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CASE STUDY
Tesco: Corporate Level and Business Level Strategies
Page 1 of 38
Table of Content
Item Components Page
1 Introduction
- Tesco History
- Vision and Mission
4
5
2 Background of Tesco Stores...
INTRODUCTION
Tesco History
Tesco was founded in 1919 by Jack Cohen from a market stall in London’s East End.
Today it is o...
Vision and Mission
Companies like Tesco, that enjoy long-term success, are focused businesses. They have a
core vision tha...
BACKGROUND OF THE COMPANY
Tesco Stores (Malaysia) Sdn Bhd
Tesco Stores (Malaysia) Sdn. Bhd. was incorporated on 29 Novembe...
EVALUATION OF CURRENT CORPORATE LEVEL STRATEGIES
Tesco has a well-established and consistent strategy for growth, which al...
Low Price Strategy
Everyday Low Price
An Every Day Low Pricing (EDLP) is a pricing strategy of Tesco is more popular with
...
Growth Strategy
Club Card scheme
Tesco Club card membership scheme allows customers to save money on shopping
by providing...
Own brand value
Own brand value portrayed the strong brand image of TESCO based on effective strategy.
Tesco is very good ...
Differentiation Strategy
The strategy to diversify the business was laid down in 1997 and has been the foundation
of Tesco...
Community
Making Corporate Service Responsibility (CSR) integral to the business is essential in
applying our values as a ...
Tesco Malaysia: Adoption of strategy
Tesco Malaysia: Corporate Strategies
Page 12 of 38
Competitor Analysis
In this retail industry there is stiff competition between hypermarkets. Names such as
Giant, AEON Big...
SWOT Analysis for Tesco Stores (Malaysia) Sdn Bhd
The SWOT Analysis shows that Tesco Malaysia currently has the resource c...
Weaknesses
 Dependable on UK business. Business-model which Tesco uses approaches for the
Great Britain, instead for othe...
Threats
 Stiff competition within industry. There are other major supermarket chains, such as
Giant, AEON Big and AEON in...
customers in the same
stores.
4- Tesco regularly continues
to make acquisitions to
expand its business
5.Tesco is the most...
Threat ST WT
1: At the beginning of the
2007, Malaysian retail
market became more
competitive
2:While service offerings
to...
Key Success Factor
NO Key Success
Factor
Case Facts
The stole appeals to wide reaching demographics across the country and...
Competitive Profile Matrix (CPM) Analysis
Tesco Giant AEON BigKey
SUCCESS
FACTORS
Weight Rating Score Rating Score Rating ...
EVALUATION OF CURRENT BUSINESS LEVEL STRATEGIES
Business Level Strategy is a plan which sets out how a business deploys it...
However, given the huge scale, potential and complexities of these markets, Tesco feels
that being the first is not necess...
INDUSTRY ANALYSIS: PESTEL FRAMEWORK
Political Factors
Operating in a globalized environment with stores around in 12 count...
Social Factors
Current trends indicate that customers have moved towards ‘one-stop’ and ‘bulk’ shopping.
This is due to a ...
Environmental Factors
The main societal issue threatening food retailers has been environmental issues, an
important area ...
INDUSTRY ANALYSIS: PORTER’S FIVE FORCES
Threat of New Entrants
Majority of large chains have built their power due to oper...
Tesco’s famous loyalty Clubcard, remains the most successful customer retention strategy
that significantly increases the ...
borrows a significant amount of time and resources for creation of new supermarkets and it
is therefore a significant obst...
Boston Consulting Group Matrix (BCG) for Tesco Malaysia
BCG matrix is another marketing tool, a business would place the p...
Competitive Profile Matrix (CPM)
TESCO GIANT AEON Big
Critical
success
factors
Weight Rating Score Rating Score Rating Sco...
Conclusion and Recommendation for Improvement
Conclusion
The success of the Tesco Stores Malaysia shows how far the brandi...
Recommendation
Improve customer offer
Listening to customers in a wide variety of ways is the key of what to do. Engage wi...
People Development:
Great service can make a customer's day, and this can be achieved when the employees live
the Tesco Va...
evident during the Thai floods few years ago, enabling Tesco to secure essential supplies
from Malaysia and other markets....
References
Chae, B., Olson, D., & Sheu, C. (2013). The impact of supply chain analytics on
operational performance: a reso...
Obereder, C. (2013). The Success Story of Tesco: From the beginning up to 2012 (Vol.
683).
Schoemaker, P. J. (2012). How t...
"EDLP, Hi-Lo, and Margin Arithmetic", Stephen J. Hoch, Xavier Dreze, & Mary E. Purk, The
Journal of Marketing, Volume 58, ...
