Marketing Management: Tesco (1532810)

Source: Gorselweb.com
TESCO – Marketing
Report 2015
Marketing Management – IB3A50
Lecturers: Yansong Hu, Magda Hassan
Author: Alberto Maria Fasulo, Exchange Student - 1532810
Word Count: 3495

Tesco, Marketing Report 2015
1
“Tesco is a great democratic brand.
We are on the customers’ side”
GBD Michelle McEttrick cited in Magee, 2015

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TABLE OF CONTENTS
1. Executive summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Intermediate and long-term objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Key macro factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Political and legal factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Economic factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Social factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Key micro factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Market and competitive landscape. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. Segmentation, targeting and positioning. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Segmentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Targeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Positioning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. Marketing mix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 Product. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Place. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Promotion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8. Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9. List of references. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

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1. EXECUTIVE SUMMARY
Tesco, the British retail giant, is witnessing tumultuous times: last April recorded
£6.4bn loss, the worst result in its history. It is clear that radical changes are needed.
Tesco must recover its lost brand identity, its customers need to know what Tesco
stands for again. Leveraging its younger and middle-class customer base, Tesco
should penetrate the mass market with an ethical, innovative and trusted brand,
revamping its declining out-of-town superstores due to the shift in shopping habits
and punch in the growing segments of online grocery and convenience stores. The
recent obsession with price war is self-defeating, since Tesco, unlike discounters,
does not have an appropriate cost structure; thus, it is necessary to capitalise on
and make the most of what Tesco, as a leader supermarket, should be superior to,
such as breadth of range, great service and a more pleasant shopping environment.
The present report will mainly focus on the UK grocery business.

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2. INTERMEDIATE AND LONG-TERM OBJECTIVES
According to its Annual Report, Tesco’s strategic priorities are three (Tesco, 2015):
 Regaining competitiveness in core UK business, since the UK represents more than two third of its
sales, by focusing on the important aspects for customers.
 Protecting and strengthening the balance sheet, by increasing the proportion of owned stores, by
remodelling its business portfolio to improve debt exposure and by implementing an effective
turnaround plan.
 Rebuilding brand and transparency, by developing a culture more focussed on ethics and
compliance and fostering socially responsible initiatives.
3. KEY MACRO FACTORS
3.1. Political and legal factors
Politics have a massive role in regulating retail business through laws and legislation. The principal bodies
to be considered are the UK government, the European Union and the local authorities.
The government’s main impact is on the fiscal policy: Tesco, as well as the other retailers, benefitted the
cut to corporation tax of last spring, but is still affected by high business rates1
, since for every £1 of tax
paid on profits it pays £2.31 in business rates (Wallace, 2015). Moreover, the UK government play an
important role in laws regarding safety, trading hours and minimum wages [see Box 1].
1
The taxes charged on most non-domestic properties to help pay local services.
Box 1 – Tesco and minimum wage: lost opportunity
Chancellor George Osborne announced that the minimum wage for people over 25 would increase to £7.20 per hour in
April 2016, rising to £9 by 2020. This will have an enormous impact on Tesco, since the implementation of this national plan
will cost the company £500m by 2020. In this case, Tesco has lost a great opportunity in terms of brand improvement,
unlike Lidl and Morrisons who actively anticipated the government, promising that they would pay more than the national
living wage: according to BrandIndex, Lidl’s “buzz rating” and “reputation rating” increased, respectively, from 16 to 29 and
from -6.1 to 9.2 a week after the announcement. Morrisons witnessed a similar improvement in brand health. Tesco should
take this issue to heart, since the theme is relevant when consumers consider whether to shop at each brand: according to
BrandIndex, the national living wage issue is important for 59% of Morrisons and Lidl customers, for 56% of Tesco
customers and for 60% of Asda customers (Hobbs, 2015).

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The European Union may affect Tesco through label laws, health and
hygienic laws and, preponderantly, through trade laws. In particular,
Tesco, as well as the other UK retailers, should pay attention to the
new forthcoming Union Customs Code2
[see Box 2].
Finally, local authorities’ main impact regards legislation on
infrastructure and town planning schemes, which may affect both
reachability and location of Tesco’s stores.
3.2. Economic factors
The two main economic aspects that affect Tesco
are the inflation rate and consumers’ propensity
to consume together with economic growth.
Regarding the former, inflation rate as measured
by the Consumer Price Index fell to -0.1% in
September, continuing the recent trend, as
shown in Chart 13
. In particular, more relevant for
Tesco is that food prices decreased by 2.5% in the
year to September, meaning that prices in the industry fell for the 15th
month in a row (BBC, 2015). As a
result, price depression has oppressed many retailers by eroding margins, reducing brand value and
fostering brand switching among customers (Bacon, 2015).
Regarding the latter, UK economic stagnation – GDP growth was only +0.5% in the second quarter –
continues to keep consumers spending low (BBC, 2015).
2
The new UCC “is intended to standardise the movement of trade across member states, simplifying customs rules and
improving security and safety of both inwards and outwards goods” (FMCG, 2015).
3
According to Mintel (2015), the main reasons underling the fall of prices are a succession of good harvests, falling
fuel prices and price cutting by the leading supermarkets.
Chart1 –Inflation March2005-September2015
Percentagechangeover12 months
Consumer Price Index and Retail PriceIndex
Source: BBC from Office for National Statistics’ data
Box 2 - Tesco and the new UCC
The new UCC is due to be enforced
from May 1st 2016. Failing to be
compliant with the new Authorised
Economic Operator (AEO) scheme
introduced by the UCC could defer
the release of goods and affect
services: the legislation will bring a
competitive advantage for AEO
accredited businesses who will be
able to fast track goods through
security controls and customs
(FMCG, 2015).

