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Diploma in Business
Unit Number and Title
Unit 4 Strategic management
This strategic management is associated with the strategic analysis of a business organization that will critically examine the business strategic models such as Porter’s 5 Forces model as well as Marketing Mix model. Along with that, the SWOT analysis as well as PESTEL analysis for the business organization has also been taken into consideration. The business organization that is being considered here is the largest retail organization in UK which is known as TESCO.
In this respect, the organization that will be taken into consideration is TESCO. The investigation that will be done in this respect is analysis of the business strategy for the organization. The business models that will be taken into consideration for analyzing the business strategy for TESCO are Porter’s 5 Forces model as well as the Marketing Mix model. Let us elucidate the different business strategy models in detail.
Porter’s 5 Forces model: This business strategy model analyses the competitive environment where a product or organization is working and constitutes of five forces that includes the threat of entry, supplier power, buyer power, threat of substitutes, as well as competitive rivalry. Now, in respect of TESCO, a structural analysis of the retail industry will be made for finding effective sources associated with the competitive advantage. As a result, for analyzing the competitive internal environment regarding TESCO, Porter’s 5 Forces model is being mentioned as under,
Threat of substitute products and services – In the grocery retail market, the threat of substitutes is significantly low in respect of food products as well as medium to high in respect of non-food products. The substitutes of key food retailers in the food retail market are the small chains of convenience stores, off-licenses as well as organic shops that are not considered as threat to supermarkets such as TESCO that is offering products of high quality at prices that are considered to be significantly low. (Kahn, 2012)Along with that, TESCO is gaining control over these shops through the opening of Express stores in local towns that creates an impediment in respect of these substitutes from entering the market. On the other hand, the threat of substitutes in respect of non-food products, such as clothing is quite high. In this respect, it is important to be mentioned here that when economic recession is prevailing, there will be the inclination of the customers towards availing products that are giving discounts and therefore TESCO is considered a threat for the specialty shops. (Dwyer, 2012)
Threat of entry of new competitors – The threat of entry of new competitors is considered to be low in respect of the food retail industry. There is the requirement of enormous investment of capital for being competitive as well as for the establishment of a brand name. The food retail market has already been captured by significant brands such as TESCO, ASDA, Sainsbury’s as well as Morrisons accounting for almost 80% of the overall shopping that takes place in the UK. As a result, new entrants are required producing certain things that come at significantly low price or excellent quality for the establishment of their value in the market. To gain authorization for planning from local government requires a significant amount of time as well as resources for the establishment of new supermarkets and as a result is considered to be significant barrier for new entrants. (Dwyer, 2012)
Intensity of competitive rivalry – Intense competition is faced by TESCO from its direct competitors in the retail industry for food and grocery that takes into consideration companies like ASDA, Sainsbury’s, Morrisons and so on that competes with one another for price, products as well as promotions. Moreover, during recession the heavy discounters such as Aldi as well as Lidl have taken over the market recording a significant sales growth. (Kahn, 2012)
Bargaining power of buyers – The buyers have a high bargaining power. The cost associated with switching is very low in cases in which products are having slight differentiation as well as are more standardized and switching can easily be done by the buyers from one brand to the other brand. It has been observed that there is the attraction of the customers regarding low prices and with the facility of online retail shopping being available, easy comparison as well as selection regarding the product prices take place. (Rothaermel, 2015)
Bargaining power of suppliers – The suppliers are having a considerably low bargaining power. It should be taken into consideration that there is the inclination of the suppliers in respect of significant retailers of food and grocery and are afraid to lose their business contracts with the big supermarkets. Therefore, there occurs further strengthening of the position of the retailer’s such as TESCO, ASDA as well as Sainsbury and positive negotiations take place for getting lowest probable price from the suppliers.
Marketing Mix model:
Product in TESCO’s marketing mix model: TESCO is providing a huge range of products that takes into consideration food, clothing, electronics, financial services and many more. This constantly growing range of products is catering to all the probable requirements of the customers and there has been expansion in the online marketing planning sector as well offering grocery delivery services as well as free music downloads along with 40,000 or more line of products that is being exhibited by its retail stores.
Price in TESCO’s marketing mix model: TESCO is attempting towards the maintenance of very low prices without the reduction of the product quality or facing losses. Various kinds of measures that include the economies of scale are being used by TESCO for passing each and every advantage related to cost in respect of its customers for satisfying them. The low price strategy of TESCO has made it possible for the retail company towards surpassing each and every expectation and to become Britain’s leading supermarket chain. It was believed that the retail company will be raising its prices after its firm establishment has been done but to the utter dismay of everyone, TESCO has maintained the lowest prices that can be expected till date. (Harrell, 2011) TESCO is having bigger stores where prices are further reduced as well as smaller stores in which the cost of the products is a bit more because of the higher costs associated with overhead.