Appendix A
Tesco Business Model
Page 38 of 38
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MBA Strategic Management Assignment: Business Level Strategy and Corporate Level Strategy of TESCO Malaysia

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MBA Strategic Management Assignment: Business Level Strategy and Corporate Level Strategy of TESCO Malaysia

  1. 1. CASE STUDY Tesco: Corporate Level and Business Level Strategies Page 1 of 38
  2. 2. Table of Content Item Components Page 1 Introduction - Tesco History - Vision and Mission 4 5 2 Background of Tesco Stores (Malaysia) Sdn Bhd 6 3 Evaluation of current corporate level strategies 7 - Low Price Strategy - Customer-focused Strategy - Growth Strategy - Differentiation Strategy - Competitor Analysis - SWOT Analysis & SWOT Matrix - Key Success Factor & CPM Analysis 8 8 9 11 14 15 20 4 Evaluation of current business level strategies - Cost Leadership - Market Development - Product Development - Market Penetration 22 - Industry Analysis: PESTEL Framework - Industry Analysis: Porter’s 5 Forces - BCG Matrix & CPM 24 27 30 5 Conclusion and Recommendation for Improvement 32 6 7 References Appendix 36 39 Page 2 of 38
  3. 3. INTRODUCTION Tesco History Tesco was founded in 1919 by Jack Cohen from a market stall in London’s East End. Today it is one of the largest retailers in the world. Tesco’s core business is retailing in the UK, which provides 60% of all sales and profits. Tesco has the widest range of food of any retailer in the UK. Its two main food brands are its Finest and Everyday Value ranges, each sell over £1 billion per year. The position of Tesco as a leading global brand is clearly shown by its expansion of operations into 12 countries including China, Czech Republic, India, Malaysia, Ireland, Hungary and Poland. In 2013, Tesco employed more than 530,000 employees. This level of success does not happen by chance. Tesco’s leaders have always set high standards and clear goals, never settling for anything less than the best. Tesco’s ‘Every Little Helps’ philosophy puts customers, communities and employees at the heart of everything it does. It prides itself on providing a great shopping experience for every customer it serves, whether in stores, online or in its many other services. Tesco’s core values include a commitment to using its scale for good by being a responsible retailer. In 2010, it opened the world’s first zero-carbon supermarket in Ramsey, Cambridgeshire and was awarded Green Retailer of the year at the Annual Grover Gold Award 2012. Tesco aims to be a zero-carbon business by 2050. Tesco’s continuing success depends on it reevaluating and formulating clear business strategies. Tesco aims to enhance customer loyalty and its core UK business in order to help it develops better shopping experience for its customers. It committed £1 billion to an investment program to achieve this. Strategies to improve competitiveness were then developed. The driving forces behind these strategies are price, quality, range and innovation as well as delivering excellent multichannel customer service, for example through its “Click & Collect” service. This case study examines Tesco strategies, the reasons behind each component and how vision, aims and cultural value interrelate to make the strategies successful. Page 3 of 38
  4. 4. Vision and Mission Companies like Tesco, that enjoy long-term success, are focused businesses. They have a core vision that remains constant while the business strategies and practices continuously adapt to a changing world. In an increasingly competitive global environment, without a clear vision a business will lack direction and may not survive. Tesco has a seven part business strategy to help it achieve its vision. A vision is an aspirational view of where the business wants to be. It provides a benchmark for what the business hopes to achieve. Tesco is a company built around customers and employees. Its vision guides the direction of the organization and the strategic decisions it makes. Tesco’s vision is “To be the most highly valued business by the customers we serve, the communities in which we operate, our loyal and committed employees and of course, our shareholders”. Tesco’s vision has five elements which describes the sort of company it aspires to be. These are to be: - wanted and needed around the world - a growing business, full of opportunities - modern, innovative and full of ideas - winners locally whilst applying our skills globally - inspiring, earning trust and loyalty from customers, our employees and communities The vision, mission statement and goals are interrelated and state what an organization is seeking to achieve whereas the strategies and tactics show how it will achieve them. Tesco’s mission is simple: “We make what matters better, together”. Page 4 of 38
  5. 5. BACKGROUND OF THE COMPANY Tesco Stores (Malaysia) Sdn Bhd Tesco Stores (Malaysia) Sdn. Bhd. was incorporated on 29 November 2001, as a strategic alliance between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the latter holds 30% of the total shares. Tesco opened its first store in Malaysia in February 2002 with the opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia currently operates 49 Tesco and Tesco Extra stores nationwide. In year 2003, Tesco launched Tesco own brand, Tesco Value. In 2004, Tesco Malaysia launched its own house brand, Tesco Choice. In December 2006, Tesco also acquired Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to Tesco Extra and provides products for small local retailers. In 2007, Tesco launched customer loyalty card, ‘ClubCard’. Club card has received an overwhelming response from customers with over 2 million household members signed up to date. As of January 2009, Tesco have rewarded nearly RM10 million worth of Club card Cash Vouchers to the customers. Later in year 2008, Tesco introduce Green Club card and Green bags making Tesco Malaysia to be the first Tesco International business to introduce the Green Club card scheme. Tesco launched Green Clubcard Points to incentivize customers shopping with their own bags, introduce degradable carrier bags, promote positive behavior among employees through Energy League competition and a recycling centre to facilitate customers to do their part for the environment. Tesco PLC has appointed George Fischer as the new Chief Executive Officer for Tesco Store (Malaysia) Sdn Bhd in January 2013 to replace Do Sung-Hwan. Prior to this appointment, Fischer was chairman of the management board of the Belgian operations of Lidl Stiftung & Co, a global German discount supermarket chain. Page 5 of 38
  6. 6. EVALUATION OF CURRENT CORPORATE LEVEL STRATEGIES Tesco has a well-established and consistent strategy for growth, which allowed Tesco Stores Malaysia Sdn Bhd (Tesco Malaysia) to strengthen core business and drive expansion into new markets. The rationale for corporate level strategy is to broaden the scope of the business to enable it to deliver strong sustainable long-term growth by following the customer into large expanding markets at home such as financial services, non-food, telecoms and new markets development in Malaysia. Tesco Malaysia adopted few strategies to survive and sustain in the market. The few strategies are: 1. Low Price Strategy i. Everyday Low Price 2. Customer-focused Strategy i. To create value for customer to earn their lifetime loyalty 3. Growth Strategy (business – product development) i. Club Card scheme ii. Green Club Card iii. Own brand value iv. Plug n Pay service 4. Differentiation Strategy i. Core UK business ii. Non-food business iii. Community iv. Personal Finance Page 6 of 38