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3.3. Social factors
The first important social factor regards the move of population into inner cities. Inner city residents “are
more likely to live in a flat with relatively limited storage space to cope with a regular main shop, are less
likely to have a car and therefore are more likely to shop on an as-needs basis” (Mintel, 2015). This shift is
the main explanation of the increasing success of convenience stores and top-up shops4
, in contrast with
the slow decline of superstores5
.
Secondly, other trends that UK is experiencing are the ageing of population – 20% of the UK population will
be over 60 in two years – and the growth of a multicultural society, meaning that retailers have to face with
increasing different tastes and satisfy them adequately in order to be competitive (Hobbs, 2015).
Moreover, due to the recent recession, more and more customers are witnessing a so-called “downward
mobility”, which means that they are forced to recalibrate habits, tastes and standards they were
accustomed to. As a result, retailers such as Aldi and Lidl are benefitting from their new discount store
formats, which aim at many consumers looking for more value for money.
Health and well-being is also a growing trend. Over half of the UK population worry about their health and
food is at its centre, with quality of fresh food and provenance becoming increasing priorities (Tesco, 2014).
In addition, consumers are increasingly more concerned about environmental issues (e.g. food waste) and
social responsibility (e.g. fair trade).
Table 1 – Key macro factors
POLITICAL AND LEGAL FACTORS SOCIAL FACTORS ECONOMIC FACTORS
 UK government:
 Fiscal policy
 Trading hours
 Safety and minimum wage laws
 European Union:
 Trading laws
 Label laws
 Health and hygienic laws
 Local authorities:
 Infrastructures
 Town plans
 Move of population into
inner cities
 Ageing population
 Downward mobility of many
customers
 Increasing interest in health
and well-being
 Increasing interest in social
responsibility and
environmental issues
 Multicultural society
 Inflation rate – food prices
in particular
 Economic cycle
 Consumers’ propensity to
consume
4
For instance, the proportion of UK customers shopping 3 or more times a week for food and groceries increased
from 29% in 2009 to 49% in 2013 (Tesco, 2014).
5
See Customer chapter for more information.
Source: Author

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4. KEY MICRO FACTORS
4.1. Market and competitive landscape
As can be seen in the following chart, grocery retail market size in the UK is worth more than £163 billion,
recording a growth of 13.5% over the last 5 years (Passport, 2015).
Furthermore, the market value’s breakdown shows that 59% of the sales are captured by superstores, 24%
by convenience stores, 11% by discounters and others and 7% by specialists (Mintel, 2015)
Regarding market shares, Chart 3 depicts a clear dominance: Tesco is still the leader (28.2%), followed by
the other members of the Big Four. Nevertheless, by comparing nowadays’ data with 6 years ago emerges a
clear trend: the decline of the big retailers and the rise of hard discounters (Aldi and Lidl) and of the
upmarket firm (Waitrose).
144.119,5
151.708,9
155.836,5
160.430,5
162.427,8
163.711,4
135.000
140.000
145.000
150.000
155.000
160.000
165.000
2010 2011 2012 2013 2014 2015
Value(£million)
Chart 2 - Grocery Retail Value, UK
Tesco
28,2%
Asda
16,7%
Sainsbury's
16,2%
Morrisons
10,7%
Aldi
5,6%
Lidl
4,2%
The Co-operative
6,4%
Waitrose
5,2%
Others
6,8%
Chart 3 - Market Share, Grocery Retailers - Uk 2015
2009 Market Share:
Tesco: 31%
Asda: 18%
Sainsbury: 16%
Morrisons: 16%
The Co-Operative: 8%
Waitrose: 4%
Aldi: 2%
Lidl: 2%
Data Source: Kantar, 2015 and Russel, 2015
Data Source: Passport, 2015

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According to Nielsen (cited in FMCG, 2015), the discounters, which operate their business mainly through
own-brands, very low prices and modest ranges, are attracting “new shoppers by opening new stores and
using ads that communicate not just value, but quality and freshness”. The success of Aldi and Lidl, which
now attract almost 50% of UK households, can also be seen in the recent outstanding sales growth (more
than 17%), compared to the negative performance of the big retailers.
Finally, online grocery and convenience stores deserve a particular focus. Regarding the former, online
grocery market, despite remaining a minor part of the grocery retail market6
, has grown by 14.4% in 2015
and sales are expected to rise for years to come, as well. Regarding the latter, also convenience store sector
is growing: its size has grown by 3.1% in 2015 and is expected to increase by a steady annual rate of 2.4-
2.7% until 2019, continuing to outperform the wider grocery market (Mintel, 2015).
6
It accounted only for 5.1% in 2014 (Mintel, 2015).
-1,7%
-3,0%
1,1%
-1,0%
17,6%
17,9%
-5% 0% 5% 10% 15% 20%
Tesco
Asda
Sainsbury's
Morrisons
Aldi
Lidl
Chart 4 - Sales Growth - Data for 12 weeks to October, 11
Box 3 – New entrant?
Amazon recently launched Amazon Pantry in UK, a dry grocery business that sells (online) items like drinks,
snacks, household supplies, health and beauty, food cupboard. The likelihood of Amazon launching a full
online grocery offer, Amazon fresh, is not a threat yet, since this kind of service is well-controlled by the
existing food retailers and is not so profitable yet. In fact, even if online grocery is growing by around 0.5
percent of market share annually, it is still very small and more than 95% is processed by the websites of the
market leaders (Mintel, 2015).
Data Source: Kantar, 2015

