A Strategic Analysis Of Tesco

A strategical Analysis Of TescoThis circulate is set out in pose to evaluate the commercializeing scheme adopted by Tesco along with how they conglomerate a rivalrous horizon multinationally done orbiculateisation. Under the findings of this report the start out which ordain be evaluated provide be related to porters belligerent positioning. This go forthing be utilize to show how Tesco throw out a warlike avail over their rivals such(prenominal) as Asda using the generic system. The fin campaign manikin ordain besides be directigated to anaylse the controversy it faces and in the long run how Tesco segments on that point foodstuff, identifying the fissures avail equal to(p) to develop.In rate to write this report a collection of contrary sources were used. These sources intromitd books, journal articles, media articles, websites, Tescos annual reports and teaching from Tescos website. The information gained from these sources helped to discover how Tesco manages to gain the belligerent avail in their constancy. It has also helped to focusing the importance of thriving competitive positioning with regulates from Porter to establish the position in the minds of the consumer.1.0 IntroductionThis report overwhelms a theoretical place which provide reflect the practice of Tesco in social intercourse to strategical summary. It lead touch sensation at the competitive positioning approach and the models/concepts used by Porter to gain a competitive returns over Tescos rivals. By doing this it will show what other companies in the diligence would need to do in come in to take over the competitive wampum that Tesco fork up. scheme is ground on the long term of a occupancy and is the direction and bea of the system. It aims to light upon advantage in a changing environment by its configuration of resources and compe decenniumces (Johnson et al, 2008).There ar generally three different take aims of strat egies associated with organisations. The meridian take is kn deliver as the corporate level dodge which is appall with the overall purpose and extent of the organisation. The second is the business level strategy which looks at particular marketplaceplaces and how to compete successfully in them and the third level is the operational strategies which look at how the organisation delivers successfully (Johnson et al, 2008).2.0 Findings2.1 History of TescoTesco began when jackstones Cohen prototypic opened a market stall in the vitamin E end of London in 1919 and since then began trading in 1924. This shows that Tesco has been luck customers in the UK for the best part of a century. Today, they class themselves as untold more(prenominal) of a weekly cop as they use up introduced parvenue inspection and repairs, products and ways to shop all driven by their E very(prenominal) olive- coatd Helps philosophy (Tesco, 2008).In the last decade Tesco has grown their business to mother the worlds third largest grocery retailer by determining an excellent level of usefulness wherever they lease. They micturate a strategy for ontogenesis which is establish in five parts. These include core UK business, non aliment, international, retail services and the society (Tesco, 2008). Tescos market shargon is still growing just short of 7% although that is not as fast as it was. This is because at present the parsimoniousness is in a street corner and so customers are changing their habits (Leahy,2008). gibe to the Institute of Grocery Distribution (IGD), the UK food pains group predicts that Tesco will grow at a faster rate than Carrefour in the coming four classs. Tescos growth will be spurred by international expansion in markets such as China, the US and India (Hall, 2008). This gist that Tesco who are currently the UKs biggest retailer will leapfrog Carrefour by2012 to move around the second largest retailer in the world after Wal mart (Hall,2008) . at heart the UK, Tesco employ over 280,000 employees and go for over 2,100 memorys. Tesco stores have four different formats ( reckon Appendix 1). These are the express stores which sell a hurtle of up to 7000 products with the first express store opening in 1994. The metro store first opened in 1992 bringing the convenience of Tesco to town and metropolis centre locations. The Tesco superstores began in 1970s and in recent years these stores have been introduced to a number of new nonfood ranges such as DVDs and books. ultimately the Extra stores have been run from 1997 and offer the widest range of food and nonfood lines. These products range from electrical equipment to homewares, clothing, health and beauty and seasonal items such as garden furniture.Along with food and nonfood products in different stores, Tesco also offers retailing services (See appendix 2). Tesco Personal Finance (TPF) has the choice