  7. 7. Low Price Strategy Everyday Low Price An Every Day Low Pricing (EDLP) is a pricing strategy of Tesco is more popular with shoppers than one driven purely by promotions, according to a survey in the UK. Tesco Malaysia is the first hypermarket to launch a long-term EDLP campaign in a bid to address the rising cost of living. Pricing was a key strategy and selling point for Tesco. They have invested about RM40mil for the campaign to be able to reduce prices up to 30%. Low prices were adopted to maximize sales. Tesco's value-added products at low prices attracted many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went into massive price reductions. The company adopted the strategy of 'Everyday Low Pricing' (EDLP), while continuing its other promotional activities. Adopting the EDLP strategy demonstrated Tesco's commitment to its customers, putting customer interests first. This is also a competition between companies. EDLP is essentially an advertising strategy to attract more customers to buy their products. It is mostly seen on food stuff. Customer-focused Strategy Create value for customer to earn their lifetime loyalty The core purpose is to create value for customers to earn their lifetime loyalty. Everything Tesco did, every innovation they bring to the market, every business decision they take, is driven by the customers. The underlying aim is of course to make higher profits, but there is a clear focus on customer service at the top level of the company. Tesco must be able to maintain this focus that it is widely perceived as a great corporate success story and the dominant company in Malaysian retail market. Otherwise, it will succumb to corporate arrogance as sometimes happens to dominant companies. Tesco believes that by living by the values, they will encourage and demonstrate behavior that will help them achieve the core purpose and set them apart from the competitors. Values enable them to build a common way of working. They want people in the business feel comfortable with these values and feel they can genuinely demonstrate them. They aren't about being soft and lovely, but about being rigorous and single minded about how they achieve their goals. Page 7 of 38
  8. 8. Growth Strategy Club Card scheme Tesco Club card membership scheme allows customers to save money on shopping by providing them price-off vouchers. Customers get points on money spent at any stores of Tesco group of companies as well as at stores of their partner companies. The accumulated points will be converted into Club card vouchers which enable the customers to save money on shopping. One can argue that other retailers also have similar loyalty programs. However, while most loyalty schemes and relationship marketing strategies similar to Club card have often failed for other retailers, Tesco’s Club card has worked well and managed to succeed. It can be said that what has made Club card work so wonderfully for Tesco is the fact that with this simple single loyalty scheme, Tesco has been able to address to the customer segments of different age groups. The main reason behind the success of Tesco’s relationship marketing strategy and loyalty program has been the way it has managed to establish Club card not as a marketing tool but as a product of relevance and value for the customers. Green Club Card Green Clubcard points are earned when customers re-use bags when shopping in store one point per bag, or opt out of receiving bagged products when shopping online one point per ten items delivered. They can also earn points by recycling a limited number of products, currently mobile phones and ink cartridges, through Tesco-branded recycling services. Green Clubcard points are equal in value to normal points, but are listed separately on receipts and Clubcard statements. As part of its global commitment, Tesco Malaysia is market leading on tackling climate change agenda around energy saving initiatives, degradable carrier bags and Green Club card Points scheme to encourage customers shopping with their own bags, Tesco also introduced its Green Club card League and Green Club card Champions to promote positive behavior among staff through inter-stores Energy League competitions and opened 6 recycling centers to facilitate customers to do their part for the environment. Page 8 of 38
  9. 9. Own brand value Own brand value portrayed the strong brand image of TESCO based on effective strategy. Tesco is very good at using design across their own label, especially strategically. Tesco is often used as one of the best examples of own brand label in the retail industry. Majority of consumers buy the basic Tesco brand as it is cheap and good value for money. The use of Tesco logo is consistent in each of the products design. Brand values of Tesco are successfully throughout Tesco own brand ranges demonstrated through experience and way finding system. Tesco uses design to give something back to customers for shopping at Tesco. As competition is so intense, retailers such as Tesco use design to differentiate from the competitors. Plug n Pay Service Tesco Malaysia has taken grocery shopping to a different level with the launch of Plug n Pay service in October 2014. This is to facilitate payments for home delivery of goods bought online. Plug n Pay by CIMB is Malaysia’s first chip-based mobile point-of-sale (mPOS) solution that offers businesses of any size an affordable yet secure way to manage electronic payments using smartphones and tablets. This is how it works: Tesco’s Customer Delivery Assistants plugs in the portable Plug n Pay card reader into their mobile devices, which would then accept credit and debit cards, and safely facilitate payments for goods delivered. Customers would be issued electronic receipts immediately via email or SMS upon confirmation of a transaction. Tesco Malaysia was the first hypermarket to come up with the online payment method in Malaysia, with a selection of 18,000 fresh produce and grocery items. Since the launch of online shopping service in 2013, Tesco Malaysia have more than 150,000 registered online shoppers in the Klang Valley, Johor Bahru and Penang. The new electronic payment method will also enable Tesco to view real-time transactions, track the location of transaction using the geo-location feature and user-detail management via the mobile app and web-based Plug n Pay portal. Page 9 of 38
