Retail marketing logistics
Retail marketing logistics
INTRODUCTION
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Marketing is a process that is based on complex communications through which an individual or a group of people notice that the needs and wants of other people may be met by the products and services provided by other people. Marketing is therefore a general concept focusing on the satisfaction of new or existing needs and wants. Marketing involves a lot of processes from the raw materials to the satisfaction of the existing needs. Retail marketing is one of the major processes in marketing. Retail marketing involves the selling of goods and services to the consumers. This means that retailers are very close to the consumers (John, 2003 and Alchain, 1950). The consumers are very important in the market chain; their importance is felt by all those involved in the marketing process. The closeness of the retailers to the consumers makes them a very important group in the marketing chain.
Retailing began in the early days when peddlers started hawking their products in the market. Retail markets are very much competitive and due to this the failure at which retail businesses fail is very high, however this can be prevented with an effective marketing strategy. Although most of the retailers understand the importance of an effective marketing strategy they are mostly caught up by the management of the business and they end up not utilizing all the business strategies they had to lead their businesses into success (Julie-Ann, 2009).
In the retail markets price is considered as the most important factor in the competition. Other factors that affect the success of many retail markets are: location of the business, reputation of the business from the public, display of merchandise and the attractiveness of the business to the public. Due to the stiff competition in retailing market most businesses have adopted a more diverse way of doing business so as to spread the risk more. Some of the techniques adopted by most retailers include: doorstep sales, marketing through direct mails, using department stores, opening up consumer co-operatives, marketing through the internet, supermarkets and offering discounts to their customers (Manjeet, 2005). These and other business strategies have enabled some retail business become very strong and at the same time it has resulted to the failure of some retail businesses. Because retail is also known as the practice of selling goods in small quantities to the consumers, the retailers have to come up with ways of reaching the largest number of consumers so as to increase sales without incurring very high costs (Melenda, 2002).
THE CASE
Tesco Plc is a retail chain dealing with general merchandise and it is based in Britain. Tesco has also been rated the largest retailer in Britain due to the size of its domestic market and also the global sales that it makes annually. Globally Tesco is the third compared to all other global retailers based on the revenue. Tesco originally only specialized in foods and drinks but due to competition from the industry it has now diversified into other areas like: clothing, car insurance, and consumers’ electronics and also in financial services.
POSITIONING STRATEGY OF TESCO
Tesco was founded by Jack Cohen and he hoped that trading stamps would increase the number of customers that he had. Due to this in 1963 he entered into an agreement with Green Shield Stamps. The company launched a marketing strategy in 1973 called ‘Operation Checkout’ that led to termination of the agreement with Green Shield Stamps. The Company also introduced price reductions and this resulted to an increase of 4% in the market within a period of two months. Tesco Company expanded at a very high rate in 1995 with the introduction of a loyalty card that encouraged most people to buy from the retailer with the hope of getting the loyalty card. This was a major marketing strategy adopted by Tesco. Tesco has also used internet marketing widely and in 2000 it was the only grocery retailer that made profits through internet marketing. Tesco has also been purchasing other smaller retailers in the industry so as to reduce competition, for example in 2002 it acquired a HIT hypermarket which is located in Poland and this enhanced it to expand its market significantly. Diversification is also another marketing strategy that the company has used to reach to a larger population in the market. In 2003 the Company begun a branch called UK telecoms which was to deal with mobile and phone services so as to strengthen its other branch that dealt with provision of internet services (Nash, 2006).
Tesco has also expanded its supermarket chain by investing in other countries, for example in 2003 it acquired a large chain store supermarket in Japan called C Two-Network (Mark, 2003). In the same year the company also expanded to Turkey through acquiring a chain supermarket in Turkey called Kipa. In 2004 Tesco acquired another large chain store that operated in London called Adminstore and in 2004 the company diversified more into launching a broadband so as to increase its internet services.
