital in guaranteeing the survival of the organization, as well as its continued growth in the market.
There are various facets of a successful customer relationship marketing implementation. They include customer satisfaction, quality service and market segmentation. Customer satisfaction enhances the repurchase intentions of a consumer, while customer dissatisfaction diminishes such intentions. When customers are satisfied, they tend to be more loyal to a firm (Mollah, 2015). Customer satisfaction itself hinges on a variety of factors. One of the most significant factors for customer satisfaction is customer service. The quality of service moderates the customer’s level of satisfaction, through the customer experience route. The specific mechanism through which this effect is achieved is a confirmation-disconfirmation paradigm. Specifically, a customer compares their experience of customer service with their expectations of the same prior to receiving service. If the experience exceeds expectations, positive disconfirmation occurs leading to customer satisfaction. Where the experience fails to meet the customer’s expectation, negative disconfirmation occurs leading to dissatisfaction (Mollah, 2014). Zero disconfirmation may also occur, where the experience equals the customer’s expectations. An organization should thus seek to exceed its consumer’s expectations, whereby it can only do so if it understands what consumers expect.
Segmentation provides a path through which organizations can understand the needs of their consumers. It involves creating consumer profiles based on aspects such as cost, tastes, and preferences. Additionally, Mollah (2014) points out that it is essential for marketers to segment the market on the basis of those who wish to build a relationship with the organization versus those who do not. Such segmentation will help the company to avoid expending resources on a group that will nonetheless switch brands.
Segmentation is one of the key factors of Tesco’s customer relationship management approach. A good example is the Tesco club card magazine. Tesco’s advertisement in this magazine is based on various demographic categories, such as ages 16-25, 25-45 with family, and 25-45 without family. The club card implementation by Tesco was a significant factor that allowed the retailer to overtake its competitors and become the leading retailer in the UK (Mollah, 2014). The club card is a loyalty strategy through which consumers receive points for a certain threshold of purchases. These points can then be redeemed at Tesco store’s for goods. According to Mollah (2014), the reward scheme is quantified such that every £1 earns a customer 1 point. These points are convertible to cash equivalents, whereby every 100 points equates to £1. These points can then be used to make purchases of equivalent amounts, or to contribute to payments up to that threshold of points. Furthermore, the club card can also be used at Tesco petrol. Customers receive vouchers every quarter, for cash amounts equivalent to the respective points. Sometimes, consumers may also receive a promotional discount voucher.
Apart from the club card voucher, Tesco also offers two other types of cards. First, there is the student club, which targets students. Holders of this card are eligible for an instant discount once they spend £. The other card is the club card plus. This card is basically a saving account which earns interest at 5.12%. Customers can at the same time use this card to make purchases. The club card has played an important role in enhancing the loyalty of consumers to Tesco (Mollah, 2014).
The Clubcard innovation by Tesco played a core role in its customer relationship management. For starters, was key in enhancing the loyalty of consumers to Tesco (Mollah, 2014). Increased loyalty resulted from the savings that consumers were able to make. Tesco’s slogan is “Every little helps”, and through its Clubcard, the retailer is able to bring its slogan to life. Consumers are able to connect with the company because the slogan appeals to them, and because they understand that the discounts they receive contribute to their overall well-being. The points they earn eventually mature into cash vouchers, which they can use to make purchases (Mollah, 2014).
The impact of the Clubcard, however, is not just limited to loyalty. The Clubcard achieved several strategic business outcomes for Tesco. It attracted more consumers to the retailer. As has been noted above, after the introduction of the card, Tesco was able to gain the majority market share and become the leading supermarket in the UK. Another important outcome is that using the feedback obtained from consumer activity on the card, the retailer was able to gain valuable information on product purchase trends. Through this information, the retailer built a powerful database containing information such as which products consumers were buying and which ones they were not (Buttle, 2009). Additionally, the retailer was able to know where consumers were spending their time, and where they were not. Using demographic data from the cards, the retailer was then able to generate market segments, a total of 108 in total (Buttle, 2009). Special offers tailored for each segment were then developed. The Clubcard has therefore facilitated effective customer segmentation, by providing an astute and reliable data set. The impact of such targeted marketing is that the company is able to meet the needs of its consumers better, increasing consumer satisfaction and enhancing consumer’s repurchase intentions.