  10. 10. Differentiation Strategy The strategy to diversify the business was laid down in 1997 and has been the foundation of Tesco’s success in recent years. The new businesses which have been created and developed over the last decade as part of this strategy now have scale, they are competitive and profitable. In fact, the International business alone makes about the same profit as the entire Group did a decade ago. Core UK business The UK is the biggest market and the core of Tesco business. The aim is to provide all of the customers with excellent value and choice. It has been innovative and energetic in finding ways to expand, such as making a large-scale move into the convenience-store sector, which the major supermarket chains have traditionally shunned. Tesco has 702 stores and is the largest food retailer in the United Kingdom. Tesco continue to increase market share through their policy of cheaper prices, offering better value and providing more choice and convenience for customers. Market share of the UK has grown steadily since the early nineties as a result of our customer focused strategy Non-food business The aim is to be as strong in non-food as in food. This means offering the same great quality, range, price and service for the customers as in the food business. Many supermarket chains have attempted to diversify into other areas, but Tesco has been exceptionally successful. By late 2004 it was widely regarded as a major competitive threat to traditional high street chains in many sectors, from clothing to consumer electronics to health and beauty to media products. Tesco sells an expanding range of own- brand non-food products, including non-food Value and Finest ranges. It also has done quite well in non-food sales in Malaysia. Page 10 of 38
  11. 11. Community Making Corporate Service Responsibility (CSR) integral to the business is essential in applying our values as a responsible business. Tesco Malaysia believes it is also an opportunity for growth and also is committed to stay close to the heart of the communities Tesco Malaysia is part of. Tesco Malaysia responded and worked with many local communities including NGOs such as the National Cancer Council (MAKNA) to raise RM450, 000 through fundraising and Walk for Life series to raise cancer awareness. Tesco has also raised funds for the Malaysian Nature Society through the sales of its designer green bag and carrier bag sales and Walk for Schools donation to local primary schools. Tesco Malaysia’s Charity partner of the Year 2010 is Nur Salam, and it aims to help improve the quality of life for these children through customers and employees fundraising activities at all its stores nationwide. Personal Finance Tesco has followed its customers into the growing world of retailing services, aiming to bring simplicity and value to complex markets. Tesco Malaysia is making it easier for customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes through Easy by RHB at Tesco stores, collaboration with the RHB Banking Group. Following the successful launch of its first two financial products in January 2009, the co- brand Tesco-RHB Credit and Debit Cards, there are now five new, instant banking products being offered to existing and new customers expanding the range of products that customers can access quickly and conveniently while shopping at Tesco. Whether it's opening a savings account, applying for a credit or debit card, buying life and personal accident insurance, arranging Amanah Saham Bumiputera financing or applying for personal loans up to RM50, 000, everything is quick and convenient at Tesco. Background checks and approvals are completed on the spot at conveniently located kiosks in Tesco stores. Page 11 of 38
  12. 12. Tesco Malaysia: Adoption of strategy Tesco Malaysia: Corporate Strategies Page 12 of 38
  13. 13. Competitor Analysis In this retail industry there is stiff competition between hypermarkets. Names such as Giant, AEON Big and Jusco are the biggest rival for Tesco Malaysia to compete in the industry. This report will explain further regarding the Tesco Stores Malaysia rival. Giant Hypermarket In Malaysia, Giant has become synonymous with everyday low prices, big variety and great value. This has been underscored by few surveys conduct in Malaysia, which showed that Giant was perceived as the cheapest place, in Malaysia, to shop for everyday groceries besides Tesco. Giant holds second biggest market share (24%) in retail industry in Malaysia for the year of 2010 after Tesco (30%). AEON (Previously know as Jusco) In order to be successful, it is vital for a shopping centre to have the right environment and tenant mix. Only then will customers be willing to spend endless hours here in pursuit of activities that entertain and help them to relax. AEON provides laid back environment in their shopping complex. Customers feel free to shop. They can also spend time with their family eating at the food court provided by Jusco. Jusco holds 22% of market shares and the third biggest after Tesco and Giant for the year of 2010. AEON Big (previously known as Carrefour Malaysia) AEON Big success is based on the talent and motivation of its staff. To increase efficiency and competitiveness, and in order to improve as a retailer, the AEON Big is about to transform themselves and redesign its organization, enhance synergies between sales and purchasing, and create new relationships between head offices, countries and stores. AEON Big still sustains in the market in Malaysia and has 15% of market share in retail industry for the year of 2010. Page 13 of 38
  14. 14. SWOT Analysis for Tesco Stores (Malaysia) Sdn Bhd The SWOT Analysis shows that Tesco Malaysia currently has the resource capabilities to successfully enter the market and is capable of implementing a market development strategy. The report recommends that Tesco targets the high-end market segment with a differentiation strategy. Success in companies that operate for marketing and profit acquisition lies on the ability of the management in positioning and establishing the products or services being offered. Furthermore, the ability of the company and its management to compete and maintain a competitive edge among its competitors is another basis to say that it is successful. The constant development and innovation on the product line and the growing number of clientele also define the corporate standing of a company. This report analyzes the strategic capability of Tesco Malaysia. Strengths  The main strength of Tesco is its strong brand name and its valued customer service. The company is far less integrated than the other big company that which makes them more flexible compared to others.  Competitive prices strategy. The focused price cuts made it possible for Tesco to draw in far more consumers via competitors along with catch the volume that backed the bottom prices.  Strong hypermarket format. The expansion of new stores by adding space to existing locations has contributed to the growth of Tesco supermarket. Tesco runs two type of hypermarkets format - Tesco Hypermarket and Tesco Extra Hypermarket.  Tesco believe in direct marketing rather that via a middleman or agent.  Customer loyalty/relationship. Tesco obtained consumer loyalty or perhaps connection simply by introducing Tesco Clubcard.  Tesco acquire Makro and convert it to Tesco Extra. Tesco operates similar to Makro but more flexible. For example, Makro do not allow customer to buy in small quantity, but Tesco Extra allow with higher charges than those buy in bulk. This way, Tesco earn profit from SMEs, besides individual customers and family type of customers.  “Plug n Pay” utilizes mobile point-of-sales (mPOS), the first in Malaysia. Page 14 of 38