So as to appeal more to its customers the company has used various theoretical concepts and among them the commonly used one is the retail marketing mix. This comprises of 4 P’s; standing for Place, Price, Promotion and Product. According to retail analyst David McCarthy with Citigroup Tesco has used a trick that has not been used by any other retailer (David, 2007). This trick is to appeal to all parts of its market. The major area that has enabled Tesco apply this trick is that it uses its own brand products to market in all segments of its market. Use of Tesco’s brand products has encouraged customers to buy from the stores and hence increasing its sales. The company also combines its brands with a low price and this has added value to the products of the company. To market its products and at the same time market its brand name Tesco began using a phrase that described the goals, Purposes and values of the company. This phrase facilitated the expansion of the company both in the U.K and in the international market; the company also changed its focus so as to concentrate more on the people, both the customers and the employees. So as to protect the image brand of the company under the current expansion plan to Thailand Tesco has started using a policy focused at launched claims of defamation and in 2007 the company has sued a Thai scholar for claiming that its market in Thai is 39% of its total revenues. The company has also embarked on a strategy aimed at advertising its products on television and other medias so to build its brand name, these advertisements are mostly ran on the media with a tagged message showing the price of different products that the company deals with. This strategy has assured its customers that its products are affordable (MacLaurin, 1999).
Tesco has ensured that its products are unique and above all they satisfy the customers’ needs. This is evident in the market researches that the company has engaged in so as to determine the needs of the customers and recommend changes to its products where necessary. Through marketing almost all of its products with its brand name the company has been able to make modifications to the products so as to meet the needs of the customers. The second P in the market matrix is the price of the products and the factors that affect the overall pricing mechanisms of the company. Though Tesco has noted that pricing is a very complex area when it comes to marketing it has made efforts to ensure that it has tested a number of its pricing levels. The company has also noted that most of the consumers place a higher value on those products that are highly placed and at the same time other customers find highly priced products to be exploiting them, therefore after major considerations the company has come up with a pricing strategy for its products. Conducting price testing enables the company to come up with a price that will enable it maximise its profits and at the same time ensuring that the customers are comfortable with the prices (Simms and Andrew, 2007).
The company carries out product promotions regularly and during the times when it wants to introduce a new product in the market. Promotions are a good method of appealing the consumers because they develop a positive attitude towards the company and the product. Promotions also provide the customers with information regarding new products in the market so that they are able to compare with the existing products. The company also uses a kind of promotion called personal selling where it organizes exhibitions and encourages its customers to attend so that they may get to know the different products and services that the company offers. The company also gives its customers special offers to motivate them and sustain them (Kaynak and Cavusgil, 1982). Public relations are also considered as a promotion method because it can either harm or build the reputation of the company. Tesco focuses very much on this and it insists that all its employees must undergo a public relations training exercise so as to create good relationship between the company and the customers. The other P in the marketing matrix stands for the place or the location of the business. Tesco Company has placed its stores strategically so that they are accessible by its customers. Tesco puts this factor into great consideration and at times it delivers products to its customers relieving them the burden of having to travel to the stores (Charles, 2008).
COMPETITIVE ENVIRONMENT
Although Tesco is a strong company both domestically and internationally it receives stiff competition from other retailers in the industry. Some of the companies that have been posing very stiff competition to Tesco are Wal-Mart and Carrefour which is based in France. Tesco also receives a lot of competition from other companies that are not based in the U.K due to its expansion programmes. One of these companies is the Trade Joe which is a U.S company which customers say that it is fun to do business with. Trader Joe has been seen to be more health conscious than Tesco, the company is also environmentally friendly and customers say that its staff are well knowledgeable about their products. The other strategies that Trader Joe uses is to try and become part of the customer, this is achieved by using local artists to draw funny signs and also organizing children games in their stores. These activities have led to attraction of more customers as compared to the Tesco Company. Although the Trader Joe has been a great threat to Tesco other customers say that Trader Joe has a limited selection of goods while others complain of the car park being small. In the United States Tesco receives stiff competition from Bristol Farms which is a store dealing with similar products as Tesco. Many say that Bristol Farms offers a very good place for dinner with a variety of foods which can be ordered online and picked at a branch of choice. Tesco on the other hand has a competitive advantage over Bristol Farms because of the prices; Bristol Farms prices its products at a very high price and therefore instead of customers valuing these products they view this as some kind of exploitation. Wal-Mart also offers Tesco huge competition in the global market because of its marketing strategies that include intensive internet marketing (David, 2003). Wal-Mart has also embarked on constructing markets in the neighbourhoods so as to bring its products closer to the consumers. Tesco admits that its market is very much competitive and evidence has indicated that there is strong competition across all the sectors of the market (Humby et al).
Due to the above competition that Tesco faces both domestically and internationally the managers have developed strategies to enable the company compete and maintain its position in the market. Some of the measures that Tesco Company has undertaken include: increased use of the internet; due to the current change in the customers’ attitude and behaviour there is need for retailers to adopt the internet as a marketing tool. The current customers want a company that will communicate to them directly through emails or other electronic means of communication (Victor and Saul, 1993). Tesco has thus created a website that enables the customers to view the available merchandise and at times buy through the internet. Selling products online is a method that has enabled Tesco increase its sales significantly without having to incur a lot of costs because internet is cheap and available to many.
The company has also offered promotions to its customers so as to try and sustain them. Due to the fact that the market is very competitive the company has realized that even the smallest promotions can give it a competitive advantage over other rival companies. Tesco’s marketing team has over the past few years come up with regular and innovative promotions that are aimed at attracting more customers into the company. Most of the major promotions that the company has engaged in include offering gifts together with certain products and also conducting competition entries involving some products that the company wants to promote (Richard, 2002).
According to Michael Porters Tesco also faces the problem of its products being replaced by similar or related products; these are called substitutes. Substitutes lower the competitive advantage of the Company because they affect the demand of the Company’s products. The price elasticity of the products is greatly affected by the presence of very many substitute goods and services in the market (Yadong, 1999). Porter argues that the threat of substitutes affects the price of the products and at times Tesco is forced to sell its products at very low prices due to the stiff competition. The power of the buyer also affects the competitive advantage of Tesco; this means that if the power of the buyer is strong the market becomes a monopsony. In the case of Tesco the power of the buyer is not very strong because there are very many buyers in the market (Charles and Gareth, 2007). The suppliers to Tesco also affect the competing power of the retailer; when a certain commodity is supplied by a few suppliers then they become very strong forcing Tesco to sell the commodity at a high price determined by the supplier. Due to the fact that there are no very major barriers to the industry, Tesco faces threat from new entrants. New entrants into the business will lead to lower sales and decreased returns (George, 1992).
So as to cope with the changing consumer shopping patterns Tesco has opened new stores that are friendlier to the consumers and this has motivated the consumers to continue shopping at the retail shops. One of the stores that Tesco has opened currently is the Tesco Home Plus, which offers all other products of Tesco apart from foodstuffs. The company has adopted this strategy because it is worried about the number of its customers that have access to its Extras and the other reason is that the company cannot convert all its superstores to Extra stores (Ted and Staurt, 2004). The company also applies the 4C’s in its marketing strategies; it focuses on gaining a competitive advantage over its rivals by developing excellent customer relations and it emphasizes on retaining the customers as much as acquiring the customers. Currently market tools have changed from being focused on the products and the seller to the focus on the customer (Chris, 2007).
MARKETING LOGISTICS OF TESCO
One of the key contributors to the Tesco’s high profits and competitive advantage is the IT system. Tesco has a website in which it has invested heavily in the past few years and this has seen its profit increase by 21% and also an almost equal increase in the annual sales. Another area that has seen improvements as a result of IT advancement is online orders of groceries, which increased by 10%. On realizing the success of its website Tesco opened another store that it described as a “dot.com” store in Kent, with its purpose being to only pick those orders that are made online. Advancements in the queuing system in the stores had improved the shopping conditions for most of its customers by decreasing the check out lines. The supermarket is also currently making use heat-sensing technology to keep an eye on the queue at the tills and this has been seen by its customers as a good means of reducing the queues. IT has also assisted the company in the installation of better scanners and cameras. A fifth of all the transactions made in the Tesco stores are made using the self-service check-out system. Tesco has also developed a programme known as Step Change that aims at making major improvements in the IT sector so as to increase its efficiency. The Supermarket has a group of 3, 000 employees working in India who offer administrative and IT support to all its branches all over the world. The supermarket has also entered into an agreement with Xansa so as to ensure that its systems are up to date and they are in line with the needs of the businesses (Leo, 2008).
Tesco has been involved in developing services that are aimed at acquiring a strong competitive advantage over its rivals, but copying of its services has resulted in loss of the competitive advantage (Michael, 2003). Tesco is currently retailing more than 8, 000 products and therefore there is need to come up with a fully detailed process of operation based on the estimated demand. One of the major obstacles to establishment of a working process at Tesco is the frequent change in the product mix and the predicted activities. The company began by defining the required operating processes and then it identified and selected the important warehouse management systems that would run the operation without any difficulties. The company the developed distributions centre in the Midlands to become the first centre that supported the Tesco website. This move saw a huge increase in the number of customers as many people felt that Tesco was getting closer to its customers (Martin and Helen, 2003). The initial launch of Tesco direct was a significant success and in the first three weeks it had more than one million hits on the website. Success has also been seen in that orders made through the new distribution method have continuously increased and Tesco is pleased by the results, says Ashworth; the Supply chain director of Tesco (Ashworth, 2008).
