STRATEGIC MARKETING PLANNING: TESCO
Tesco company has become increasingly aggressive
in the last few years as the company increased its market share steadily but it
remained a constant distance behind Sainsbury's. This shows that Tesco is
looking to build on its leadership by constantly working to ensure that it is
maintained. However, one of Tesco's key weapons in the battle for retail
supremacy has been its Clubcard loyalty scheme and the subsequent launch of the
Clubcard Plus debit card. These have shown Tesco taking a clear initiative and
then building rapidly on its advantage. One footnote to this is that loyalty
cards should be seen as a longer term marketing tool since they enable retailers
to learn more about their customers'
shopping habits and respond accordingly with tailored offers. The key
to the success of the loyalty scheme is not launching it but how it is
used within the total marketing mix. Tesco followed with its Unbeatable Value range, potentially precipitating a price war. The impact of promotions will boost short term volume, rather than build brand empathy, with most pressure on those retailers that have always sold on price. A mix of retail positionings could lead to
a confused offer and, possibly, a cynical consumer.
Furthermore, it will encourage consumers to
become promiscuous, shopping at whichever store has the price promotion. This
does not engender loyalty to the store. A sustainable competitive advantage is
much more difficult to achieve but this is what the major players need to aim
for, and that on a regular basis to create and maintain leadership. Growth
through building new stores is no longer viable now that superstore saturation
appears to have been reached. Growth must now come through attraction and
retention of customers, increasing share of a customer's total expenditure
moving into related, but relevant, products and
services. However, there is a clear danger that price-cutting will be used for short-term share gain, even though its long-term effects would appear to be less positive. Tesco, announced fresh price cuts restarting a price war with its rivals and pre-emting the government's response to an inquiry into supermarket profits. It said the practice of selling items below cost was against the public interest because it damaged small grocers. It also criticised the policy of charging different prices for the same goods in different parts of the country according to the amount of local competition. Tesco said its new cuts would lower the price of a typical shopping basket by 11% for a pensioner, 9% for a young family and 12% for a student. They would not impinge on the company's profitability as they were targeted at everyday items rather than Tesco's profitable 'finest' range of premium goods.
Customer Relationship Management (CRM) is a business strategy that is facilitated and enabled by specialized technology. In conjunction with deploying new technology and initiating information engineering and knowledge management, no project of this scope should be launched if it does not address re-engineering processes across the service delivery model and the enablement and optimization of the people and the leadership that oversee it. (1991) Customer Relationship Management (CRM) is evolving from a evolving from a staff intensive business strategy based on specialized applications to a web based strategy for massive customization both in web site presentation, e-Mail communication and promotional banner and pop-up advertisements. It is an evolution that is enabled by web-technology that will allow the creation of micro-segments, precision targeting and full view of the customer across all the contact points across an enterprise. Many companies are interested in their customers purchase habits and preferences and are developing detailed databases to track purchase activities then, there are customer loyalty programs in which retailers track customer purchases to reward them with point and discounts toward future purchases. (, 2002)
Customer relationship management systems help organizations improve the profitability of their interactions with current and potential customers while at the same time making those interactions safer and friendlier through individualization and personalization. The marketing purpose and or goals of the loyalty cards are to enhance customer service, improve customer satisfaction and ensure customer retention. (1996) Moreover, customer retention and customer loyalty are major benefits of CRM systems to the organization as it is working to retain existing customers by managing relationships with them will generally increase revenues and reduce costs. Positive outcomes can include a larger share of a customer's businesses as a result of activities such as cross-selling and up selling. When CRM works, it helps to solve this problem by meshing everyone together and focusing the entire organization on the customer. CRM requires commitment and understanding throughout the company not just in marketing as it adds to a sense of expectation and loyalty being instilled within the consumer and the development of a relationship between company and customer that competitors find hard to break. According to that, ‘it is very easy to malign loyalty cards as people are always rubbishing them because of the expense but if you took TESCO’s loyalty cards away from us, it would be like flying blind’. They tell us how to attract customers, how secondary customers behave, how specific customers react to specific promotions, how you can influence competitors' openings, how you can spot new trends, how you can convert customers.
One of the criticisms of loyalty cards is that you get all the data but you don't know what to do with it all and end up drowning in it. The skill is to know what the customers want to get out of the system. What the customers can't have is barrel loads of paper every day saying, which is every transaction of every customer skills so strongly that the company engaged to do the analytical work is now available and TESCO is now adapting the system in terms of what it is telling with regards to the tastes of their loyal customers. A loyalty card might not really create customer loyalty, but it does have other advantages to the marketing purpose of such business and improves the worth value to the customers.
Tesco’s Principles of Marketing
Ø Understanding customer needs
Ø Coordinating functions to achieve marketing aims
Ø Adopting a marketing approach
Ø Effective customer communications
Generally, Tesco are faced with increased
fragmentation of consumer markets as it has been driven by increased food
choices, various lifestyles, increased discretionary income and greater exposure
to brand promotion and communication ( 2001) and that going global in the true
sense of the word could be a risky strategy. As
has said, "If people think that going international is a solution to their
problems at home, they will learn by spilling their blood. ( 2002) If food
retailers "need" to go global then it follows that the company should have the
characteristics that fit with this strategy. Furthermore, management is most
often decentralized so as to ensure that stores are more sensitive to cultural
nuances. Finally, food retailers do not tend to expand rapidly since they
concentrate their expansion on a limited number of countries, attempting to gain
market share due to the highly competitive nature of the sector. Thus, if a food
retailer was to adopt a truly global strategy, that is assuming their customers
are homogenous throughout the world, it may experience major problems. ( 2002)
Ironically, Tesco has itself developed the supermarket format and distribution
system that has been flexible to adapt to its local markets as this enables
Tesco to express itself
within the context although it is recognized as coming from Britain ( 2002).
According to (2003), customer relationship marketing enables companies to provide excellent real-time customer service by developing a relationship with each valued customer through the effective use of individual account information. Based on what they know about each customer, companies can customize market offerings, services, programs, messages, and media. Discount and club cards have been a strategy to developed similar loyalty schemes in order to identify and stimulate brand awareness. These database marketing and loyalty programs, the ultimate promotion strategies for the retailer are powerful, highly segmented customer-oriented forms of promotions, encouraging customer retention and purchase activation. One of the most important assets of many firms is the loyalty of its customer base. Measures of sales and market share are useful but crude indicators of what customers really feel about a firm. Measures of customer service and brand loyalty are more sensitive and provide diagnostic value as well. One way of accessing customer needs/wants is to examine customers’ complaints and obviously try to respond to them. As far as measurement is concerned, the most important point is that the range of instruments used and their sensitivity are appropriate to the clients under scrutiny.
Tesco’s Club card enable the retailer to communicate with the customer on almost a one-to-one level and develop an offer which can be heavily focused towards individual consumers according to their purchasing patterns. Tesco has been with other different kinds of marketing schemes and strategies in order to maintain the pace and the profit of their organizations. Tesco like other leading retail stores made themselves different kinds of advertising and marketing techniques to attract their consumers and build the loyalty of their patrons and supporters. Marketing communications encompasses wide range of advertising and promotions. Marketing strategies which comes with the marketing communications should be that effective to attract the consumers and be competent enough for the business market on the local and international scenario. When marketing communications and strategies are in concerned, TESCO has been supportive of any methods which are profitable, especially those that have little expenditure attached to them. One of the marketing strategies which TESCO has been doing is the lower price campaign they did in their Asia branch to compete and maintain the stand they have as one of the leading retail store in international business.