  15. 15. Weaknesses  Dependable on UK business. Business-model which Tesco uses approaches for the Great Britain, instead for other world. This could be the weaknesses for Tesco Malaysia to expand their business widely. Being a foreign brand hypermarket in Malaysia, Tesco PLC has to adapt to local business. Although international business is still growing, and is expected to contribute greater amounts to Tesco's profits over the next few years, Tesco Stores Malaysia is still highly dependent on the UK market (73.8% of 2003 revenues). Any changes in the UK supermarket industry over the next year for example, will somehow affect the Asia market such as Malaysia.  Burden of higher advertisement cost. Since Tesco Stores Malaysia launched Everyday Low Price campaign, all the cost including papers, printing, people, distribution and marketing promotion has to be borne by Tesco.  High turnover rate of employees. Tesco experienced high turnover rate with their employees especially in the Operation Department. Many of employees resign after working one or two months. They need to hire and train new employees. The cost of training and development for new staff is a burden to Tesco. Opportunities  Tesco have ready customer instantly which come from low and mid-income households. Households are increasing and everyone needs to buy household products which creates a good demand.  Tesco can carry out a high degree of purchasing capacity to guarantee, that it has a scale effect in its home brand line.  In 2008 Tesco mobile have grown ¼ million customers and it moved profitable status suggesting further growth and development within this technological area can be developed.  Explore new locations in Malaysia. This is in conjunction with their current strategic plan which is to open up more stores. Page 15 of 38
  16. 16. Threats  Stiff competition within industry. There are other major supermarket chains, such as Giant, AEON Big and AEON in Malaysia competing alongside with Tesco Malaysia.  Changing in customer tastes. Customers’ tastes and preferences would change over time. Tesco Stores Malaysia has to make sure they maintain their images and create more value for customer. Sometimes, customers would assume that by buying low price product, it will reflect the bad images of the products.  Global economic decline is the barrier and created an impact on Tesco business.  Some environmental factors such as climate changes, political issue, and taxes issue can become a threat for Tesco.  Raising the costs of raw resources from both food and non food will crash general profit boundaries.  Exporting restriction on some non food products to Far East location will decrease profit margin. SWOT MATRIX Strength Weaknesses 1-Today Tesco Malaysia is the clear market leader 2: Started in 2007, Tesco strongly expanded nationwide by increasing investments in emerging markets such Kuala Lumpur, Johor Baru and Penang. 3:“An inclusive offer” is how Tesco describes its aspiration to appeal to upper, medium-, and low-income 1:Dependable on UK market 2:Burden of higher advertisement cost due to EDLP campaign Page 16 of 38
  17. 17. customers in the same stores. 4- Tesco regularly continues to make acquisitions to expand its business 5.Tesco is the most customer-focused business in hypermarket industry. Opportunity SO WO 1:Recent trends, such as health and wellness have opened opportunities, even in the saturated food category. However, most food retailers' growth is expected to stem from non- food items. 2:Tesco Malaysia is the first hypermarket introduced online shopping and online distribution channels that promised large growth potential 3:Non-store retailing growth rates were expected to be higher than store based rates, as online usage gained popularity among Malaysian consumers 1-Relying on its own reputation and experience and applying new opportunities such as beauty and healthiness products based could guarantee success of Tesco in other industries( S1,O1) 2-Tesco strongly expanded overseas and as a market leader n UK Tesco can used the opportunity of the internet to target the growth of the potential customers (S1,O2O3) 3- Tesco which is most customer focused business should grab the opportunity to a new market segment in order to add more target market or consumers.(S5 , O1) 1-Tesco could use the opportunities of online distribution channel as the way for overcome the weakness of” the small scale nature” in order to get ready to compete with major players in the industry(W2,O2) 2-Focus on healthy industries to recover the current weakness (w2o1). Page 17 of 38
  18. 18. Threat ST WT 1: At the beginning of the 2007, Malaysian retail market became more competitive 2:While service offerings today are quite similar, the rivals' distribution strategies differ significantly. 3:In 2008 competition intensified as a price war among these players emerged, resulting in squeezed margins and cost cutting. It is not surprising that this also had an adverse impact on the service level these corporations provided. 1-Tesco could use its dominance in expanding its businesses in order to penetrate a new market and minimize competitive advantages of its competitors(S2,T3) 2-Tesco should continue the strategy of acquisition of its small competitors in order to neutralize their threat of cutting prices (S4, T3) 1-Regarding the pressure exerted from foreign and local rivals, Tesco, should intelligently managed itself, increased product diversification and change some procedures in order to cut costs in order to stay ahead in the industry and at the same time meet demands of the industry (W2T1T2T3) Defining the Key Success Page 18 of 38
  19. 19. Key Success Factor NO Key Success Factor Case Facts The stole appeals to wide reaching demographics across the country and has built up a heritage of reliability and trustworthiness' which keeps shoppers returning to its stores. Tesco was the first to Launch a Clubcard system. It was introduced in 1995 in the UK and 2007 in Malaysia. It has become the most popular customer royalty card. Customers collect one Clubcard point by every RM2 they spend in a Tesco store, Tesco Extra, or at Tesco.com. 1 BrandValue&Reputation Tesco Malaysia launched “Plug n Pay” services collaborated with CIMB Bank. A whole new online shopping experience in Malaysia using mPOS. 2 ITIntegration Tesco operates the world's largest food home shopping, provides consumer goods, telecommunication and financial services online. As of November 2006, Tesco was the only food retailer to make online shopping profitable. Tesco segments their shoppers from club card users. As soon as the shopper uses the card online or in-store, product information is automatically uploaded into Tesco database. Product information is used to cross-sell additional products and services, such as food delivery. Tesco Mutiara Damansara is the first to introduce online shopping started in April 2013 and recorded 150,000 registered shoppers to-date. Tesco paired its marketing strength with the expertise of existing telecom operators. In October 2012, Tesco Malaysia has partnered Samsung Malaysia Electronics to introduce Samsung World shop-in- shop (SIS) concept retail experience to a hypermarket. 3 Supplier Management Draw goods from suppliers into regional distribution centers for preparation and delivery to stores. Tesco is extending this logistic practice to cover collection from suppliers (factory gate pricing) and input to suppliers in a drive to reduce costs and improve reliability. Page 19 of 38