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4.2. Customers7
Where they shop. 90% of grocery shoppers still do a main/big shop, whereas the other 10% (a higher
percentage than previous years) do only multiple small shops and, on average, belong to lower socio-
economic groups and are older. Moreover, 14% of those who do a regular main shop do all or most of their
shopping online.
In particular, it is interesting to notice the profile of main shoppers: as shown in Chart 4, Tesco is attracting
people who are in their low forties and belong to upper-middle socio-economic groups.
Chart 5 – Profile of main shoppers
Finally, 7% of consumers shop more at convenience stores, whereas 3% shop less at superstores. However,
the moving-away-from-superstores trend is not uniform around the country8
.
Important factors in choosing where they shop. In general, the most important factors for customers are
price, convenience, availability, best quality fresh foods, promotions and loyalty schemes; on the contrary,
service and store standards come low down and non-foods come bottom [see Exhibit 1].
7
All the data supporting this analysis are taken from Mintel’s report “Supermarket – UK – November 2015”.
8
For instance, the biggest moves are in London, Yorkshire and East Midlands, whereas consumers shop
more at superstores in East Midlands (Mintel, 2015).
Source: Mintel, 2015

10
It is also important to understand the profile of those who chose one particular factor first, as provided by
the following chart.
Chart 6 – Profile of those who chose the factor first
What clearly emerges is that convenience appeals to older customers; low economic groups want low
prices; availability and quality fresh food appeal to high socio-economic groups and promotions are highly
biased to the younger.
Narrowing the analysis, the most important reasons why Tesco customers shop at Tesco are its loyalty card,
its product availability and its range of promotions9
[see Exhibit 2].
Attitude towards pricing. The vast majority of customers (more than 75%) wants EDLP10
instead of a few
promotions; nevertheless, there is strong bias to discounters (87% of Aldi customers) and less so at Tesco
(72% of its customers). These figures, in combination with the above-mentioned importance of promotions
for Tesco customers, suggest that Tesco, more than other retailers, should focus on the right balance
between EDLP and promotions.
Moreover, what emerges from Mintel’s research is that almost 60% of customers believe both that grocery
retailers raise prices before they run promotions and that Big Four’s prices are similar [see Exhibit 3].
9
In fact, crossing the results from the profile of main shoppers and from the profile of those who chose promotions as
the most important factor, it is obtained that younger and wealthier, who are chiefly Tesco customers, are also more
likely to rank promotions first.
10
Every Day Low Prices, which means stable low prices.

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Finally, it is important to underline that almost half of Tesco’s customers trust its price matching promise,
compared to hard discounter’s poor result (25% for Aldi and 28% for Lidl).
Chart 7 – Trust in supermarket price matching promises
Customer satisfaction. On one hand, Tesco
customers are satisfied by the quality of
fresh food and on-the-go meals and
especially by the waiting time at the tills.
On the other hand, they complain about
customer service and the décor and
cleanliness of its stores.
4.3. Suppliers
Relationship with suppliers is essential to deliver quality products,
ensure availability and sustain long-term performances and a
good image. Tesco has been severely condemned for its rough strategies when dealing with suppliers in the
past11
. For this reason, the choice of launching a new online Supplier Network, that will allow suppliers to
11
For instance, the percentage of positive responses by Tesco’s suppliers to the question “I’m treated with respect”
was 71% in 2013, 67% in 2014 and only 58% in 2015 (Tesco, 2014 and 2015).
“Tesco became notorious within the industry
for bullying suppliers and extracting
generous co-payments for promotions.”
Matthew Lynn, 2015
0,6%
0,7%
-0,6%
-2,2%
2,8%
0,0%
Fresh food quality
Ready meal quality
Customer service
Décor and cleanliness
Waiting time at checkout
Availability
Chart 8 - Satisfaction of Tesco's customers on
different factors: % deviation from average
Data Source: Mintel, 2015

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“share knowledge and expertise, build a more sustainable supply chain and develop innovative solutions
with Tesco” (Tesco, 2015), can be assessed as a positive tool to improve its business and regain trust.
Box 4 – Tesco and suppliers
A recent survey of suppliers found that 4% of its suppliers said it never complied with a code that ensures fair
treatment of food producers; in addition, 30% said it rarely complied with the code. The main issues raised
by suppliers regarded delays in payments, alteration to contracts and unjustified charges for consumers’
complaints (Neville and Felsted, 2015).