Apart from the Clubcard program, Tesco’s customer relationship management strategy is further underscored by having an effective online presence. Social media has evolved into a key component of the marketing strategies of organizations. An effective online presence can prove influential in enhancing the organization’s relationships with its clients, as demonstrated by Tesco. According to Drenna (2012) Tesco has excelled in its use of social media for several reasons, with the effect being better customer relations. The company addresses problems on the platforms where they were lodged (Drenna 2012; Rehman, Bin Md Yusoff, Bin Mohamed Zabri, & Binti Ismail, 2017). Thus, if a consumer raises an issue on Twitter, then the company responds on the same platform, rather than redirecting them to another platform. A second important factor is providing valuable and helpful insight immediately. Tesco has succeeded in connecting staff who are well versed regarding the organization’s operations to social media. These individuals are able to respond top queries rather than redirecting queries or asking consumers to wait (Oberle, 2015). While providing assistance on social media, Tesco ensures that it does not come across as too technical, but rather, maintains a conversational tone. The company essentially ensures that its online engagements with consumers have a human touch. Having a human touch is useful in increasing consumer engagement with the enterprise (Russell, 2016).
The current market has seen a more competitive environment with increased demands from customers than before. Strong customer relations is about making bridge between the seller and buyer. Customer relations is characterized by communication, trust, commitment and promise fulfilment. Tesco has focused on the development of a reliable and strong customer relations in the quest to improve its market share, attract and retain customers, and continue recording an improvement in its profitability (Mollah, 2014). It continues to focus on building trust, enhancing customer satisfaction, efficient communication, and a commitment to delivering quality services and fulfilling its promise to the consumers (Oberle, 2015). The focus on the elements has placed the retailer on top of the retail industry in the UK, with a significant market share in different countries around the world. Going forward, the management and leadership of Tesco must invest in human resource, effective communication, improved quality of services and a commitment to serving the clients in accordance to their expectations as promised in the company’s mission and vision.
Trust is key to the development of effective and strong customer relations. Tesco has invested significantly towards the development of better and stronger customer relations to ensure customer satisfaction, attraction and retention. According to Mollah (2014), trust depends on the willingness of the management and staff to instil confidence on the customer, the creation of a friendly environment, a sense of security, and the elimination of uncertainties. Trust is achieved through creating relationships that are beneficial to both parties. Tesco has continually ensured that customers have confidence and trust through the delivery of quality services, the implementation of effective and fair pricing strategy, and the promotion of excellence and reliability (Tesco PLC, 2017). The continued effort by the management and staff of Tesco to deliver quality services in accordance with the needs and demands of the customer promotes trust and results in loyalty (Marketing Week, 2012; Keszthelyi, 2014; Mollah, 2014). However, the company still receives numerous complaints from customers and thus the need for the establishment of an effective disputes resolution and avoidance programme.
Conclusion and Recommendations
Even as the company continues to record profits, it faces numerous concerns that require immediate attention. The increasing competition from other supermarkets, threats from new entrants, the adoption of new technologies by competitors, and the shrinking market due to online shopping show the need for Tesco to implement radical strategies. Further, it is evident that Tesco has excellent customer relationship management strategies and structures in place. The strategies address three of the core pillars of effective customer relationship management, which are customer satisfaction, quality service and market segmentation. Despite its excellence so far, Tesco can still enhance its customer relationship even further and increase its profitability, competitiveness, and the success of its expansion. The implementation of the following recommendations will contribute greatly towards the achievement of success in the process:
- There is a need to invest more on technology for shopping, payment, rewarding loyalty, and pushing for fostering cost-effectiveness, and operational efficiency. While Tesco has implemented numerous technological platforms, there is an opportunity in focusing more on online shopping. The implementation of a platform for diverse online shopping is a welcome idea. Additionally, the adoption of technologies for payment and rewarding loyalty other than PayQwiq is important. Considering Samsung Pay, Android Pay, Apple Pay, and other mobile payment platforms may increase efficiency, effectiveness, ease of shopping, and reduce theft.
- Tesco should seek new ways to reward loyal customers. The Clubcard was a revolutionary innovation at the time of its innovation, principally because no other retailer offered it in the way that Tesco did. Today, however, many retailers have copied Tesco’s idea, and even improved on it. These retailers are able to gain consumers and better retention. Tesco should react by innovating new ways to reward its loyal consumers, to avoid losing them to its competitors. For example, Tesco can partner with other enterprises even outside the retail industry to come up with rewards like vacations or contributing to a charity of a customer’s choice.
- Another recommendation is for Tesco to engage consumers more proactively to understand their needs, rather than relying on information from its Clubcards. Unlike previously where data mining from Clubcards was a quick and easy way to gain insight into consumer preferences, today, social media exists. The retailer can engage users on social media to better understand their needs. This strategy would be beneficial since it would inform the company on what consumers want but they may not be getting. Thus, rather than just improve satisfaction, the company would be able to reduce dissatisfaction.
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