  20. 20. Competitive Profile Matrix (CPM) Analysis Tesco Giant AEON BigKey SUCCESS FACTORS Weight Rating Score Rating Score Rating Score Brand Value & Reputation 0.43 4 1.72 4 1.72 3 1.29 IT Integration 0.37 4 1.48 3 0.11 4 1.48 Supplier Management 0.20 3 0.60 3 0.60 4 0.80 Total 1 3.8 3.43 3.57 Conclusion: From the CPM analysis we can see that Tesco CPM value is 3.8 which is ahead of the other competitors such as Giant and AEON Big. It is clear to know that Tesco is the industry leader. From this analysis we can see that Giant is the closest competitors for Tesco. Page 20 of 38
  21. 21. EVALUATION OF CURRENT BUSINESS LEVEL STRATEGIES Business Level Strategy is a plan which sets out how a business deploys its resources to achieve its goals. The company’s values set the tone for the decision-making process. Generic strategies are characterized by an individual retailer’s response to the industry structure. For a giant retailer such as Tesco, to obtain a sustainable competitive advantage they follow one of three generic strategies, developed by Porter. Other than that, Tesco also focus on market development and diversification. Cost Leadership Cost leadership is one in which Tesco can strive to have the lowest costs in the industry and offer its products and services to a broad market at the lowest prices. This strategy is based on Tesco ability to control their operating costs so well that they are able to price their products competitively and be able to generate high profit margins. Market Development Joint development and strategic alliances by entering new markets like a new development such as Ara Damansara, Puncak Alam etc, it can serve as a key growth driver of the company’s revenues and expansion strategy. Tesco interest in Malayis are likely to continue growing as the markets are showing an increase in consumer spending and increased trend towards retailing. These new markets are also demographically high opportunity markets. In the case of Tesco, one of the successful alliances with the local player is RHB bank, and with international player such as Samsung. It is considered as a method of development and may be formed to exploit current resources and competence. By entering into a joint ventures or partnership, in order to gain a larger economy of scale and large market presence, Tesco will draw on the extensive local knowledge and operating expertise of the partner whilst adding its own supply chain, product development and stores operations skills to deliver a better shopping experience to customers. Page 21 of 38
  22. 22. However, given the huge scale, potential and complexities of these markets, Tesco feels that being the first is not necessarily and advantage. The success of the partnership will be related to three main success criteria: sustainability, acceptability and feasibility. Sustainability is about whether a strategy addresses the circumstances in which the company is operating. It is about rationale of this expansion – market development strategy. Acceptability relates to the expected return from the strategy, the level of risk and the likely reaction of stakeholders. Feasibility is regards to whether Tesco has the resources and competence to deliver the strategy. Product Development: Diversification Johnson and Scholes (2003) believe that changes in the business environment may create demand for new products and services at the expense of established provision. Ansoff matrix also suggests that if new products are developed for existing markets, then a product development strategy has to be considered by the management level of the company. In expanding and diversifying Tesco product mix, it is crucial to implement internal development when new products are developed. By following the changing needs of the customers, Tesco introduced new product lines. This require more attention for R&D, leading to additional spending. The retailing industry is experiencing overcapacity and innovative services and products being the major competitive advantage. Therefore, innovation is a major driver for Tesco’s product development. Tesco has exploited its internal strengths and minimize the internal weakness in order to achieve sustained competitive advantage. Market Penetrations The main objectives are to maintain or increase the market share of current products, secure dominance of growth markets and restructure a mature market by driving out competitors and increase usage by existing customers. Tesco maintains and increases its market share by having a competitive pricing strategy, huge add campaigns showing this and sales promotions. Page 22 of 38
  23. 23. INDUSTRY ANALYSIS: PESTEL FRAMEWORK Political Factors Operating in a globalized environment with stores around in 12 countries worldwide, Tesco’s performance is highly influenced by the political and legislative conditions of these countries. For employment legislations, Malaysian government encourages retailers to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs. This includes job opportunities to meet the demand from certain population categories such as students, disabled, working parents and senior citizens. In an industry with a typically high staff turnover, these workers offer a higher level of loyalty and therefore represent desirable employees. Economical Factors Economic factors are important because they influence demand, costs, profits and prices. One of the most influential factors is high unemployment levels, which decreases the effective demand for many goods, affecting the demand required to produce such goods. These economic factors are mostly outside the control of the company, but their effects on performance and the marketing mix can be profound. Even though international business is still growing in Asia especially in Malaysia, and is expected to contribute higher amounts to Tesco’s profits over the next few years, the company is still highly dependent on the UK market. Therefore, Tesco would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks. Page 23 of 38
  24. 24. Social Factors Current trends indicate that customers have moved towards ‘one-stop’ and ‘bulk’ shopping. This is due to a variety of social changes. Therefore, Tesco have increased the amount of non-food items for sale. Demographic changes in Malaysia such as the aging population, a decline in home meal preparation and an increase in female workers mean that Tesco is also focusing on added- value products and services. Additionally, the focus is now towards the supply chain, own- label share of the business mix and other operational improvements which can reduce costs of the business. Tesco also allows on their selves major local brand products supplied by entrepreneurs to support Malaysian brands. The type of goods and services demanded by consumers is an indicator of their social conditioning and their consequent beliefs and attitude. Consumers are becoming increasingly aware of health issues. An example of Tesco adapting its product mix is to accommodate an increased demand for organic products. Technological Factors Technology is a major macro-environmental variable which plays a big role in the development of many of Tesco products. The new technologies benefit both customers and the company. Customer satisfaction rises because goods are readily available, services can be personalized and shopping more convenient. Tesco stores utilize the following technologies: - wireless devices - intelligent scale - electronic shelf labeling - self check-out counter (not available in Malaysia) - Radio Frequency Identification (RFID) Page 24 of 38