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5. SEGMENTATION, TARGETING AND POSITIONING
5.1. Segmentation
The market can be segmented by using four dimension: demography, geography, psychography and
behaviour.
Regarding the demographic dimension, the most relevant variables are age and income, which permit to
distinguish, on one hand, among children, young, adult and old people, and on the other hand among
lower, middle and upper class. Also religion can be significant as regards the possibility of eating certain
foods.
Geographic dimension allows us to differentiate consumers among North, Middle and South, on a national
level, and, on a micro level, consumers living in the inner cities or in the suburbs. This is relevant because
different places may be associated to different tastes and shopping habits.
In respect to psychographic dimension, it regards consumers’ personality and lifestyle and distinguishes
among customers who are more sensitive to environmental issues or more concerned about health and
well-being or more interested in new flavours, new channels or innovation in general.
Finally, behavioural dimension includes variables like “usage rate/occasions”, which means whether
consumers are more likely to do a weekly main shop at large superstores or online or multiple small shops
at convenience stores, and “benefits sought”, such as low prices, high quality food, wide ranges of products
or promotions and non-food items’ availability.
5.2. Targeting
Tesco has been adopting an “everything to everyone” approach, which has led it to cover almost all
possible segments of the market. In fact, Tesco has product lines that appeals to price sensitive consumers
(“Value”) and to champagne-taste consumers (“Finest”); lines whose target is people interested in well-
being (“Health Living”) or in environmental issues (“Organic”). Moreover, it has products for special dietary
requirements (e.g. halal meat) and different specialities according to regional preferences. Tesco has also

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different store formats to appeal to customers with dissimilar needs and shopping habits, such as Tesco
Express and Tesco Extra. In addition, Tesco also offers non-food items, such as clothing and technology
products, and services, like petrol stations and financial services, in order to appeal to those customers who
want a full shopping trip.
5.3. Positioning
Considering brand image, the key
performance attributes associated to
Tesco are wide availability and great
online service, as shown in Figure 1.
However, the chart also reveals the
incoherence of its brand perception
and its brand communication. For
instance, Tesco states on its website
that “Customers want great products
at great value which they can buy easily and it’s our job to deliver this in the right way for them” (Tesco,
2015), but Tesco is far away from being perceived like this12
. On the contrary, brands with a clear value
proposition, such as the discounters Aldi and Lidl and the high-end retailers Waitrose and M&S, have a high
brand consistency.
Moreover, considering brand personality, depicted by Figure 2 and 3, the condition does not improve:
whereas brands like Lidl and Aldi and Waitrose and M&S are perceived, respectively, as accessible,
engaging, basic and exclusive, expensive and stylish, just like they want to be seen, Tesco is viewed as
unethical13
, disappointing and that only cares about profits. But, again, this brand image is inconsistent with
12
See “offers good value” attribute.
13
Last year’s accounting scandal and the criticism towards supplier relationship [see Supplier section] may have
affected this attribute significantly.
Figures 1: Brand attitudes

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what Tesco would like to appear and it clashes with what they claim to do: “understand customers, be first
to meet their needs, act responsibly for our communities”14
(Tesco, 2015).
However, Tesco is also perceived, positively, as reliable and “tends to have a bias toward 16-24s when it
comes to positive perceptions, including trust, reputation and perceived value. Conversely, over 55s are
most likely to describe it in negative terms” (Mintel, 2015). This is extremely coherent with what has been
found in the consumer analysis, namely Tesco is attracting younger customers.
From this analysis clearly emerges Tesco’s problem: a brand “must be perceived by the selected customers
to have a distinct image and position vis à vis its competitors […];
the brand must stand out and have a clearly defined position”
(Dibb and Simkin, 1991), whereas Tesco has an inconsistent brand
in the mind of consumers. Using Porter’s words, Tesco is “stuck in
the middle”: being “everything to everybody” was successful until very recently, when consumers had 1 or
2 supermarket to choose from. But today they have more local choice, with 83% of UK population having a
14
The first two values clash with the perceived attribute “only cares about profit” and the last one clashes with the
perceived image of being unethical.
Figures 2 and 3: Brand personality
“The competitors are either great at “Value”,
seeking out low cost locations for their low
cost operations, or they are great at
“Quality”, with friendly, well-trained and
motivated staff in nice affluent locations.”
Bruno Monteyne, 2014