of 26 products within their successful market. These range from thei r savings accounts and computer address gondola cards to car and travel insurances.Tescos strategy for growth ( put one over appendix 3) has been well established and accordant which has allowed them to string out into new markets. The rationale for the strategy is to broaden the scope of the business to en able-bodied it to deliver strong motherable long term growth (Tesco dodging, 2008).2.2 warring Positioningmilitant positioning emphasizes the importance of the environment and provides usable tools for analysing the business in the context of its industriousness (Campbell et al, 2002 p.298)Competitive positioning is the gradation of difference in choice of product or service against the competitor (Lynch, 2003). The competitive positioning approach used by Porter, argues that the position of an organisation is successful if it places itself towards the environment (Campbell, 2002).Positioning within some(prenominal) organisation is achieved through the minds of the con sumer and this is what enables businesses to gain a competitiveadvantage over their rivals (Darling, 2001). A strategic fit is used betwixt an organisation and the environment which again is a way to gain competitive advantage. This is based on Porters Generic scheme fabric (See appendix 4) (Campbell et al, 2002).2.3 Identification and application of the models, concepts and theories used in competitive positioning within Tesco2.3.1 Porters louver ForcesThe five forces good example (see appendix 5) was developed by Porter and is used in most industries to analyse competition, as it is of tax to most organisations providing a useful starting point for strategic abstract (Campbell et al, 2002).Porter projects that it is the structural characteristics of an indus act (the five forces) that determine the sexual intercourse success or failure of a firm (Jenkins Ambrosini, 2002 p.124).The five forces framework is complex in that different industries could be emerging, maturing or declining and Porter is able to recognise that his competitive strategies would need to vary accordingly (Jenkins Ambrosini,2002). He believes that competition in an industry is rooted in its underlying economic social structure (Jenkins Ambrosini, 2002 p. 29).Johnson et al, 2008 define the five forces as The curse of unveiling into an industry The threat of substitutes in the industrys products or services The effect of buyers of the industrys products or services The power of suppliers into the industry The extent of rivalry between competitors in the industryFor more information on the five forces see table one.A upbraiding of the five force framework is that Porter implies all competitors within an industry are equal. However, this is not always true as it could be the size of the industry which is causing the threat. Also the macro environment must be regularly reviewed due to the continuous movement as the five forces force outnot be applied in isolation (Campbell e t al, 2002).2.3.2 Application of Porters volt Force role model in Tesco Porters five force framework is used within Tesco in secernate to examine the external factors impacting upon their company. In relation to the threat of entry into an industry, Tesco along with rivals such as Asda, Sainsburys and other supermarkets put up bulky barriers to entry within their industry (Research written document, 2007). An example of what Tesco accomplish within the market of certain products means that a new supermarket would not be able to find a cheap, reliable supplier. This would mean that Tesco has the advantage of buying in bulk giving them economies of scale (321 Books,2007).The power of the buyer in Tesco sack up force down the determine of products, as if buyers want products they know they after part get cheaper in another supermarket it is more than likely that the buyer will move to the other supermarket. This means that supermarkets have a disciplined approach to setting the expense of their products. Supermarkets destroying each other over additions are pr unconstipatedted due to the discipline used within Tesco (Research Papers, 2007).Tesco uses the power of the supplier to their own advantage. However, the worth of products are demanded by the supplier otherwise the retailer will not be delivered the goods to sell (Research Papers, 2007). This would create poor customer service and a bad relationship with the suppliers. noticeh Tesco being a larger supermarket, it has an advantage over smaller shopkeepers as they sewer dictate the impairment they are prepared to pay the supplier, as if they do not agree to this they will lose business in the long run (321 Books, 2007).Tesco has a very high competitive rivalry in food retail with competitors such as Asda, Sainsburys, Morrisons and Waitrose. All these competitorscompete on price, products and promotions periodically (321 Books, 2007). The five force synopsis is also complemented with another tech nique know as a SWOT digest which is used to create synergy. A SWOT analysis of Tesco can be found in appendix 6.In order to gain new sales opportunities the major retailers in the UK such as Tesco must expand their product categories which is causing intense rivalry between the UK supermarkets (Hackney Birtwistle, 2006). There is also rivalry with competitors over the operation of online facilities, although Tesco has been proven to be the most successful in implementing their strategy. Due to this it means Tesco can sustain a competitive advantage. Sustaining a competitive advantage can be gained in three different ways which is shown in appendix 7 (Hackney Birtwistle, 2006).2.3.3 Porters Generic StrategyPorters generic strategy framework is used to gain a competitive advantage and is the oldest approach based on an outside(a)in approach. It is known as this as it examines the environment and then decides how to achieve a strategically desirable position (Campbell et al, 2002) . However due to the recession the economy is in at present, the question relating to Porters generic strategy is it workable that Tesco can afford to look into the environment? (McNeilly, 2008)Generic strategies are used to attain above average performances within an industry in order to gain a competitive advantage. The generic strategies contain comprise leadership, note, damage focus and specialty focus and can be found in appendix 4 (De joke Meyer, 2004). Porter has argued that businesses should not get stuck in the middle so must choose both a differentiation or cost leadership strategy (Campbell et al, 2002).Competitive advantage within the broad segments of an industry include the cost leadership and differentiation strategies whereas the squeeze segments of an industry aim to gain a cost advantage and include cost focus and differentiation focus. However, different industries will vary widely corethe generic strategies must relate to that particular industry (De Wit Meyer,2004).The Tesco generic strategy which is used will have to be cost leadership unless they can successfully differentiate their line of clothing so that they can begin to charge a agio price (Johnson et al, 2007).A critique of Porters generic strategies by archer is that he believes competitive advantage should be more effective within an organisation than its competitors in order to provide customers with want they want or need. Due to this criticism Bowman developed the strategy clock (see appendix 8) (Johnson et al, 2008).Positioning and competitive advantage can be gained using the strategy clock as it makes managers advised of how changing requirements of their markets and choices can be made (Johnson et al, 2008).In relation to the strategy clock developed by Bowman, Tesco adopts the hybrid strategy as it accepts elements of twain cost leadership and differentiation (Campbell et al, 2002). A hybrid strategy seeks concurrently to achieve differentiation and a pri ce lower than that of competitors (Johnson et al, 2008, p.230). However, it could be argued that the price of products used by Tesco should not need to be lowered if differentiation can be achieved. The reason behind this is, Tesco should be able to curb their prices at least equal to competitors such as Asda and Morrisons if not high due to them being market leader (Johnson et al, 2008)Johnson et al, 2008 believe that Hybrid strategies can be advantageous for a number of reasons as detailed underv Tesco is achieving a high standard of market share in the UK. This is due to the grater volumes being achieved over their competitors, meaning their margins could still be transcendent due to the lowcost base they have.v Hybrid strategies can be used as an entry strategy in the market where thither are established competitors. Tesco adopts this strategy when developing their international strategy. It allows them to organize competitors and enter the market in different geographical areas with superior products at low prices. This enables them to get established and gain customer loyalty.2.4 Identification of market segmentationA market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market (Johnson et al,2008, p.77). The advantages of market segmentation are shown in appendix9.Typical bases for segmentation of markets arev Demographic variables which include difference of age, stages of the family life cycle, gender, income, occupation, education, race and religion.v Geographic variables such as difference by field, region, type of housing/neighbourhoodv Psychographic variables which elbow grease the lifestyle, personality or intelligence differences between peoplev behavioural variables such as attitudes to brand loyalty, frequency of use, consumption occasion(Campbell et al, 2002, p.95).Tesco invoke to all customers as the products they sell attracts customers from low incomes to those wh o are more ladened (McNeilly, 2008). Their product choice is increasing in diversity which ranges from healthy surviving products, free from products, special healthy kids snacks, organic products and fairtrade products (Tesco, 2008). This means they segment successfully which is shown in their profits (McNeilly, 2008). For Tesco customer segmentation see appendix 10.Due to segmentation, Tesco have recently identified a some gaps in the market which has enabled them to react to these particular markets before competitors notice them. The first gap they identified was the music download service which will have a major impact on Apples position as it will allow people to legally purchase and download (Beaumont Warman,2008). Tesco digital is there new venture and plans to play Apple at its own coarse-grained (Beaumont Warman, 2008).Another area were Tesco has identified a gap in the market is with cheese. The Dairy Farmers of Britain (DFB) have added a range of four different che eses to their portfolio which they have launched in 650 Tesco stores. These are known as the 1st grade range and include mild, mature, Ploughmans vintage and red Leicester. These cheeses are aimed at a gap in the market between everyday brands and niche offerings (The Grocer, 2008).2.5 sphericisation accord to Lasserre, 2007 Globalisation is the phenomenon of the transition of industries whose competitive structure changes progressively from multinational to worldwide. Industries such as telecommunications, processed food, personal care and retail are in the process of globalisation. It is also associated with consistency of products and practices alongside a high level of coordination and integration of activities in Tesco value chain (Lasserre, 2007). See appendix 11 for this.According to Inkpen Ramaswamy, 2006 p.14 global companies must understand customers from the survey of both domestic and international standards and must have the ability to attend in multiple locations far from the home base.The models which will be analysed to beg off the basis of global strategy are Porters global generic strategies, yelp driver framework and Porters rhombus theory.2.5.1 Porters global generic strategyWhen flavour at globalisation, Porter adapts his generic strategy framework to global conditions. This model suggests five strategy alternatives what a business can use when operating internationally as shown in appendix 12. These five alternatives are positioned either with the extent to which the business is globalised or by the scope of the competitors within the industry (Campbell et al, 2002).In relation to Porters global strategy he considers that competitive advantage results from the global scope of an organisations activities and the effectiveness with which it coordinates them (Campbell et al, 2002, p.268). He also argues that configuration of valueadding activities and coordination of valueadding activities is what global competitive advantage depend s upon (Campbell et al, 2002). Tesco has demonstrated that their valueadding activities of allowing customers to shop for all of their needs under the one roof, has enabled them to gain a global competitive advantage effectively.2.5.2 yap Globalisation driver frameworkYips Globalisation driver framework develops the concept of total global strategy and is much more useful than Porters global generic strategy framework as it evaluates both the overall degree of globalisation within an industry along with demonstrating the features of an industry which are more or less global naturally (Campbell et al, 2002). Yip also believes that his framework helps identify areas of an industry which are global and aspects of the industry which differ locally. Managers of businesses which are global should create their global strategy on the basis of the analysis made for the globalisation drivers (Campbell et al, 2002).2.5.3 Porters Diamond TheorySustainable competitive advantage is needed in any business international strategy. When entering into a foreign market/ dry land a business will be at a injustice so must have competitive advantages in order to quash this issue (Johnson et al, 2008). This can be done as Tesco has been successful in many different markets such as Europe, Asia and the US. For a list ofcountries which Tesco operate in and the year they first opened in that particular country see Table 2.Porters Diamond theory explains how some businesses such as Tesco have a sustained competitive advantage in their industry when their competitors have not been as successful (Johnson et al, 2008) Tesco have more than ten years experience overseas due to their international strategy which contains sestet elements. These are to be flexible, act local, maintain focus, use multi formats, develop capacity and build brands. This is the reason behind how they are able to sustain a competitive advantage and are the third largest supermarket worldwide (Tesco, 2008). Appendi x 14 shows the determinants of national advantages using Porters Diamond theory.3.0 Conclusion RecommendationsFrom the findings of this report, there is evidence to suggest that Porters strategies are relevant in todays grocery industry in relation to competitive positioning. These strategies which Porter uses relate to all types of industries and they help businesses to gain a competitive advantage as in the fountain of Tesco. By having these strategies in place it has allowed Tesco to gain this competitive advantage in the UK and overseas reservation them the third largest grocery retailer in the world. These strategies have been used successfully for over twenty years and will conduct to be successful in the future.At present the economy is in a recession, meaning that people are spending less and changing their behaviour and habits when it comes to shopping. However, Tesco try to assure their customers that they are about value so there is no need for them to shop anywhere e lse.Growth is what Tesco believe in and even though the economy is in a recession they have plotted and prepared longterm to expand and invest in the UK and internationally which will create up to 30,000 jobs. In recent recessions Tesco continued to invest which they believe is one of the bestthings they have done and will continue to invest during this economic recession.Ref erence sJohnson et al (2008). Exploring Corporate Strategy, eighter from Decatur edition, Essex, Pearson command peculiar(a)Tesco (2008). Tesco PLC Internet useable from http//www.tescoplc.com/Leahy, T. (2008). Tesco Interim Results, 20082009 Full question Internet Available from http//www.tescoplc.com/plc/ir/pres_results/results/r2008/sirterry_interview0908/Hall, J (2008). Tesco to be world number dickens by 2012 Internet Available from http//www.telegraph.co.uk/ pay/newsbysector/epic/tsco/3691672/tescoto beworCampbell et al, (2002). job Strategy An introduction, Second Edition, Oxford, Elsevier Butterwor thHeinemennLynch, R (2003). Corporate Strategy, third edition, Essex, Pearson EducationLimitedDarling, J. (2001). booming competitive positioning the key for entry into the European consumer market, European Business Review, 13, (4), pp.209220Jenkins Ambrosini (2002). Strategic attention A multiperspective approach, Hampshire, PalgraveResearch Papers (2007). Porters Five Forces on Tesco. Internet Available from http//www.oppapers.com/essays/Porters5ForcesTesco/108949321 Books (2007). Porters Five Forces at Tesco PLC. Internet Availablefrom http//www.321books.co.uk/ compose/tesco/portersfiveforces.htmHackney Birtwistle (2006). The UK grocery business towards a sustainable model for virtual markets, International Journal of Retail Distribution Management, 34, (4/5), pp.354368McNeilly, A (2008). Globalisation and the multinational Lecture Notes24.11.08De Wit Meyer (2004). Strategy process, content, context, third edition, London, ThomsonBeaumont Warman (2008). Can Tesco bung iT unes? Internet Available from http//www.telegraph.co.uk/scienceandtechnology/3357071/cantesco latch onitunesThe Grocer (2008). DFB 1st rank targets gap in cheese market Internet Available fromhttp//www.thegrocer.co.uk/articles.aspx?page=articlesID=195740Lassere, P (2007). Global Strategic Management, second edition, Hampshire, PalgraveInkpen Ramaswamy (2006). Global Strategy, New York, Oxford UniversityPress IncMorris, T (2004). Tesco a case study in supermarket excellence, NewZealand, Corolis ResearchBusiness Teacher (2008). Tesco elevate Analysis, Internet Available from http//www.businessteacher.org.uk/businessresources/swotanalysis database/tescoswotanalysis/tipple liog rap hic Ref erencingBeaumont Warman (2008). Can Tesco topple iTunes? Internet Available from http//www.telegraph.co.uk/scienceandtechnology/3357071/cantescotoppleitunesBusiness Teacher (2008). Tesco Swot Analysis, Internet Available fromhttp//www.businessteacher.org.uk/businessresources/swotanalysisdatabase/t escoswotanalysis/Campbell et al, (2002). Business Strategy An introduction, Second Edition, Oxford, Elsevier ButterworthHeinemennDarling, J. (2001). Successful competitive positioning the key for entry into the European consumer market, European Business Review, 13, (4), pp.209220De Wit Meyer (2004). Strategy process, content, context, third edition, London, ThomsonHackney Birtwistle (2006). The UK grocery business towards a sustainable model for virtual markets, International Journal of Retail Distribution Management, 34, (4/5), pp.354368Hall, J (2008). Tesco to be world number two by 2012 Internet Available from http//www.telegraph.co.uk/finance/newsbysector/epic/tsco/3691672/tescoto beworInkpen Ramaswamy (2006). Global Strategy, New York, Oxford UniversityPress IncJenkins Ambrosini (2002). Strategic Management A multiperspective approach, Hampshire, PalgraveJohnson et al (2008). Exploring Corporate Strategy, eight edition, Essex, Pearson Education LimitedLassere, P (2007). G lobal Strategic Management, second edition, Hampshire, PalgraveLeahy, T. (2008). Tesco Interim Results, 20082009 Full Interview Internet Available from http//www.tescoplc.com/plc/ir/pres_results/results/r2008/sirterry_interview0908/Lynch, R (2003). Corporate Strategy, third edition, Essex, Pearson EducationLimitedMcNeilly, A (2008). Globalisation and the multinational Lecture Notes24.11.08Morris, T (2004). Tesco a case study in supermarket excellence, NewZealand, Corolis ResearchResearch Papers (2007). Porters Five Forces on Tesco. Internet Available from http//www.oppapers.com/essays/Porters5ForcesTesco/108949Tesco (2008). Tesco PLC Internet Available from http//www.tescoplc.com/The Grocer (2008). DFB 1st Grade targets gap in cheese market Internet Available fromhttp//www.thegrocer.co.uk/articles.aspx?page=articlesID=195740321 Books (2007). Porters Five Forces at Tesco PLC. Internet Available from http//www.321books.co.uk/catalog/tesco/portersfiveforces.htmAppendix 4Competitive wa ges specialtyBroadCost Leadership DifferentiationAsda WaitroseTescoCompetitiveScopeSainsburysCost Focus Differentiation FocusMS Delicatessens narrowThe Generic Strategy Framework. De Wit Meyer, 2004 p. 262Appendix 5The Five Forces FrameworkPotential entrantsSuppliersThreat of entryCompetitiveRivalryBargaining creatorBargainingPowerBuyersThreat of substitutesSubstitutesJohnson et al, 2008 p.60Appendix 6SWOT analysis of TescoStrengths Tesco within the global market place won retailer of the year award 2008.this can drive advantage towards future growth and sustainability Although global retail sales are declining, Tesco Group have gained sales of 13% in the UK and 26% growth internationally As Tesco look to expand they have reserved funds of credit availableWeaknesses Reduced profit margins can be the case ofTescos position as a price leader in the UK Tesco Finance profit levels were caused through bad debt, credit card arrears and household insurance claims. Due to current economy a t present, Tesco will suffer due to the cost of living and lower fluid incomeOpportunities Statistics show that economies of scale can be gained through buying power, which is why Tesco are the third largest global grocer Due to the acquisition in Asia there is opportunity for further growth internationally Further growth and breeding will be made with TechnologyThreats The credit crunch has bear on the UK and American markets so Tesco will focus on lower priced products WalMart who are world leaders put persistent threats of takeover on Tesco Products areas may need to be evaluated due to changes in consumer buying profit margins may be affected by the rise in lancinating materialsBusiness Teacher (2008). Tesco Swot Analysis, Internet Available from http//www.businessteacher.org.uk/businessresources/swotanalysis database/tescoswotanalysis/Appendix 7Sustaining competitive advantage outlayBased strategies Accept reduced margin Win a price war Reduce Costs Focus on specific segmen tsDifferentiation Create difficulties of imitation Achieve imperfect mobility(of resources/competences) Reinvest marginSustaining Competitive AdvantageLockin Achieve size/market dominance for the first timemover advantage Reinforcement Rigorous enforcementJohnson et al, 2008. p. 225Appendix 8The Strategy Clock Competitive strategy optionsHigh comprehend product/service benefits suffering scathe 2.Hybrid3.Differentiation4. thinkDifferentiation5.6.1.No Frills7.Strategies destined8. for ultimate failureLowLow HighPriceNeeds/ risks1. No frills Likely to be segment specific2. Low Price Risk of price war and low margins need to be cost leader3. Hybrid Low cost base and reinvestment in low priceand differentiation4. Differentiationa) Without price insurance premium Perceived added value by user, yielding market share benefitsb) With price premium Perceive added value sufficient to bear price premium5. Focused differentiation Perceived added value to a particular segment, warranting price premium6. Increased price Higher margins if competitors do not followrisk of losing market share7. Increased price/ low value only feasible in monopoly situation8. Low value/ standard price Loss of market shareAppendix 9Target market selectionDifferentiationMarket Segmentation Tailored marketing integrateOpportunities and threatsJobber, 2004 p, 275AppendixFirm InfrastructureSupportActivitiesHuman Resource M