  25. 25. Environmental Factors The main societal issue threatening food retailers has been environmental issues, an important area for companies to act in a socially responsible way. Tesco Malaysia has intended to launch a new strategy for sustainable consumption and production to cut waste, reduce consumption of resources and minimize environmental damages. The latest legislation created a new tax on advertising highly processed and fatty food. The tax directly affected Tesco product ranges that have subsequently been adapted, affecting relationship with both customers and suppliers. Legislative Factors As of January 2004, there is a 5-year freeze on the building of any new hypermarkets in Malaysia's three major cities Kuala Lumpur, Penang and Johor Bahru. In 2003 the government ruled that plans for new hypermarkets must be submitted two years in advance and socio-economic impact studies carried out. There are also new 'zoning rules' which say that there can only be one hypermarket for every 350,000 people. However, in March 2004, Tesco decided to continue opening its Puchong store 24 hours a day despite having been told not to do so by the Ministry of Domestic Trade and Consumer Affairs who cited the negative effect it would have on other retailers in the area. The Malaysian Government has a tight control on media like TV, radio, newspapers, outdoor advertising etc for broadcasting of commercials and advertisements. The advertising code & code of ethics are to be followed by all the companies & business in Malaysia. Advertisement of products like alcohol, pork, products with unacceptable images etc are banned. Also, advertisement related to exposure of body parts & anti social content like foul language, religious comparisons etc are strictly prohibited. Tesco needs to change its marketing and advertising strategy in Malaysia. The government control on advertising & media disallow certain advertisement & commercials of many products of Tesco UK. The company also needs to do repackaging & re labeling on their products in Malaysia to comply with the local legislation. Page 25 of 38
  26. 26. INDUSTRY ANALYSIS: PORTER’S FIVE FORCES Threat of New Entrants Majority of large chains have built their power due to operating efficiency, one-stop shopping and major marketing-mix expenditure. This had a great impact on the small traditional shops, such as butchers, bakers and etc. It becomes difficult for new entrants to raise sufficient capital because of large fixed costs and highly developed supply chains. This is also evident in huge investments in advanced technology for checkouts and stock control systems that impact new entrants and the existing ones. Other barriers include economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) achieved by Tesco seen in their aggressive operational tactics in product development, promotional activities and better distribution. Bargaining Power of Suppliers This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. Therefore, this consolidates further leading positions of stores like Tesco in negotiating better promotional prices from suppliers that small individual chains are unable to match. In return, local suppliers are also threatened by the growing ability of large retailers to source their products from abroad at cheaper deals. The forces of competitive rivalry have reduced the profit margins for supermarket chains and suppliers. Bargaining Power of Buyers Bargaining power of buyers is rather high. Porter theorized that the more products that become standardized or undifferentiated, the lower the switching cost, and therefore, more power is yielded to buyers (Porter M, (1980). It means that the buyers can easily be switched from one brand to another. Page 26 of 38
  27. 27. Tesco’s famous loyalty Clubcard, remains the most successful customer retention strategy that significantly increases the profitability of Tesco’s business. In meeting customer needs, customizing services, ensure low prices, better choices constant flow of in-store promotions enable brands like Tesco to control and retain their customer base. In recent years a change in food retailing has occurred due to a large demand of consumers doing the majority of their shopping in supermarkets that shows a greater need for supermarkets to sell non-food items. It has also provided supermarkets with a new strategic expansion into new markets of banking, pharmacies, etc. Tesco Malaysia also considers the influence of western consumers on the expectations and aspirations of third world producers. Threat of Substitutes The threat of substitutes in the grocery retail market is essentially below for food stuffs and from an average up to high for non food items. In retail trade of food stuffs, substitutes of the giant food retailers are chain of small convenience stores and organic shops which are not considered as threat for supermarkets as Tesco which offer products of high quality under significantly lower prices. However, threat of substitutes for non food products, for example clothes is rather high. It is necessary to note, that until then as economic recession prevails, clients will be inclined to discounts, and consequently, Tesco is threat for special- purpose shops. (Porter’s Five Forces, 2008). Bargaining Power of Competitors In Malaysian retail industry, there is stiff competition between hypermarkets. Names such as Giant, AEON and AEON Big are the biggest rival for Tesco Malaysia to compete in the industry. Threat of occurrence of new competitors in the food-processing industry is low. It requires huge capital investments to be competitive and to create a brand. The basic brands which have already grasped retail trading in food stuffs are Tesco, Giant Hypermarket, Econsave and AEON Big and their fraction is 80 % of shopping in Malaysia. Thus, new participants should make something at extremely low price and/or high quality to establish their market. Reception of permit from planning local self-management Page 27 of 38
  28. 28. borrows a significant amount of time and resources for creation of new supermarkets and it is therefore a significant obstacle for new participants. Comparison of market share between hypermarket in Malaysia for 2010 Page 28 of 38