Another major move that Tesco has made to improve its marketing logistics is engaging G-Log in the management of its planning, monitoring and control processes. This process is targeted to begin in U.K and Ireland and then spread out to the other parts of Europe and finally to all its stores worldwide. Tesco aims to use the software so as to manage all its shipping movements in the world which are more than one million in every year. Tesco decided to choose G-Log because it hopes that G-Log’s solution will enhance and at the same time support its approach to retail market which is a low cost and excellent quality approach. Tesco expects that the solution provided by G-log will enable it consolidate all its loads and at the same time select the most cost effective carrier for its operations (all business editors, 2001). Tesco has for a long time been recognized because of the innovations that it makes in the supply chains which have enabled it become a market leader. Tesco has also contracted the setting up of a store in the Czech Republic so as to ensure that its products are closer to the consumers. Proximity of products to the consumer is a major factor that affects the retention and acquisition of customers (Margaret, Christopher and Grete, 2004).
Although there has been some trading updates showing that the current challenging economic times have a direct impact on the income of the consumers, Tesco has been able to maintain an almost steady consumer rate. This is evident in the sales that the supermarket is making currently, for example in the period between 2007 and 2008 its total sales rose by 11.1%. The increase in the supermarket’s international growth is attributed to its IT infrastructure which is standard and also reusable. Tesco has also increased the use of its supplier management software so as to increase its efficiency by reducing the set up lead times of the suppliers. The supermarket has also been using oracle which ensures that it procures and pays for the right products. The supermarket has also embarked on low price promotions; these promotions will offer its products to its customers at a relatively low price. This move will be aimed at retaining most of its customers in these dynamic economic times (Gwyn, 2009). Tesco has also been performing well according to its financial reports and this has also created a good reputation for the company. A company with a good reputation from the public will gain more customers. Due to the fact that the supermarket is also listed on the London Stock Exchange market, consumers have been monitoring the performance of the company and as a result of its good performance many consumers find it a stable market (Marcus and Helen, 2009).
CONCLUSIONS AND RECOMMENDATIONS
Due to globalization, politics, regulation and market forces marketing is losing its role as the customer’s voice and business value generator through marketing of the brands and managing the customers. Due to this Tesco needs to develop more advanced ways of acquiring and retaining customers and not wholly depend on the marketing department. Business technology is one of major ways that Tesco can use to maintain its position in the market. The super market also needs to align all its technology to the needs of the business and at the same time the challenges facing the business. Some of the challenges that Tesco is facing currently include stiff competition, criticism leading to bad reputation and the changing attitude of the customers.
Currently Tesco has been relying heavily on online marketing and this has made it become reluctant to explore other marketing strategies that could increase its sales and customers. Internet marketing has also caused a lot of companies to fail due to the increasing number of viruses that are on the internet. Tesco then needs to adopt a marketing strategy that does not rely wholly on the internet. Another method that Tesco could adopt in its marketing strategies is social networking marketing. This is a type of marketing that involves advertising in social network websites like facebook and twitter. Most of the current consumers are spending a lot of time on the social networks interacting with friends and relatives; this means that the social networks offer an avenue for advertising in the future. A few years ago it was not clear about the business implications of social media and many organizations did not find social networks being viable for business use. Not until recently social networks had been viewed as having a lot of value for individuals and therefore many businesses did not value advertising on the networks. Businesses like Tesco and others need to realize that social networks are here to stay and that it holds a very bright future for marketing. Tesco needs to come up with marketing strategies that incorporate blogs and social networks so as to be able to capture a large number of customers. Studies have also shown that people tend to listen more carefully when someone talks to them and listens back than continued talking. This can be applied in marketing in that the marketers need to advertise a certain commodity and wait for the reaction of the customers than insisting on the product. In its implementation of Tesco direct which allows customers to shop online, Tesco needs to understand that most of the current consumers make online orders based on what their friends had ordered and their feelings about different products. Tesco also needs to regulate its free offers because consumers view products that are frequently given as offers to be of low quality. The supermarket needs to build a strong positive reputation in the public because the consumers want to be associated with a business that has a strong positive reputation. The current problem of global warming can also be an avenue for marketing. Tesco needs to develop a programme that is aimed at educating its customers on the effects of global warming and how they can reduce these effects. Consumers want to be associated with a retailer who not only sells to them but also cares about the environment and the world as a whole.
WORD COUNT: 4, 156 WORDS
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