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03/21/2012

EXTERNAL ENVIRONMENT ANALYSIS: THE CASE OF TESCO


EXTERNAL ENVIRONMENT ANALYSIS: THE CASE OF TESCO

 

Introduction

The market environment in this generation is characterized by highly competent industries and firms which are all competing for generating profit and loyal clients. These industries are faced with various challenges in maintaining their economic and business competency to be able to stay alive and continue their success. In this regard, marketing Methods and approach are carefully planned and initiated to gain the ultimate objective and that is to achieve business and firm growth. Nonetheless, external elements and aspects are not the only elements which influence growth. In this generation, most enterprises find that it is unfeasible to establish any kind of sustainable economic and business competencies based on their product along. It is common adherence that each of the successful enterprise required and create a precise understanding of how it could establish a consumer-centered economic and business competencies.

Along with the changing market environment, external market has become more complex to handle.  In turn, business and firm management had shifted their focus on their profit alone so as to stay successfully in business. This transformation notes that industries and firms have to completely transform their normal business aims and purposes from being process-focused to client-centered. Thus, to be able to bring outstanding products or services within business and firm operations, the management should employ fine-tuned corporate restructuring. Moreover, employing proactive consumer commitment involves the consideration on culture and organizational infrastructure (Lowenstein, 1997).

Industries and firms that capitalize on consumers' active participation in corporate activities and functions can gain economic and business competencies through greater sales volume, positive word-of-mouth publicity, enhanced operating efficiencies, reduced marketing expenses, and enhanced consumer retention (Reichheld & Sasser, 1990). Primarily, the main goal of this paper is to analyze the external environment of a specific organization, that is, Tesco. Herein, marketing strategies analysis will be used and SWOT and Five Forces analysis will be considered to assess external environment.

Overview of the Organization

Tesco is well-known as the biggest and largest supermarket in the UK which dominates the retail industry.  Tesco’s stores are continuing to expand from 98 to more than 300 and other branches in Asia.  The success of this organization s the business and firm explains is due to an excellent Operating Strategy and Management team of Tesco (Tesco, 2010). Established on 1924, this retail industry has indeed come a long way since its first launched store in Burnt Oak, Edgware.  Today with its 86 years in the business, the organization has become the leading food retailer all over Britain.

Tesco begun as a self-service supermarket in the United States in the 1930s, however, after a few years of operations, the management had noticed that selling a broader variety with larger stock volume and employing few staff can lower product prices.   Such realization was the beginning of greater things for this retail industry.  Though some industries fall during the War, the organization still grows and thrives in the middle of such adversities. After 10 years, the organization entered the British market and introduces their self-service retail stores. Then in 1960s, the retail giant become a familiar and popular name in the household, not only for groceries but also for other products such as clothing, fresh food and household products. for fresh food, clothing, and other household goods (Tesco PLC Interim Report, 2003). 

The organization continue to expand to reach more target market and built their 100th superstore by 1985, and in 1987, the organization had announced their £500 million plan to establish even more retail stores.  In the early year part of 1990s, the success of its petrol filling stations earned for the business and firm Britain’s biggest independent petrol retailer.  During these years, the organization built on its success by developing new branches concepts and new consumer-oriented initiatives. The organization has become more popular because of breaking new grounds in food retailing as they first introduced loyalty card in 1995 that offers different benefits to regular shoppers while helping the business and firm discover more about its consumers' needs.  Other consumer services emerged such as grocery home shopping, Tesco Direct for catalogue shoppers as well as the Tesco Babyclub for new parents, and also the establishment of Tesco Personal Finance a joint venture with the Royal Bank of Scotland (Tesco PLC Interim Report, 2003).

The organization had continued its successful streak in the 21st century.  In January 2003 Tesco accomplished the acquisition of 870 T&S Stores in the United Kingdom; 450 of which has been converted to Tesco Express. In addition, they also opened some international branches such as in Taiwan in 2000 and, in May 2002 they opened their first store in Malaysia in a joint venture with Sime Darby Sdn Bhd.  In 2002, Tesco has acquired  “HIT” chain of hypermarkets in Poland. Such activity enabled Tesco to add 13 hypermarkets to the Polish business, and enabled them to reach market leading position (Tesco PLC Interim Report, 2003).

External Environment

Success in any organization which operates in both profit and marketing acquisition lies on the capability of the leaders and management to position and establish their products/services in the market environment. In addition, the capabilities of the firms as well as its management to compete and maintain a competitive edge among its rival industries is another basis to note that it has been able to reach their full market potentials.  However, there are external factors which affect the competencies of an industry. To analyze, Tesco’s market environment, Porter’s Five Forces Model and SWOT analysis will be used.

 

SWOT ANALYSIS

 

STRENGTHS

 

 

WEAKNESSES

 

1.    Broad knowledge in retail sectors and self-service industries

2.    Efficient top management and rank & file for operation and maintenance

3.    Consumer loyalty

4.    Financial investment and acquisition approach.

5.    Strong Information technology returns through internet shopping

 

1.    Low supervision in the international market

2.    High turnover of employees because of internal issues

 

 

OPPORTUNITIES

 

 

THREATS

 

1.    Expansion and reach for international target market

2.    Healthy market environment

3.    Online opportunities through e-business approach.

 

 

1.    Economic restructuring

2.    Intensified competition

3.    Government regulation and policies specifically for international market.

 

PORTER’S FIVE FORCES MODEL IN THE TESCO CONTEXT

Figure 1 - The Five Factors Influencing Competition in Industry[1]

The strength of the external environment in an industry identified the extent to which investment inflow happens and drives the return to having free market level, hence the ability of the company to sustain their return of investments. The underlying structure of a company is reflected on the strength of the external forces, which should be determined from the short-run elements which can affect the competencies and profitability of the company.  The external environment in which a retail giant belongs includes the rival firm, substitute products, power of buyer, supplier power, and the potential entrants of new market. These elements are the ones which contributes to how the company functions and operates in the market environment. In addition, this also helps the company identify what aspects should be enhanced or removed.

INDUSTRY RIVAL FIRMS

            Awareness, fixed or variable costs, capacity, differentiation, behaviour, pricing, and market and corporate growth are some of the external factors that are considered in this force. Accordingly, there is a need to determine the rival firms of Tesco which affect their market position.  In the retail sector, there is a high concentration for rivals. This is proven with the numerous number of their rival firms, come of the top rivals which include ASDA Group Limited, BP PLC, ExxonMobil Corporation, Carrefour S.A., J Sainsbury PLC, The Big Food Group PLC, , Royal Dutch/Shell Group, Marks & Spencer Group PLC, Somerfield, Safeway Inc., Wm Morrison Supermarkets PLC, The Boots Group PLC, John Lewis Partnership PLC and The Carphone Warehouse Group PLC Rivalry tends to increase as the number of rival firms increases and as they become more equal in line with capacities and sizes. Hence it can be considered that the power of rivalry in the retailing industry where Tesco belongs is very high.  In addition, rivalry is usually higher when demand for the product is slowly growing, just like the case of the retail sectors,

POTENTIAL ENTRANTS

As mentioned by Davies & Lam (2001), barriers to entry are relative to economies of scale, the emergence of learning and experience curve effects, capital requirements, cost disadvantages independent of size, brand preferences and consumer loyalty, access to distribution networks and government and international actions and policies. For example, economies of scale,  indicates that the more scales in the economy, the lesser the threat of entries if such cannot immediately get  larger market shares, then it will obtain major cost disadvantage.  Being in the business for almost 86 years, there is a greater threat of entries in the retail sector, specifically with the experiences that Tesco have.

BUYERS

Accordingly, it said that the leverage and bargaining power of consumers tend to be relatively higher if consumers are few in numbers and when they buy in larger quantities and when consumers’  purchases  delegates a sizable rate of the retail industry’s total sales. In the retailing sector, the number of consumers is very large, and most of them do not buy in bulk. In this regard, it can be said that the bargaining power of consumers is weak for this sector.  Although this is the case, Tesco is still fortunate since their rival firms are not as large as their own organisation, making it have the market disciplined, and the rival firms likewise have a disciplined strategy in price setting, partly due to set regulation of the government and trade department.

SUPPLIERS

A group of supplier industries is considered to have more bargaining power when the input is, in one way or another, essential to the buyer and when the supplier industry is conquered by a few large producers that enjoys reasonably secure market leadership and are not pressured by intensely competitive situations (Davies & Lam 2001).  In line with the industry where Tesco belongs, the company has extreme advantage of being able to decide for the prices that they want in which suppliers agree to ensure that the retail giants will always have good relationship with them. Moreover, , when the suppliers’ respective goods are differentiated in a level that it will be costly and difficult for clients to find other supplier, the power of supplier eventually increases, In the case of Tesco, there are different suppliers in which Tesco can choose from and being recognised as a retail giant, the company can control even suppliers prices since they have the resources.

SUBSTITUTES

The availability as well as the prices of acceptable substitutes for a product places a upper limit on the prices which the firms of that product can charge, and unless the retailer of a product can enhanced the quality, decrease in terms of prices via cost reduction, or otherwise product differentiation is entailed from their substitutes In the retail sector, in which Tesco belong, there are different rival firms that can provide what Tesco can offer. Such amount of rivalry is the driver that triggers the prices of all industries. Hence, it can be said that Tesco belongs in a higher degree of substitutes with all their rival companies surrounding them.

Recommendations

It can be said that in the external environment. The most essential aspect to consider is the target market.  In the case of Tesco, the external environment is said to be in a highly competitive situation. To be able to ensure that the company can manage their external environment and still survive in the business market, it is recommended that they provide efficient strategies, specifically in terms of handling their consumers.  In this regard, the following are some of the recommended approach that tesco can use to ensure competencies in the market environment.

Clubcard: Every Little Helps. The loyalty of existing consumers delegates substantial entry barrier for different rival industries.  Excessive resources are needed to enter this kind of market in which consumers must be cajoled away from an established brand  in which they have been satisfied for so long. In this regard, since Tesco is generating more and more profits and competencies because of their loyal clients, it is recommended that they will continue this approach and ensure that other consumers will be loyal to their company.

Cause Related Marketing. In order to sell healthy products, Tesco can also consider the use of Cost Leadership Strategy. This approach,  which targets a wider  market and objects to present consumers with products at a low cost for a given level of quality. In this regard, tesco can sell different products such as pharmaceutical products either at average industry prices to earn higher profit than their competitors, or below the average industry prices to be able to gain market share. In the existence of price way, the company can also maintain their profitability.

Enhanced Online marketing approach

            The trend in the global market nowadays is the ability of the company to gather as much clients through the use of e-marketing or online marketing approach. Tesco have been able to see the advantages of these kind of marketing approach and in order to sustain their competitiveness, it is recommended that they always adhere to the changes in the external environment by considering efficient and modern information technology facilities. Such can help the company enhance target reach and also sustain global competencies.

Conclusion

            This market report focus on the analysis of the external environment Tesco and their marketing approach.   It can be said that long-term development of the retailing sectors is one that is described by a series of evolutionary periods that at times can best be described as radical in nature. In the marketing analysis conducted. Tesco is one of the most competent retail industry, but the company should not be over confident with their status. The company is required to constantly be on the lookout for approaches and marketing methods that would help them in sustaining their marketing competencies in spite of the positive or negative situation of the external market.  Such a big industry like Tesco is faced with so many challenges at different angles, hence, they should be able to foresee these problems and have contingency plans.  The use of SWOT and Porter’s five force model will help  any company on identifying the direction in which they are going to take through the analysis of external environment and factors  market operations and functions of the company.  Through this analysis, Tesco, can be determine their profit potential and other approaches needed to sustain in their competitive position, with their structural features.  It can be said that the retailing sectors, that Tesco belongs is highly appealing that contributes to a large share of their total profits. With the changes in the global market, because of globalisation and information technology, Tesco should have alternative approaches to secure their competitive advantage.

By and large, it can be said that Tesco is still one of the leaders in the retail market and their ability to give consideration on the external environment made them remained this way.

Reference

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Hessan D. and Whiteley R. (1996). Customer Centered Growth: Five Proven Strategies for Building Competitive Advantage. Cambridge, MA: Perseus Books.

Humby, Clive, Terry Hunt and Tim Phillips (2003), Scoring Points: How Tesco is

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Lowenstein, M.W. (1997). The Customer Loyalty Pyramid. Westport, CT: Quorum Books.

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[1] Adapted from Porter (1998).

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