  29. 29. Boston Consulting Group Matrix (BCG) for Tesco Malaysia BCG matrix is another marketing tool, a business would place the products under each stage. Each part of the matrix has its own role. Relative Market Share Position High Medium Low High Star Question Mark Tesco is a Star with high market share and high market growth retail industry. It is because Tesco has the potentiality of generating significant income. Tesco is investing more money to attain maximum benefit of being a Star. Tesco is definitely not the question mark. Because of the Tesco financial service, Tesco insurance and the Tesco Mobile has not yet have the maturity in the market. Medium Cash Cow Dog Tesco could be considered as a cash cow with high market share but high market share. Because its Distributions, Quality and extra service to the consumer and equipped with new innovation product. It has to maintain the current strategy and the existing market activities. Tesco can be considered as a Dog in that case of removing the idol product from the Market. Low Page 29 of 38
  30. 30. Competitive Profile Matrix (CPM) TESCO GIANT AEON Big Critical success factors Weight Rating Score Rating Score Rating Score Advertising and marketing 0.1 3 0.3 2 0.2 3 0.3 Packaging 0.1 2 0.2 2 0.2 2 0.2 Product quality 0.1 2 0.1 2 0.2 2 0.2 Brand loyalty 0.2 3 0.6 1 0.2 2 0.4 Customer taste 0.1 2 0.2 2 0.2 1 0.1 Price 0.4 4 1.6 2 0.8 1 0.4 Total 1.0 3.0 1.8 1.6 Page 30 of 38
  31. 31. Conclusion and Recommendation for Improvement Conclusion The success of the Tesco Stores Malaysia shows how far the branding and effective service delivery can come in moving beyond splashing one's logo on a billboard. It had fostered powerful identities by making their retailing concept into a virus and spending it out into the culture via a variety of channels which are cultural sponsorship, political controversy, consumer experience and brand extensions. In a rapidly changing business environment with a high competitors pressure Tesco have to adopt new expansion strategies or diversified the existing in order to sustain its leading market position in an already established retailing market. The company must constantly adapt to the fast changing circumstances. Strategy formulation should therefore be regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and execute these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Tesco’s cognitive and behavioral learning processes. In large organizations as Tesco strategy should be analysed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Tesco’s strategy at a corporate level defines the businesses in which Tesco will compete, in a way that focuses resources to convert distinctive competence into competitive advantage. Tesco holds 30% share of the Malaysian retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non food. Tesco general growth and ROI show no sign of abating. Page 31 of 38
  32. 32. Recommendation Improve customer offer Listening to customers in a wide variety of ways is the key of what to do. Engage with customers through a range of focus groups and ongoing research trackers, and actively seek feedback on what is good or not so good, such as through Every Comment Helps scheme. Online and social media make it easier to listen and respond to large numbers of customers in real time, through webchats, Facebook and Twitter Tesco loyalty schemes, such as Clubcard or Plug n Pay, are not only benefit the customers but also provide data insight to enable Tesco to continually improve the shopping trip. With a loyalty scheme in all stores worldwide and around 44 million active customers in total, Tesco is in a unique position to understand customers' shopping patterns. Promote the right products at the right time Tesco’s network of distribution centres ('DCs') and advanced technology support a modern, efficient and cost-effective supply chain. An efficient distribution system starts with understanding which products the stores need. There are two ways of doing it. First, forecast what customers will buy using sophisticated, detailed models to consider variables such as seasonality, weather forecasts and likely response to promotions. Second, the ordering systems automatically update in real time based on what customers do actually buy, so that the system can quickly and accurately generate information in supplying stores with the right products at the right time. Tesco must plan the distribution processes, systems and network of DCs to maximise efficiency. Labour scheduling and transport planning systems enable the pickers and drivers to operate highly effectively, and to develop distribution networks to minimise the mileage needed to get products to store in perfect condition. Tesco can use transport other than lorries such as the four train services, which save 15,000 tonnes of CO2 per year. Page 32 of 38
  33. 33. People Development: Great service can make a customer's day, and this can be achieved when the employees live the Tesco Values: 'No one tries harder for customers' and 'Treat people how we like to be treated'. Tesco business is built on the commitment of more than half a million people across the world and, in return for their commitment, Tesco offer them good jobs and careers with Tesco. Developing employees take many forms, from training in our state-of-the-art training academy in Asia, to offering jobs to the long-term unemployed through Regeneration Partnerships and supporting the development of women to management positions. The best located and best designed stores Optimal sites for new store developments and extensions are to be identified by the site research departments. Tesco have a flexible approach to property acquisition, considering both freehold and leasehold sites and assessing each opportunity on its merits. Using a range of data, such as demographics and competitor activity, Tesco forecast sales for a new store to a high degree of accuracy, so that we can develop the stores with the greatest potential. Ensuring that growth is sustainable By operating responsibly, Tesco not only benefit and secure the future of its business but also bring real benefits to the communities in which its operate. It is Tesco’s commitment to operating responsibly in providing the customers with good quality, safe and affordable food. This is easily taken for granted in developed economies, but can be a real challenge in economies with low penetration of modern retail and under-developed supply chains. This can be achieved by working closely with the suppliers to ensure the supply chain is both resilient and efficient. Strong, fair, mutually beneficial, long-term partnerships with suppliers, from local to global, are at the heart of this. The strength of supply network was Page 33 of 38
  34. 34. evident during the Thai floods few years ago, enabling Tesco to secure essential supplies from Malaysia and other markets. Tesco is committed to the responsible sourcing of raw materials, ensuring the resilience of our supply chain and managing our impact on the environment. Tesco aims to be a zero- carbon business by 2050 and are mapping the biggest opportunities to cut carbon in our supply chain, as well as continually exploring new energy efficiency measures to be introduced across the Group. Page 34 of 38
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  38. 38. Appendix A Tesco Business Model Page 38 of 38

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