16
choice of 3 or more supermarkets in their local area, and this new competitors do not offer everything, but
they are highly differentiated and are either great at “Value” – e.g. Aldi and Lidl – or great at “Quality” –
e.g. Waitorse and M&S (Monteyne, 2014). strategy15
innovation16
Finally, having sold all Blinkbox businesses17
, Tesco Broadband service and the willingness to sell Tesco
mobile (Garside and Butler, 2015) can be assessed as positive decisions that, besides improving its debt
exposure, will help the brand regain its lost identity and, coherently with Tesco’s objective18
, focus on its
core market: the UK grocery retail business.
15
Note that a “hybrid strategy” is different from being “stuck in the middle”: the former emphasises both
differentiation and cost leadership, whereas in the latter the emphasis is on neither. Different evidences have proved
that hybrid strategies are possible, especially when customer preferences focus on balancing cost and quality – which
is true for the grocery retail market (Uotila, 2015).
16
Focus on innovation can be justified by consumers’ expectations about the market leader and by the fact that it can
be a differentiator considering Tesco’s younger customer base than competitors.
17
Namely movie, music and book businesses.
18
See Intermediate and long-term objectives chapter.
Recommendations
As emerged from the previous evaluation, Tesco needs to differentiate itself and make the brand stands
for something, giving consumers a positive motive to choose its stores over competitors’.
On one hand, Tesco should maintain market share in the big-box segment and, on the other hand, it
should hit in the growing segments of online food and convenience stores. To pursue it, Tesco could
implement a hybrid strategy13
, having always the customers at its core, which should consist of focusing
both on cost and differentiation. Regarding the former, a cost focus will allow Tesco to offer its products
at reasonable prices compared to the Big Four, which are the direct competitors, and not to the
discounters : in fact, it is unthinkable for Tesco to compete with Aldi and Lidl on a price basis, since it
does not have the cost structure to do it (Montayne, 2014). Therefore, acknowledging that it does not
make sense for Tesco to compete in the discount segment, it should try to differentiate itself from the
other supermarkets. The advisable dimensions Tesco could use to achieve it are convenience,
availability, ranges, customer experience, innovation14
and ethical standards. Indeed, as Bryan Roberts
from Kantar (cited in Hobbs, 2015) claimed “there is space for return to Tesco as an innovator; it has not
been that for some time. You can't beat discounters on price but you can beat them on depth of range,
service and in-store environment.”
These variables will be better exemplified when considering each lever of the marketing mix.
However, what should constantly be stressed is the absolute focus on customer; in fact, over the recent
year, the business had become too profit-oriented and supply-driven. Tesco was more interested in
dominating space rather than understanding customers’ new needs and habits. As Andre Spicer said
(cited in Lynn, 2015) “Tesco was not really aiming to sell to its customers. It was basically renting space
to suppliers.”

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6. MARKETING MIX
6.1. Product
Tesco’s product can be viewed from different perspectives: product mix, availability, ranges, product
brands, service.
Regarding the former, Tesco product mix includes food, grocery non-food items19
, General Merchandise20
and other non-retail items and services like fuel and financial services. Obviously, the main category is food
and drink, representing 63% of all Tesco’s sales; moreover, Tesco distinguishes itself from the discounters
for the presence of fuel and clothing, which are an important attraction to the stores21
(Mintel, 2015).
However, the proportion of each product in the product mix varies understandably according to the store
format and therefore the target: for example, only-food items are only 42% in Tesco Extras compared to
57% in Tesco Superstores, and, again, the presence of general merchandise tends to zero in Tesco Express
stores (Mintel, 2015).
Regarding product availability, Tesco is giving more space and availability to staple goods (Vizard, 2014) and
is witnessing record levels of availability with a rate of 99.5% online and above 90% in store (Hobbs, 2015).
These figures are important for Tesco since product availability is one of the main discriminating factor in
choosing a supermarket.
Over the last few years, Tesco has considerably augmented the
number of products in its ranges and this has confused many
customers. For instance, in January Tesco had more than 90,000
stock-keeping units, while Aldi and Lidl stock fewer than 2,000 products (Wood, 2015). Whereby, Tesco
choice of reviewing its ranges to make them simpler and reducing its total number of products by 20-30%
(Hobbs, 2015) can be assessed as sensible since this way Tesco can avoid duplication and give more space
to products that customers are actually buying (Vizard, 2015). Nevertheless, Tesco should find a right
19
Non-food items include health and beauty, pet products and cleaning products.
20
General merchandise includes clothing, household goods and electricals.
21
The detailed product mix’s breakdown can be seen in Exhibit 4 and Exhibit 5.
“With tomato ketchup, Tesco offers a
bewildering array of 28 sauces while in Aldi
there is just one ketchup in one size. It is
painful for the shopper to navigate. ”
Zoe Wood, 2015

18
balance between simplicity and number of products, since wide ranges are undoubtedly a real point of
difference versus the discounters to be capitalised.
Regarding product brands, Tesco offers both branded and own-brand products. Concerning the latter, for
grocery food Tesco adopts a good-better-best structure, from Tesco Value to Tesco Finest, combined with
other brands, such as Tesco Organic and Healthy living, which target different customers with specific
preferences22
. Having such a wide brand spectrum from value to
premium products is not inconsistent for a company that should
aim at the middle class, but it is a logic conclusion deriving from
the fact that “most customers trade up and down: sometimes
they want to save money on the basics, sometimes they want to treat themselves” (Monteyne, 2014).
Finally, concerning service, Tesco has placed thousands of extra customer-facing staff, has developed
training programmes that reward staff for improving their skills and has spent millions of pounds installing
self-service tills to make shopping faster (Butler, 2015).
22
See Targeting chapter for a broader description.
“It is not as simple as <less wealthy consumers
buy cheap food while more wealthy consumers
buy expensive food>. Most consumers trade up
and down: sometimes they want to save
money on the basics, sometimes they want to
treat themselves. ”
Bruno Monteyne, 2014