Place in TESCO’s marketing mix model: The retail company is having it’s headquarter in Chestnut, Hertfordshire, England. The stores of the retail company have spread to various corners of the world. The retail company has employed two major distribution channels in respect of its products as well as services that are considered to be online as well as offline. There are six different types of offline stores for TESCO viz. TESCO Express, TESCO Extra, TESCO Motors, TESCO Compact, TESCO Homeplus as well as TESCO Superstore. Moreover, the retail company is making use of smaller stores to have easy access. The online forum of TESCO is known as TESCO Direct. (Harrell, 2011)
Promotion in TESCO’s marketing mix model: Having low prices is considered to be the biggest advantage for TESCO setting it apart from other chain of supermarkets. For the enhancement of its brand image, this aspect is being used by the retail company. The main goal of the retail company has always been the improvement of its brand image through the reduction of costs and profit maximization. In this respect, TESCO does the utilization of advertisements in television, offering promotional discounts, sponsoring charitable events, using point of sale strategic aspects and many more. The main concentration of each and every advertisement of TESCO is towards a single aspect, which are low prices. The retail company is also offering various striking offers for the customers throughout the year striving with the target of making customers do more purchasing. (Palmer, 2011) In addition to this, TESCO does the utilization of the Clubcard services for providing the customers with added discounts assisting the retail company for studying the customer’s pattern of demands and therefore, assisting TESCO to have a better knowledge of its market. This assists the retail company towards doing market segmentation as well as formulating appropriate strategies. Easy access as well as being available has assisted TESCO towards acquiring more trustworthy customers. Much appreciation has been received by its online services along with receiving brilliant feedbacks. In both the offline as well as online forums, the process of payment is considered to be simple where the online purchases are basically considered to be cheap in comparison to the offline purchases. (Kotler, 2010)
Physical evidence in TESCO’s marketing mix model: The stores of TESCO are not excessively detailed like the Sainsbury’s stores as well as other grocery stores. The reason being that TESCO does not approve towards spending more than the required amount of money towards the furnishing of its stores. But, all the stores of TESCO are clean as well as attractive nonetheless. They can get navigated easily with the well categorization of each and every product that can be found easily. (Daft, 2015) The placement of offers are done in such a manner that they can do the luring of the customers towards purchasing more than their requirement and the customers feeling that they are being able to do the saving of their financial resources. The website of TESCO is simple and can be functioned very easily as well.
People in TESCO’s marketing mix model: The brilliant sales assistants of TESCO have very much accountable for the success of the retail company. The retail company is using various loyalty programs like Colleague Privilege card, Save As You Earn, as well as Buy As You Earn for gaining the trustworthiness of its staffs. There is high competency of the staffs and they are well reimbursed in respect of their contributions to make TESCO successful. (Daft, 2015)
Process in TESCO’s marketing mix model: This is associated with the aspect of satisfying the customers through services associated with speedy billing as well as easy product attainment in its stores that are both online and offline. TESCO actualizes this through the employment of efficient employees as well as paying concentration towards the complaints of the customers as well as to address the factors that made them.
SWOT analysis: SWOT analysis is considered to be the structure to identify as well as to analyze the internal as well as external factors that will be having an influence on the practicality regarding a project, product, place or person. TESCO’s strengths, weaknesses, opportunities as well as threats are mentioned as under,
Strengths – TESCO is considered to be the 3rd biggest retail organization for grocery globally, functioning over 4,331 stores mainly in the USA, Europe as well as Asia. In 2010, the organization is holding 30.7% share of the grocery retail market of the UK. The retail company has showcased a strong financial performance over the years underlying its abilities associated with strategic aspects. The primary strategic aspect that that the organization has adopted is customizing its products as well as services in accord with the demands of the market. TESCO is having 27.9% market share and is considered as the largest grocery retailer in the UK as well whereas its nearest competitor Sainsbury’s is having the market share of only 16.6% and ASDA’s market share is 16.4%. To possess the biggest share of market is definitely considered to be a significant strength irrespective of the industry and this positional strength is allowing TESCO towards the generation of considerable profits. The organization is deriving considerable beneficial aspects from its Clubcard at various stages. (McDonald, 2012) Primarily, there occurs the effective use of Clubcard as a means for increasing the retention of the customers as well as loyalty of the customers. The retail organization is also having a strong property portfolio which is increasing its total worth.
Weaknesses – TESCO faced a statutory loss of GBP 6.4 billion in 2015 pushing its net debt amount to GBP 8.5 billion. In addition to that, the organizations overall leverage debt has reached GBP 22 billion. Even though, there has been consistent decline in the volume of profit before tax in the last 4 years, the severity of last financial year’s decline was the maximum that reflected the outcome of the accounting scandal that was found out in 2014
The issues associated with the accounting scandal was associated with wrong declaration that took into consideration an overstatement of commercial income by GBP 208 million and also the mistreatment of the suppliers. Due to a huge coverage by the media regarding the accounting scandal, the brand image of TESCO was adversely affected that led to the resignation of the company‘s CEO. TESCO still needs some time in regaining the trust of the stakeholders post this dastardly occurrence. (McDonald, 2012)
Opportunities – TESCO’s portfolio of commercial network is constantly growing. Out of 620 stores they have opened around 2010, approx. 430 were global. This diversification of the geography will assist the organization to manage its economy of scale while reducing its exposure to methodical risk. There is increasing popularity of Tesco.com that has accounting for more than 1 million customers around 2010 providing an organizational scope for attracting new customers as well as reducing the total cost that has resulted in additional profit. The focus of the retail company is to expand globally. There had been a prediction that the food retail market segment would be rising from ?125 billion in 2009 to ?145 billion in 2014 because of the fact that even at the time of recession, food retail is considered to be the toughest section as because to have sufficient food for eating is considered to be the most essential aspect.