In some point of marketing strategies, World Class Distributors tried to change customer’s brand loyalty from the suppliers’ product brand name to the store’s brand name. They increased their advertising in all kinds of media, for example, newspaper, radio, cinema and outdoor billboards. On the other hand, it must be kept in mind that the main part of this allocation came from the suppliers themselves who were willing to sell their products into these channels such as the retail stores. Despite the fact that the customer began to change their buying habits from being attracted by low prices to being attracted to the store’s external promotional strategies. In another point, one of the most important assets of many firms is the loyalty of its customer base. Measures of sales and market share are useful but crude indicators of what customers really feel about a firm. Measures of customer service and brand loyalty are more sensitive and provide diagnostic value as well. One way of accessing customers’ needs is to examine customers’ complaints and obviously try to respond that the range of instruments used and are appropriate.
Customer loyalty management is reflected in average order/purchase value and the distribution of order/purchase value sizes. It has to be borne in mind that the costs of order management and handling is not usually size related and a profile of order size across the current and potential customer base is a better indicator of value creation. The average period of customer loyalty and the expected value of the loyalty transaction may be a significant factor. This might be quantified by calculating the net present values of costs of acquiring and retaining customers. Such analysis is an important consideration in shareholder value creation; there can be quite different value results from similar levels of revenue. (1993) identify the importance of customer and supplier involvement in the ‘value creating system’. They use the example of Ikea to illustrate the role the customer may take in creating value. They highlighted a number of tasks assumed by customers that are usually undertaken by the retailer. The approach can be used with suppliers and distributors using transaction cost analysis. Hence, customers, suppliers and distributors become involved in value creation and this co-productivity is an important value driver.
Consumer loyalty cannot be fixed because they are constantly changing and consumers are correspondingly unpredictable in their behavior. The shifting nature of the symbolism of consumer wants and needs makes it seem apparent to marketers that consumers do not know what they want, but only what they do not want. Moreover, what is symbolic today may not be symbolic tomorrow or alternatively it may symbolize something that is unattractive. The task for marketers is to predict what will be a fashionable symbol tomorrow, and equally important, when tomorrow will be. Moreover, business competitors may copy or improve on a product or service but they still have to make the customers switch brands. Brand loyalty or resistance to switching can be based on lack of motivation to change from the existing brand, a genuine liking for an existing brand or the actual cost of switching. Switching costs reflect the sunken investment that has to be sacrificed in order to switch from one brand to another. Switching costs will be lower for fast-moving consumer goods but clearly higher for durable consumer white goods. An existing base of loyal customers provides an enormous sustainable competitive advantage. It reduces the marketing costs of doing business since existing customers are relatively easy to hold whereas getting and retaining new ones is more difficult.
The loyalty of existing customers represents a substantial entry barrier to would-be competitors. Excessive resources are required when entering a market in which existing customers must be cajoled away from an established brand with which they are well satisfied. The profit potential for the tentative entrant is thus reduced. Furthermore, competition is strong and the costs of getting new customers are high. Customers that have been with a company for some length of time tend, on average, to spend more on each transaction, offer more opportunities for selling them other products and services and give better recommendations to their friends and colleagues than other customers. Customer loyalty is considered to be an important driver of success and increased profitability. However, customer loyalty and customer retention need to be distinguished from one another. Customer retention reflects only repeat purchase behavior. Customer loyalty, however, is more to do with how customers feel about the firm whether they trust the firm, whether they actively want to do business with the firm and whether they will recommend the firm to others. Customer loyalty is closely related to customer satisfaction. While retention can be obtained through discounts for repeat purchase and so on, getting high customer loyalty requires greater long-term investment. It involves emphasis on achieving excellence in the service activities that augment the basic product offering.
Henceforth, relationship marketing brings long-term financial benefits to an organization. It is a means to an end and is based upon two economic arguments. First, it is more expensive to win a new customer than it is to keep an existing customer. Second, is that the longer the association between the company and the customer, the more profitable the relationship for the firm. Relationship marketing evolves ties between the organization and its customers to improve feedback and develop customer loyalty. Customers are open to the pressures of competitive promotions and may readily switch brands or store. A firm needs to establish a much stronger relationship with customers. Relationship marketing tries to get customers to actively support the firm and its products and to encourage others to do the same. The aim of relationship marketing is to find ways of enhancing the mutual benefits derived from the relationship. Successful relationship marketing involves the targeting of customers of sufficient value to justify the investment in creating a relationship with them. Relationship-building resources can be directed to those customer groups where this is mutually advantageous. The strongest relationships are based on the establishment of mutual trust and respect between organizations concerned.
The moving of customers from the situation where they are simply prospects to the position where they are brand loyal customers requires an active and creative approach. Firms should stress to the customers the benefits which are to be derived from loyalty. Financial benefits are not the only mechanism that can be employed. Preferential treatment in terms of access to updated models or preferential treatment when purchasing or taking advantage of special offers illustrate the kind of benefits that can be offered. Getting people to realize that they are benefiting more from a relationship than they had initially anticipated can also discourage defectors. Customers need to be more than just satisfied with a product to remain brand loyal. To improve the probability of customer retention and develop loyalty one has to deliver greater value to customers than they had expected. This demands a high priority to be given to customer service both in the strategies the organization designs and the action it takes in the market. Within the retail sector, firms are moving into database marketing with their so-called loyalty cards.
Thus, supermarkets have long been criticized for a low level of service and have been attempting to increase the service element in their stores and stress this in their communications. Initiatives such as Tesco’s Club card enable the retailer to communicate with the customer on almost a one-to-one level and develop an offer which can be heavily focused towards individual consumers according to their purchasing patterns. Expectations may be used as comparison standards in two ways ( 1991). First, there are expectations of what customers believe will occur in a service encounter. These are called predictive expectations. Second is what customers want from the service encounter, their desires. These constitute adequate and desired levels of service and between these two extremes is a zone of tolerance. A performance level above the zone of tolerance is likely to delight the customer and strengthen loyalty, whereas performance below the zone of tolerance will create customer dissatisfaction, frustration and ultimately may lead to decreasing customer loyalty.
Many retailers have tried and failed to establish themselves outside their home markets. Likewise, some retailers have gone astray trying to exploit Internet shopping. As a result, Tesco, the United Kingdom's biggest grocer, has attracted considerable attention because of its ambitious overseas strategy and its successful on-line home delivery service. Relying on sales of nonfood items and on international sales particularly in emerging markets for an important part of the company's future expansion, Tesco has delivered one of the fastest organic growth rates of any major retailer in the world. Its nonfood business rose by 18 percent in 2000-01, and its international business, which began with a launch in Hungary in 1994, now accounts for more than 40 percent of the group's floor space. Tesco also happens to be the undisputed world leader in Internet grocery sales (). Its on-line home delivery service is now profitable, Tesco says, and it has struck a deal in the United States with Safeway, which will use Tesco's system for a home-shopping service. Underpinning Tesco's success is excellent management and an obsession with operational efficiency and productivity gains, which the company uses to keep prices low or to improve service rather than to increase its operating margins. Despite this impressive record, Tesco is still relatively small compared with the likes of Carrefour and Wal-Mart, but it is growing faster.
