Why Is Tesco Successful: Tescos Success Factors Essay

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Table of Contents

SWOT Analysis
Tesco PLC Critical Success Factors
Conclusion
References

SWOT Analysis

Strengths

Tesco has strong brand equity, an effective marketing strategy, high market presence in the United Kingdom (UK), significant cash reserves, and strong integration of technology into its business operations. Moreover, its dominance in the U.K. retail market gives it competitive advantage.

Weaknesses

Tesco depends on the presence and dominance in the U.K. to expand its operations, as well as generate revenues. Its large size compromises the overall revenue collected because certain subsidiaries perform poorly and thus receive funding from other businesses.

Opportunities

Tesco’s has the potential to increase its international presence and diversify into more industries. In addition, the company can use technological advancements to improve its operations. There are numerous opportunities for partnerships with other brands and companies in countries, as well as sectors that the company is experiencing dwindling returns. Finally, Tesco has an opportunity for further growth in online retail.

Threats

Harsh economic times threaten the revenues and dominance of the retailer in various markets. Price wars and the presence of other strong retail brands are a treat to Tesco’s dominance in the retail industry. Government regulations affect the company’s operations, as they are supposed to adopt a new organizational structure. In addition, rising costs of operations lead to negative impact on the company’s bottom line. Finally, recent cases of corruption have the potential to threaten the company’s long-standing brand reputation.

Tesco PLC Critical Success Factors

Introduction

Tesco PLC is a British merchandise retailer that was founded in 1919 by Jack Cohen. It has operations in 12 countries around the world (Ryle 2013). It is the largest retailer in the U.K. with more than 530,000 employees. Currently, Tesco serves more than 75 million customers every week (About Us: Our Businesses 2015). Tesco is present in Malaysia, India, Czech Republic, Hungary, Ireland, Poland, and China (About Us: Our Businesses 2015).

The retailer is the third largest in the world in terms of revenues and a market capitalization of more than £20.5 billion (Ryle 2013). After its founding, Tesco operated for many years selling grocery only in the U.K. Today, the multinational retailer has diversified its operations into other areas that include electronics, furniture, software, clothing, books, internet services, and financial services (Ryle 2013). The company has good online presence and makes great sales through its website. The success of Tesco has been studied for a very long time because of its size and presence in various countries across the world. Its success has been used as a case study for improving the performance of other businesses.

Critical success factors

Tesco has developed a number of critical success factors (CSF), which have enhanced its sustainability and success in the retail business. These factors are closely related to goals, values, and policies that govern its business operations. The success factors involve the performance of employees, strategic management, leadership, as well as strategies to enhance its operations and delivery of quality customer service.

Success factors linked to employees include customer focus, personal integrity, drive, team work, and personal development. Employee integrity plays an important role in creating trust with customers, which is necessary for customer loyalty. Team work ensures that employees combine their individual efforts in order to guarantee better customer service. It improves decision making, problem solving, exchange of ideas and knowledge, and innovation. Success factors related to leadership and management include performance management, change management, commitment, as well as effective analysis and decision making.

The management of Tesco ensures that these requirements are fulfilled in order to foster sustainable growth and enhance organizational success. The aforementioned success factors are covered under four major areas that are related to operations and delivery of services. They include integration of information technology, market research, supplier management as well as branding and reputation. These factors constitute the forces behind Tesco’s success in the retail industry.

Branding and reputation

Tesco is one of the companies whose success depends on the realization that branding and maintaining a clean reputation plays an important role. Tesco is a multinational brand that is mainly associated with the retail industry. The Tesco brand is the company’s core strategic advantage that continues to enhance its growth and expansion to other countries, as well as its prolonged success (Palmer 2005).

When the company started, it majored mainly on groceries. However, as it grew and implemented various expansion strategies, it expanded into other sectors. It embraced a corporate culture of converting generic products into branded products, which have attracted many loyal customers (Ryle 2013). The company’s brand image is characterised by high quality products and good customer service (Palmer 2005). Branding is also applied as a marketing and organizational strategy that provides competitive advantage and provides a method for effective competition with other companies in the retail industry. Tesco’s primary brand products play a key role in its drawn out success because they appeal to all market segments, thus giving it the necessary competitive advantage (Palmer 2005).

The products cover all categories and are priced differently depending on their target customers. After changing its management in 1997, Tesco’s new Chief Executive Officer (CEO) began a new marketing strategy that presented the retailer to the people based on its core values, principles, and organizational goals. The marketing campaign used the phrase “The Tesco Way” to express the retailer’s new commitment to a different way of carrying out its business operations (Ryle 2013). Tesco’s branding has been successful because of the management’s decision to improve its product and service delivery processes (Ryle 2013).

The change has led to more effective supplier management and better customer service due to enhanced delivery of quality products and services to customers. Tesco’s brand has a high reputation for quality and value. Therefore, it has become easier for the company to expand to other economic sectors. For instance, the company’s expansion into the finance and insurance sectors was primarily motivated by the brand’s strong reputation that has been built over the years. Another aspect that has contributed to its strong brand reputation is the creation of a customer loyalty program, which has been very successful (Ryle 2013).

The loyalty card system has enabled Tesco to grow further and attract more customers by customizing its services to fit the needs and interests of individual consumers (Humby et al. 2008). The success of this program is evidenced by the exponential increase in the company’s online sales. The company has an online platform that allows customers to buy merchandise from any part of the world. Online retailing is one of the most critical factors in the success of Tesco. The reason for this is that technological advancements have changed people’s lifestyles to the extent that many people prefer online shopping because of its efficiency and effectiveness.

Integration of technology into business operations

Tesco is highly success because of the expansion strategy that has enabled it to provide its products and services in various countries across the world (Ryle 2013). The company’s innovative use of technology is one of the reasons why its expansion strategy has been successful and effective (Palmer 2005). The modern business environment is highly complex, volatile, and dynamic. Therefore, adapting to change is very difficult.

Tesco has overcome these challenges by innovating and integrating technology into its business operations. The company has developed systems that control stock, track customer purchases, analyse business transactions, facilitate online transactions, and synchronize the operations of various departments (Stone & Woodcock 2006). Information technology has been embraced partially by many businesses. However, information technology plays a pivotal role in the formulation of business strategies and the running of key business processes at Tesco.

Tesco also uses information systems to create partnerships with customers, suppliers, investors, and other stakeholders (Humby et al. 2008). Integration of information technology into business operations increases efficiency of service delivery and dissemination of information to customers, as well as suppliers. Tesco uses an extranet system to have easily and timely interactions with suppliers. The system eases the burden of supply control and reduces costs. The extranet system improves communication with partners by connecting them through online platforms (Ryle 2013). Tesco also uses BT Cloud contact technology to connect more with its customers.

The technology is used in the company’s contact centre service to assist customers. This service plays an important role in improving the quality of customer service that Tesco provides. The company uses several technological advancements to streamline its operations and processes. Examples of these technologies include Radio Frequency Identification (RFID) systems, high-tech checkout systems, augmented reality software, face-scanning technology, scan-as-you-shop technology, and electronic shelf labelling (Ryle 2013).

These technologies have improved the efficiency of operations and business processes in numerous ways that have reduced the costs of operation and increased revenues. Finally, Tesco is adapting technological advancements in there major areas. These areas include personal computers, in stores, and mobile devices. This is aimed at helping the company adapt to different shopping habits of its customers and ensure quality service. Technology is also used in stores to make shopping easy and quick (Stone & Woodcock 2006).

For instance, the scan-as-you-shop technology makes shopping fast because customers are able to scan some of their shopping before going to the checkout point (Ryle 2013). Technology has also enabled Tesco to streamline its supply chain through the utilization of information technology, which has improved collaboration with suppliers (Palmer 2005). Several benefits have resulted from this strategy. They include reduction of stockholding in stores, increased product range, improved supplier management, better incorporation of own-label products into Tesco’s system, reduction of wastage, increased sales, as well as enhanced productivity and efficiency. In addition, information technology is used to improve the efficiency of various business operations such as warehouse efficiencies and delivery of products.

Effective supplier management

Effective supplier management is one of the core factors that are responsible for the company’s success. For instance, in 2010, the company attributed its 10% increase in profitability to closer supplier relationships (Ryle 2013).

Supplier management helps to deliver quality products and exceptional shopping experiences (Palmer 2005). Tesco treats suppliers fairly and offers them long-term deals that motivate them to provide high quality services. The company chooses suppliers that understand their business model needs and invests in them. The company’s commitment to develop strong supplier relationships is evident from its Trading Fairly Awards (TFA) that rewards suppliers for creating good working conditions for their employees. Tesco is a multinational retailer that works with numerous suppliers from different countries and cultural backgrounds (Palmer 2005).

Therefore, investing in supplier management is important. Development of closer relationships with suppliers enhances the delivery of products and reduces the costs related to supply delays. Tesco creates strong relationships with suppliers by using technology to enhance communication and improve business processes (Ryle 2013).

For instance, Tesco launched an online network that improves communication between the retailer and suppliers. The Tesco Supplier Network (TSN) gives suppliers a platform to give their views, opinions, and complaints. The system aims to improve the availability of certain products to customers, improve service delivery, and improve the treatment of suppliers who are an important component of Tesco’s business (Ryle 2013). The retailer has achieved tremendous feats because of good relationships with suppliers. For instance, in 2014, the company cooperated with suppliers to cut waste in its supply chain that accounted for £6.9 billion in losses. In order to handle the challenges of supply chain instability and create mutual relationships, Tesco signs long-term strategic agreements with its suppliers.

Market research

Tesco’s success is also fuelled by the effective application of market research in improving service delivery through collection of information regarding customer’s buying habits, needs, and interests (Humby et al. 2008). Market research has enabled the retailer to know its customers, their interests, and needs. This has facilitated the implementation of its expansion and diversification strategy that has been very successful.

Tesco empathises with customers because of its readiness to implement the insights gained from market research (Ryle 2013). In addition, research has facilitated its entry into diverse economic sectors that has been highly successful. The retailer conducts research both on new and existing customers. Understanding the buying habits of existing customers is critical to the creation of better products that increase brand value (Humby et al. 2008).

A good example of successful application of market research at Tesco is the introduction of a loyalty card. The idea for a loyalty program came from insights gained from market research. The customer loyalty program enables the company to gather customer information that is used to improve business operations (Humby et al. 2008). For instance, Tesco knows the amount of money that customers spend on specific products and services. The program has been implemented in an effective manner that it is the largest and most successful customer loyalty program that has membership of over 13 million people (Humby et al. 2008).

Insights form market research has enabled Tesco to improve its product ranges and logistics to streamline its business activities. Tesco’s Clubcard aids in the development of effective marketing strategies that target individual customers (Humby et al. 2008). In the registration process, customers submit important personal information that the company uses to place them in its different marketing segments (Stone & Woodcock 2006).

Conclusion

Tesco is an example of organizational success through effective branding, quality service delivery, and use of technology to streamline business operations. After its founding, Tesco majored in selling groceries only. However, as the business environment changed, the company embraced different business models that encouraged diversification into other sectors that include finance, furniture, and clothing. Diversification and embracement of technology has enabled the company to dominate the retailing sectors for a long time. Through innovation, Tesco is able to adapt to market changes and maintain its high quality of customer service.

Creating strong, trustworthy, and reliable relationships is important for any business. Tesco uses market research to understand its customers better through a customer loyalty program that has a membership of more than 13 million. The program facilitates the collection of important customer information that is used to determine market trends, customers’ buying habits, preferences, and interests. Market research enhances the development of effective marketing strategies that target different segments and specific customer needs. Finally, effective supplier management plays an important role in the company’s success.

The use of information technology aids the retailer in streamlining the supply chain of the company. An effective supply chain reduces loses, increases product range, improves the availability of products, and ensures delivery of quality products. Tesco will continue to succeed because of its readiness to innovate and adapt to change.

References

About Us: Our Businesses 2015. Web.

Humby, C, Hunt, T & Phillips, T 2008, Scoring points: How Tesco Continues to Win Customer Loyalty, Kogan Page Publishers, New York. Web.

Stone, M & Woodcock N 2006, Up Close & Personal: Customer Relationship Marketing, Kogan Page Publishers, New York. Web.

Palmer, M 2005, ‘Retail Multinational Learning: A Case Study of Tesco’, International Journal of Retail & Distribution Management, vol.33, no. 1, pp. 23-48. Web.

Ryle, S 2013, The Making of Tesco: A Story of British Shopping, Bantam Press, London. Web.

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