The marketing strategies currently being employed by Tesco to acquire and retain customers.
Tesco has been proficient at customer acquisition and customer retention. This paper gives a brief over view of the marketing strategies currently being employed by Tesco to acquire and retain customers. This strategy is understood by dissecting analyzing Tesco’s strategic positioning and also its marketing mix i.e. Product, Price, Promotion, Place.
Market Segmentation and Generic Strategy
The UK retail industry is very competitive with a number of big retailers competing for market share. Among the big four retail giants in the UK (Tesco, Sainsbury, Asda and Morrison), Tesco is a market leader with a 30.6% market share, as at April 2009 (BBC, 2009). This competency has been built by adopting an effective marketing segmentation that targets a wide range of the UK demographic. Tesco specifically targets the middle and low-income earners with its broad based cost leadership strategy, which aims to sell value products using a cost effective approach (Humby et al, 2009). The methods and processes in which Tesco leverages its competences in successfully targeting its target demographic are outlined with the following marketing mix analysis.
Tesco’s Marketing Mix
Tesco sells both food and non-food items. It has strong focus on grocery retailing and most recently, non-grocery are accounting for increasing proportion of sales. In 2008, non-grocery sales accounted for 30% of the total sales and with increasing demand for non-grocery products; the company has decided to dedicate half of its new floor space to non-food items. Tesco also provides number of service including insurance, finance, telecoms, and computer software and has significant petrol forecourt business. Tesco also has a website which allows consumers to sell their homes privately and thereby cut estate agents. In addition to selling branded products, Tesco also sells private label products. Tesco started aggressively promoting the private label products over 2008 and has been pursuing this strategy in 2009 in order to offer the cheapest product on the market. The initial strategy of promoting private label products was to make direct price comparison with branded goods on the assumption that huge price difference between the branded products and private label would compel a customer to go for a cheaper private label product. However, this did not go down well with the suppliers of branded products and following their complaints, Tesco abandoned this strategy. However, this strategy provided them with initial momentum to promote the private label. Presently, a service on a Tesco website flags branded goods if there is a private label product available at a lower price. By using the private label model, Tesco has appealed to wide cross-section of UK consumers by providing them distinct range of products from Value to Finest. This has helped Tesco in increasing their consumer base. The extent of differentiation can be gauged from the fact that for “ethical shoppers”, it has fair trade lines of products and it also recently launched Local choice milk for the same segment. Also for the health conscious consumers, it has Healthy living, Organic and Wholefoods ranges. In areas like Upton Park in London, where there are high level of residents from Asian origin, it has a strong offer of Asian produce. In contrast, another of its outlet in Brixton in London has a strong offer of Afro- Caribbean produce. Using this strategy, the retailer is maximizing the potential of its consumer base (Humby et al 2009) (Tesco, 2009).
Due to its sheer size and market reach, it has enormous buying power. Therefore, it can buy products at the lowest possible price and sell it lower than most of its competitors. It uses pricing as a competitive tool. Similar to the product placing strategy, Tesco’s pricing strategy is also region-specific. In more depressed areas, the products are lower priced whereas in affluent areas, the products are higher priced. This is a reflection of company’s positional strategy of being all things to all consumers. In response to the competition by Discounters Aldi and Lidl, it rolled out 2001 lines of discounter range and also announced in early 2009, that 3,000 products would have their prices cut. Even though this strategy proved popular with the consumers and helped Tesco to marginally increase its market share, it also led to a situation where in many consumer traded down from their regular purchases, thus affecting Tesco’s own overall sales figures (Capon, 2009) (Hill, 2008).
Tesco is perhaps the most visible and the strongest brand on British high street. It has around 2,200 stores divided into four different formats, which are tailored to meet customers’ needs. Tesco is also experimenting with a trial format called Homeplus.
The different formats of Tesco are as follows.
Express (Up to 3,000 sq ft) offers customers great value, quality and fresh food close to where they live and work
Metro (approx 7,000 – 15,000 sq ft) format brings the convenience of Tesco to town and city centre locations.
Superstore (approx 20,000- 50,000 sq ft) were initially selling only food ranges but are now slowly diversifying into non-food ranges
Extra (approx 60,000 sq ft and above) offers wide range of food and non-food lines.
Homeplus (approx 35,000 sq ft to 50,000 sq ft) are dedicated to non-food, including clothing. (Tesco, 2009)
The major part of Tesco’s promotion is by direct marketing campaign based on the customer database, which is provided by the hugely successful ClubCard scheme. The ClubCard’s scheme revolves around the concept that customers collect points, which can then be used for purchases at Tesco. It also provides an opportunity to buy products and services at many partner firms. Based upon demographic and transactional data collected from ClubCard, about 7m to 8m variations of mailings go out to Tesco’s consumers. The entire objective of this ClubCard campaign has been to up-sell to existing customers by understanding them better and meeting their needs. Tesco offers fewer short-term promotions in favour of more long-term measures. Its research has shown that consumers prefer simple offers and focuses its promotions on four promotional mechanics i.e. BOGOF (Buy One Get One Free), 2 for ? 1, price cuts with consistent savings and Extra free. The time range of most of the promotional offers offered by Tesco is of 12-week period. Tesco has embraced social media marketing wholeheartedly and has set up a Twitter social networking group called Fresh and Easy. This helps to keep consumers up to date and extend its online reach (Peppers & Rogers, 2004) (Philip, 2008).
As unemployment rises across UK, consumer research groups have forecasted shoppers to spend less over the next few months. But the sheer size and penetration of Tesco, coupled with its strength in pricing provides it with a certain advantages because of large number of consumers who will continue shopping at Tesco. Researchers have forecast internet retailing to see CAGR 14 % in constant value terms over the next few months and with nearly three fold lead over its closest competitors in internet retailing, Tesco is well positioned to build on the confidence consumers have in its products and offerings.
(Hunt et al, 2009)
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