Threats – Declining income as well as rising unemployment have influenced the flexible purchasing behavioral aspect of the customers that has negatively influenced the sales of the organization especially the non-food products. (McDaniel, 2011) The UK grocery market has undergone severe competition and TESCO, even though leads this sector for almost 15 years is presently facing strong competition from the other competitors that are occupying more and more share of the market. These other competitive retail organizations that are giving TESCO a tough time are Sainsbury’s, ASDA, Morrisons and so on.
PESTEL analysis: The PESTEL analysis is the structure or means that the marketers are using for analyzing as well as monitoring the factors associated with the macro environment that is having an influence on a company. The term PESTEL stands political, economical, social, technological, environmental as well as legal factors associated with an organization. The PESTEL structure that is mentioned here is analyzing the volatile environment where TESCO is functioning through the identification of the forces that are having the major influence on the performance of TESCO.
Political – As because TESCO is functioning globally, the international political factors are hugely influencing TESCO’s ability to perform. These take into consideration rate of taxes, legislation acts as well as the country’s stability where it is operating. Because of the continuous financial unsteadiness globally, various governments are encouraging the retailers for creating jobs in respect of the local population. TESCO along with performing its role in the creation of scopes for employment is also simultaneously increasing its product demands as well as diversifying its workforce.
Economical – In respect of TESCO, these factors are considered to be of great concern since they mostly influence costs, demand, profits as well as prices. As a result, TESCO should have the awareness of any kind of policy changes like taxation changes or any other issues that might be influencing the financial accessibility. It is worth mentioning that even though the business of the company is expanding globally, TESCO is still very much reliant on the UK market where the company’s market share is almost 30%. (McCalman, 2015) Moreover, because of the declining disposable levels of income as well as household incomes, TESCO did the shifting of most of its concentration towards the advertisement of its value brands in comparison to the more expensive products.
Social – Because of the different social changes, trends are indicating that UK customers have shifted to bulk as well as one-stop shopping. As a result, there has been an increase in the quantity of the non-food products by TESCO that they are offering in respect of selling. Social conditioning plays a significant role in affecting the beliefs and attitudes of the customers regarding the kind of products as well as services that they are demanding. Taking into consideration, the different changing approaches of the customers in respect of food, TESCO is getting adapted to these changing aspects. (Lind, 2014)
Technological – The technological advancements are giving rise to different new scopes in respect of TESCO. Primarily, by developing as well as introducing online shopping with scopes associated with home delivery and then self-service checkout points have offered conveniences as well as customer ease that as a result did the reduction of the costs associated with labor. Moreover, a huge investment has been done by TESCO regarding the projects associated with energy efficiency for fulfilling its long-term goals for the reduction of its carbon-footprint.
Environmental – With growing organizational pressures for addressing factors related with the environment as well as adopting the functional methods that will be benefitting the society. By 2020, TESCO is having the commitment towards reducing its carbon footprint by 50%. Moreover, TESCO is reducing the production of wastes in their stores through the growing social conscience of the consumers. (Lancaster, 2010)
Legal – TESCO’s performance is directly influenced by the policies as well as legislations of the Government. For facilitating the various policies, TESCO is providing its customers reduction in prices regarding the fuel that they are purchasing in accord to the amount they are spending in respect of their grocery stores.
In the concluding note it can be said that, three years down the line, the focus of TESCO is to expand globally. There had been a prediction that the food retail market segment would be rising from ?125 billion in 2009 to ?145 billion in 2014 because of the fact that even at the time of recession, food retail is considered to be the toughest section as because to have sufficient food for eating is considered to be the most essential aspect. TESCO’s portfolio of commercial network is constantly growing. Out of 620 stores they have opened around 2010, approx. 430 were global. This diversification of the geography will assist the organization to manage its economy of scale while reducing its exposure to methodical risk.
This assignment delves with aspect of strategic management in which a well-known retail organization has been taken into consideration. And, taking into consideration the various perspectives it can be very well inferred that TESCO is continuing to hold its position of leadership in the highly volatile segment in which TESCO’s core competencies is having alignment with the business environment as a result highlighting positive organizational outlook regarding the future.
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Harrell D, G. (2011). Marketing Management. Simon and Schuster Pub.
Kahn, K. B. (2012). The PDMA Handbook of New Product Development. John Willey & Sons
Lancaster, G (2010). Essentials of Marketing Management. Taylor & Francis.
Lind, P. (2014). Monitoring Business Performance. Routledge
McCalman, J. (2015). Change Management: A Guide to Effective Implementation. SAGE.
McDaniel, C. (2011). Essentials of Marketing. Cengage Learning.
McDonald, M. (2012). Market Segmentation. John Wiley & Sons.
Palmer, A (2011). The Business Environment. McGraw-Hill Higher Education.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill.