mba strategic management assignment: business level strategy and corporate level strategy of tesco...

CASE STUDY

Tesco: Corporate Level and Business Level Strategies

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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

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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.

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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”.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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Tesco Malaysia: Adoption of strategy

Tesco Malaysia: Corporate Strategies

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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.

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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.

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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.

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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

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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).

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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

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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

Bra

nd

Val

ue

& R

epu

tati

on

Tesco Malaysia launched “Plug n Pay” services collaborated with

CIMB Bank. A whole new online shopping experience in Malaysia

using mPOS.

2

IT I

nte

grat

ion

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

Su

pp

lier

M

anag

emen

t 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.

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Competitive Profile Matrix (CPM) Analysis

Tesco Giant AEON Big Key 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.

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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.

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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.

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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.

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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)

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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.

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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.

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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

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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

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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

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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

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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.

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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.

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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

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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.

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http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf

http://www.tescoplc.com/index.asp?pageid=546





http://www.tesco.com.my/brands/our-brands.aspx

http://www.tesco.com.my/clubcard/clubcard.aspx

http://www.allbusiness.com/glossaries/every-day-low-pricing-edlp/4966282-1.html

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http://www.jstor.org/pss/1251913

Appendix A

Tesco Business Model

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mba strategic management assignment: business level strategy and corporate level strategy of tesco...

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