19
6.2. Place
Regarding distribution and channels, Tesco store
portfolio includes different formats.
Tesco Extra. These are the largest hypermarkets and
are mainly out-of-town; they have approximately all of
Tesco’s product ranges and newer stores are usually on
two floors, the ground floor mainly for food and the
first floor dedicated to the other products, such as clothing and electronics.
Recommendations
First, Tesco should continue to focus on the quality of fresh food, since its customers are highly satisfied
by it and this ranks third in factors important in choosing a supermarket – see Customer chapter (Mintel,
2015). Moreover, it can be a relevant lever of differentiation from competitors.
Secondly, Tesco should remove from the shelves those products that, nowadays, are bought online,
such as books and electronics. The remaining space could be used to expand other product categories,
like Health and Beauty, baby care and especially clothing, given the success of Tesco’s clothing brand
F&F (BBC, 2014). Indeed, spending on non-foods has increased faster than food, with, for instance,
spending on clothing and accessories growing from £53.93m in 2010 to £66.59m in 2014 (Mintel, 2015).
Furthermore, important differentiators Tesco could focus more on are ethics and environmental
responsibility of its products, since ethical and moral qualities are fast becoming customers’
expectations (Mintel, 2015). This, together with corporate initiatives like its programme to donate
surplus food to charities, can be useful to rebuild brand identity and regain customer’s trust.
Concerning service and shopping trip, Tesco could join a partnership with Xhockwave, a software
provider that developed an interesting self-scanning smartphone app, YouBeep: besides being
compatible to loyalty cards, offering immediate discounts and gathering purchasing data, it allows
customers to use their smartphone to scan item barcodes while they shop, reducing checkout time by
up to 70% (Mintel, 2015).
Finally, always regarding service and shopping experience, Tesco has invested massively in self-service
tills, as stated previously. However, “some shoppers love them, but others detest being lectured by a
mis-functioning machine” (Butler, 2015). Therefore, Tesco should find the right balance: for instance,
they may be a key to successful shopping experience in busy locations and in convenience stores, where
a small and quick shop is typically done, whereas sales assistants and cashiers could be brand
ambassadors through interaction and personal touch in lower footfall locations.
Figure 4 – Tesco store portfolio, 2014-2015

20
Tesco Superstores. They are standard-large supermarkets offering chiefly grocery items but also an
appreciable range of non-food products. Generally, they can be located both out-of-town and in inner-city
locations.
Tesco Metro. They have a middle size23
and focus mainly on convenience foods – i.e. food and grocery non-
food. Regarding the location, they are situated in the inner city, on high streets and in city centres.
Tesco Express. They are Tesco’s convenience store format and are smaller than the others24
. Express stores
are located in busy city centres, small shopping districts in residential areas and small towns and they
mainly offer grocery items, especially everyday essentials.
Moreover, the new food-to-go stores in London can be classified within the C-store category: targeting
tourists, office workers and busy commuters, this new concept store offers only food-to-go and pre-packed
food, with slimline checkouts compatible with contactless payment (Quinn, 2015).
One Stop. It is the smallest store format and is generally located in less rich areas.
Tesco Homeplus. This format, run from 2005 to 2015, has been entirely dedicated to non-food items. The
decision of the company to close all Homeplus stores (The Guardian, 2015) can be assessed as sensible
since nowadays non-foods, especially homewares and technological-electrical goods, are more likely to be
bought online.
Tesco Online. It is Tesco’s online retailing
branch, a website that offers a wide array of
products, ranging from grocery to electronic
goods, from broadband to financial services.
Regarding online grocery only, Tesco is the
leader with a huge market share of 40% [see Chart 9]; moreover, the service, which reaches almost 98% of
23
The average size is 1,000 m2
.
24
The average size is 200 m2
.
Tesco
40,0%
Sainsbury
17,9%
Asda
13,7%
Ocado
13,7%
Waitrose
5,1%
All others
9,5%
Chart 9 - Online grocery retailers market share

21
the UK population, offers both home delivery and collection through about 350 click-and-collect points25
(Mintel, 2015).
Table 2 – Like-for-like sales growth (%) by channel, Q1 – Christmas 14/15 (six weeks ending 3.01.2015): online
grocery and C-stores (Tesco Express) were the only segments witnessing sales growth
Q1 Q2 Q3 Christmas
Tesco Extra -5.9 -7.5 -6.3 -2.2
Tesco Superstore -4.6 -6.9 -6.1 -1.9
Tesco Metro -3.8 -4.9 -5.1 -1.2
Tesco Express 1.4 -0.6 2.1 4.9
Tesco Online grocery 7.8 11.1 11.2 12.9
25
However, Tesco’s online service, similarly to competitors’, is profitable only when charged with picking and delivery
costs. This is the reason why online can be seen as primarily as a service to customers, in order to protect market
share and customers loyalty, rather than as an independent channel (Mintel, 2015).
Recommendations
As stated previously, Tesco should try both to maintain market share in the superstore segment, since,
despite its slow decline due to new shopping habits, it still attract the majority of consumers, and invest
in the C-store and online formats, which are the most growing ones [see Table 2].
Regarding the former, Tesco should revamp its out-of-town superstores in two ways: firstly, by making
stores within stores, namely joining partnerships with other retailers, such as restaurants, cafes, and
hairdresser; secondly, by improving both décor and cleanliness of its stores and customer service, which
are the main aspects by which Tesco customers are unsatisfied.
Concerning convenience stores, Tesco should invest more in this segment, as indeed did announcing
that it would open 63 new convenience stores. Moreover, consumers are often concerned about stock
levels in C-stores and one of the most common nuisance is going to C-store to top-up on essential items
and finding that they are not available (Mintel, 2015): in this sense, Tesco could develop an online
service, especially mobile, that would let time-pressed consumers to check in real-time the availability
of stock in-store before they go to the store itself.
Regarding online channel, Tesco could try to copy an innovative 24h click-and-collect pod that Asda is
trialling and that allows customers to drive to the site, scan a QR code and quickly gather goods from a
temperature-controlled unit (Mintel, 2015).
Finally, according to Mintel (2015), “consumers are spending more time in transit and that translates to a
greater market for in-transit and on-the-go goods and services”. This means that Tesco could experiment
new grocery shopping concepts, such as new massive fridges with different temperatures and
meals/ingredients located in high footfall places or at airports’ baggage reclaim area – as the German
Edeka did – allowing passengers to do their grocery shopping while they wait for their bags.

22
6.3. Promotion
Concerning advertising, Tesco spent more than £ 100m26
. However, as Table 3 shows, Tesco’s total
advertising expenditure has been decreasing for the last four years, with a relevant change by -11.5% from
2013 to 2014 (Mintel, 2015).
Table 3 – Recorded above-the-line, online display and direct mail total advertising expenditure by retailers
In order to reach its potential customers, Tesco uses different channels, ranging from direct marketing to
online display to above-the-line promotion. In particular, Table 4 depicts the breakdown of advertising
expenditure and highlights that almost 77% is channelled into press and television.
Table 4 – Tesco: Percentage of recorded above-the-line, online display and direct mail total advertising
expenditure by media type, 2014
Cinema Direct Mail Door drops Internet Outdoor Press Radio TV Total
- 14.7 0.2 1.5 5.1 37.6 1.3 39.5 100
Specifically, the two new TV adverts – featuring comedy actor Ben Miller and actress Ruth Jones – has
refreshed its iconic slogan “Every Little Helps” and
promoted both the new Brand Guarantee scheme27
and
Tesco’s promise to open a new till if more than a person
is queuing ahead of a customer. According to Michelle
McEttrick28
(cited in Hobbs, 2015), Tesco is trying to take itself less seriously and the future ads’ narrative
will continue to focus on how Tesco is unceasingly improving the in-store experience; moreover, its iconic
26
In particular, £57.1m was channelled into food, of which almost 10% was allocated to its premium range Finest,
£5.9m was spent advertising its clothing brand F&F and £14.4m was spent promoting its Clubcard (Mintel, 2015).
27
See Price chapter.
28
She is Tesco’s Group Brand Director.
“This TV campaign is not supposed to be a generic
celebrity endorsement, it is meant to be classic British
comedy. The characters represent the classic British
shoppers and their challenges, and how Tesco is helping
them through great service. We don't want to take
ourselves as seriously as we perhaps did in the past.”
Michelle McEttrick cited in Vizard, 2015

23
slogan will be depicted to customers as “Tesco is on my side” and “Tesco can make me smile”. This is
certainly the right approach to refresh the brand and to transmit Tesco’s renewed customer-oriented focus.
In order to enhance this concept, Tesco’s print ads are focusing on what can be useful for the customer –
e.g. showing how cooked an egg is after different cooking times; furthermore, it is trying to insert itself in
the popular culture with advice on cooking or home styling29
(Magee, 2015).
In addition, Tesco is also focussed on building the brand “from the inside out”. Indeed, its stores are
themselves owned media and they are the place where people experience every day its service, product
and brand: “this is so much bigger than a TV ad, and it should be our biggest brand advertisement”
(McEttrick cited in Magee, 2015). This strategy obviously implies making its staff brand advocates.
Finally, regarding sales promotion, Tesco has its famous loyalty
programme: Tesco Clubcard. By using their cards, customers receive
points that can be redeemed once a quarter and translate into
discounts and tailored special offers, based on customers’ previous
shopping patterns. Nevertheless, rather than using this better
understanding of its customers to improve relationships and in-
store trip, Tesco has been using it to do its merchandising and stock
management. Hence, customers has felt exploited rather than helped by Clubcard (Hobbs, 2015).
29
For instance, it released print ads around the Great British Bake Off, with a “bake it or fake it” theme: one page
displayed what ingredients should be bought to make the creations presented on TV, the other page illustrated what
people might buy instead. Additionally, Tesco also released baking video tutorials (Magee, 2015).
Box 4 – Noteworthy example of Tesco’s targeted promotion of its new store in London
It is important to note the praiseworthy approach used by Tesco with regard to the promotion of the new food-to-go store in
London. In fact, collaborating with the mobile marketing firm Weve, Tesco used a beacon technology to detect 40,000
potential shoppers who had walked past the store six times over a two weeks and then sent mobile coupons to their
smartphones (offering a third off every £3 spent), ensuring therefore a much higher redemption rate. This is a truly targeted
approach to marketing communications (Gray, 2015).
Besides offering customised
discounts and special offers, Tesco
Clubcard is also a powerful tool that
collects purchasing data and,
therefore, allows Tesco to
understand better the shopping
habits and preferences of its
customers (Kotler and Keller, 2012).