The clubcard and customer retention can be linked through the use of the internet as internet is now the most popular means of reaching and interacting with customers having such rewards of increased customer retention, growth and profitability with the most proficient at managing their relationships with their most valuable customers with the potential to tighten connections with better service, remember customer histories and requirements to deliver personalized solutions, and improve the synchronization of dispersed points of customer contact. (,2001) Customer loyalty can also be a possible linkage in terms of the clubcards and customer retention as there is a marketing resources that come into the scene as there are many companies are interested in their customers purchase habits and preferences and are developing detailed databases to track purchase activities and information such as this can help managers plan future sales or merchandising events, manage inventory levels of merchandising decision and the popular are customer loyalty programs in which retailers track customer purchases to reward them with point and discounts toward future purchases. (, 2002)
Tesco’s marketing work with a talented and
effective agency team, which has shown adaptability, innovative marketing ideas
over the years. This helps the company continues the remarkable feat of
presenting itself to its customers in a way that makes them feel like
individuals, under the theme of every little helps, belying its status as a
retail behemoth. Tesco also managed to inspire and
motivate the marketing team that not only shares brand guardianship but also is allowed to work in an atmosphere of mutual trust and respect. Tesco adopts the customer-oriented approach in terms of marketing, since the company was known for its customer focus. Tesco says, "Every little helps", and it really means it and the consumers love it. Analysis and sales data of the company has shown that in years of recession, customers will be very price sensitive. Thus, Tesco launched its own lower-priced private label goods. Tesco knew that customers get very agitated if they wait in line for too long and this may cause some people to abandon their shopping carts. Tesco has been primarily a food retailer where in a mature market that has grown little for the past 20 years; Tesco has grown slowly but surely. That it is already a testament to consumer attraction. The only route to growth in a mature market such as retailing is by taking market shares from the competitors and Tesco has achieved this by replacing in 1995. Listening, observing and serving their customers better than the competitors also helped the achievement.
In marketing, there needs to be effective lines of communication between both the company and its customers. Tesco enables knowing what the customers want then, communicates to the customer through advertising, sales promotions aiming at a specific target market, giving consumers the information on buying their products: was launched in 2000, which provides on on-line shopping system to everyone, where people can order what they wanted placing an order and the products will be delivered to their doors. Tesco's successful online shopping started off falteringly as an e-mail ordering system with a crude web site. Tesco just wanted to serve its customers better and by learning from its mistakes through innovations that resulted in e-retailing template that became an International Standard. Consumers today rely on malls and supermarkets for their social and entertainment purposes, much the same way as restaurants supplement dining at home. The bottom line is that consumers want to shop when it is convenient for them. It is now the buyers market and not the sellers market like before. Retailers who are complacent and not refine their customer relationship pattern would pay the price of losing their market share in a flash. Consumers are becoming more sophisticated. In fiscal 2003 Tesco finance reached the milestone of one million motor insurance policies, making it the fastest growing motor insurance ever. The group’s instant travel insurance allows Clubcard holders to buy their holiday insurance at the checkout by providing convenience to their customers at every opportunity.
Customer relationship management (CRM) is a
business strategy that uses information technology to provide the enterprise
with a comprehensive, reliable and integrated view of its customer base so that
all business processes and customer interactions help maintain and expand
mutually beneficial relationships. CRM systems help organizations improve the
profitability of their interactions with
current and potential customers while at the same time making those interactions safer and friendlier through individualization and personalization. The systems goals are to enhance customer service, improve customer satisfaction and ensure customer retention. ( 1996) Customer retention and customer loyalty are major benefits of CRM systems to the organization. Working to retain existing customers by managing relationships with them will generally increase revenues and reduce costs. Positive outcomes can include a larger share of a customer's businesses as a result of activities such as cross-selling and up selling.
Therefore, in order to implement CRM effectively, TESCO will have to reorganize their customer and change their organizational mindset. When CRM works, it helps to solve this problem by meshing everyone together and focusing the entire organization on the customer and in relating to strategic initiatives, CRM requires commitment and understanding throughout the company, not just in marketing to a sense of expectation and loyalty being instilled within the consumer and the development of a relationship between company and customer that competitors find hard to break. Business decisions based on complete and reliable information about Tesco’s customers are very difficult for their competitors to replicate and represent a key and sustainable competitive advantage. CRM is the most important part of any customer focused business strategy and includes the people, process and technology related question to marketing, sales and services. Today, organisations looking to implement CRM strategies need to focus on a common view of customer using integrated system that allows the customer to communicate through any kind of communication medium. Within most companies CRM measurements are complex. Many organisations are seeking to shift their focus away from products and on to the customers and learning new ways of managing customer facing activities in order to learn that organisations will need to build new ways of knowing customers. Tesco hold its multi format capability that it will continue to grow its share while increasing space contribution from hypermarkets and allow it to drive a higher share to its company structure as a whole.