24
6.4. Price
Regarding pricing strategy, Tesco has lowered the prices of more than 1,000 products since September
2014 in order to win back customers lost to the discounters (Hobbs, 2015); moreover, Tesco is expected to
continue to cut prices in the next months (Butler, 2015).
However, the main achievement is the new pricing-matching scheme
launched in October: Brand Guarantee. This is a breakthrough in the
industry and make the new scheme different from the existing ones,
since it meets customers’ will of having immediate value instead of
storing vouchers for the future: in fact, half of the UK population do
not convert their coupons because they lose or forget them (Hobbs,
2015). It is appropriate to underline that this scheme is perfectly in line
with what has been found in the Customer analysis, namely simple
and everyday low prices.
Brand Guarantee has been criticised by analyst Clive Black (cited in
Hobbs, 2015) because it does not match discounters’ prices. Nevertheless, Tesco choice appears to be the
right one. Firstly, this decision communicates that the main direct competitors are the Big retailers, as it
Recommendations
As one of the main segments that Tesco should penetrate is that of C-stores, the first advice regards the
promotion of this format. In particular, 40% of customers who regularly shop at convenience stores go to
this type of store to reduce food waste, either to save money or to be more environmentally friendly. Thus,
Tesco should emphasise that C-stores help shoppers to reduce food waste, either focusing on the
environmental drivers – e.g. pushing on ethically or local sourced food – or focusing on the economic drivers
– e.g. stressing the economic advantages of smaller more frequent shops by encouraging schemes such as
buy-one-get-one-later that instigate customers to shop more often by rewarding them for frequent visits
(Mintel, 2015).
Regarding its Clubcard programme, Tesco should refresh and innovate it since it is an “offline” scheme,
whereas today’s customers need real-time rewards (Hobbs, 2015). Therefore, Tesco could evolve its
Clubcard to a digital and app-based offering as Starbucks have done, focusing on digital integration,
avoiding a one-size-fits-all scheme and joining different partnerships to offer various and fresh rewards [see
Appendix 1 for more information].
The new pricing-matching scheme
offers customers an automatic
discount at the till rather than a
voucher if the whole basket of
branded goods is cheaper at Asda,
Morrisons or Sainsbury – it also
matches their promotions). It does
not include own-label goods and is
only available in Tesco largest
stores and online, excluding
formats like Tesco Express
(Ruddick, 2015).

25
should be; secondly, items on which customers want reassurance are the ones that are identical, that is
branded products, but the branded-good lines of discounters are too limited and therefore the matching
would be meaningless (Hobbs, 2015).
Recommendations
Firstly, Tesco should abandon national pricing: despite the material difference in cost – such as rents and
wages in the most expensive area that are up to six times and 20% more, respectively, than those of the
cheapest areas – the same product has the same price, benefitting only the discounters (BBC, 2014).
Secondly, Tesco should also try to keep low and stable the prices of those products that are essential and
the most important for its customers. Sensibly, Tesco did so last Christmas with the “Festive Five”, the
favourite British vegetables at Christmas costing only 49p (Tesco, 2015).
Regarding promotions, Tesco has a confusing range of deals, like “buy one, get one free”, which do not
appeal anymore, since they translate in “buy one, throw one away” and customers are now more
conscious of food waste (BBC, 2014). Therefore, these kind of promotions, together with unconditional
discounts, should be replaced by targeted promotions, supported by data gathered both online and via
Clubcard.
Finally, Tesco should certainly focus on being efficient and deliver reasonable prices, but this recent
obsession is self-defeating, because both Tesco does not have the cost structure and extensive
discounting erodes consumer trust. As Ian Horsham (cited in Bacon, 2015) masterfully described
“dropping prices can plant a seed of doubt and accrue distrust over time as customers may start to
suspect they have overpaid previously. Reductions should be utilised only as a short-term approach for
selling longstanding inventory or time-sensitive merchandise.”

26
7. EXHIBITS
Exhibit 1 – Factors in choosing where to shop
Exhibit 2 – Tesco shoppers: relative importance of key factors
Exhibit 3 – Attitudes towards grocers’ pricing

27
Exhibit 4 – Leading food retailers: sales as % all retail sales, 2014
Exhibit 5 – UK leading food retailers: detailed convenience comparison split, October 2015

28
8. APPENDIX
Appendix 1
“My Starbucks reward programme” is based on three
pillars that make it a real-time and cutting-edge loyalty
scheme (Harris, 2015):
1. No one-size-fits-all programme: there are three
levels – Welcome, Green, Gold – with increasingly
greater rewards. This way, Starbucks allows its
customers to reach different status and,
emphasising these differences, customers are more stimulated to buy in order to defend their
status.
2. Digital integration: the scheme is integrated with Starbucks mobile app, through which customers
can view their “stars” – i.e. their points – and rewards in real time and pay for their purchases with
their phones.
3. Strategic partnership that allows innovative, smart and trendy rewards – such as bike sharing firms
and Spotify.
Source: Howcoolbrandsstayhot.com

29
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