The effect of cost leadership on profitability in the retail sector: A case study of Tesco UK
Added on 2019-12-03
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THE STUDY OF THE EFFECT OF
COST LEADERSHIP ON
PROFITABILITY IN THE RETAIL
INDUSTRY:
A CASE STUDY OF TESCO UK
COST LEADERSHIP ON
PROFITABILITY IN THE RETAIL
INDUSTRY:
A CASE STUDY OF TESCO UK
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION....................................................................................................1
1.1 Background of the study...................................................................................................1
1.2 Rationale of the research..................................................................................................2
1.3 Research aims and objectives...........................................................................................3
1.4 Research questions...........................................................................................................3
1.5 Potential significance of research.....................................................................................3
1.6 Research structure............................................................................................................4
CHAPTER 2: RESEARCH METHODOLOGY.............................................................................5
2.1 Introduction......................................................................................................................5
2.2 Research philosophy.........................................................................................................5
2.3 Research approach............................................................................................................6
2.4 Research design................................................................................................................6
2.5 Research type....................................................................................................................7
2.6 Data collection..................................................................................................................7
2.7 Sampling...........................................................................................................................8
2.8 Data Analysis....................................................................................................................9
2.9 Ethical consideration........................................................................................................9
2.10 Research Limitations......................................................................................................9
2.11 Validity and reliability..................................................................................................10
CHAPTER 3: Literature Review...................................................................................................11
3.1 Introduction....................................................................................................................11
3.2 Concept of cost leadership..............................................................................................11
3.3 Cost leadership models and strategies............................................................................12
3.5 effectiveness of cost leadership on profitability of business..........................................18
3.6 Factors restricting the profitability of business..............................................................19
CHAPTER 4: DATA ANALYSIS................................................................................................21
4.1 Introduction....................................................................................................................21
4.2 Thematic analysis...........................................................................................................21
CHAPTER 5: CONCLUSION AND RECOMMENDATION.....................................................35
Conclusion............................................................................................................................35
CHAPTER 1: INTRODUCTION....................................................................................................1
1.1 Background of the study...................................................................................................1
1.2 Rationale of the research..................................................................................................2
1.3 Research aims and objectives...........................................................................................3
1.4 Research questions...........................................................................................................3
1.5 Potential significance of research.....................................................................................3
1.6 Research structure............................................................................................................4
CHAPTER 2: RESEARCH METHODOLOGY.............................................................................5
2.1 Introduction......................................................................................................................5
2.2 Research philosophy.........................................................................................................5
2.3 Research approach............................................................................................................6
2.4 Research design................................................................................................................6
2.5 Research type....................................................................................................................7
2.6 Data collection..................................................................................................................7
2.7 Sampling...........................................................................................................................8
2.8 Data Analysis....................................................................................................................9
2.9 Ethical consideration........................................................................................................9
2.10 Research Limitations......................................................................................................9
2.11 Validity and reliability..................................................................................................10
CHAPTER 3: Literature Review...................................................................................................11
3.1 Introduction....................................................................................................................11
3.2 Concept of cost leadership..............................................................................................11
3.3 Cost leadership models and strategies............................................................................12
3.5 effectiveness of cost leadership on profitability of business..........................................18
3.6 Factors restricting the profitability of business..............................................................19
CHAPTER 4: DATA ANALYSIS................................................................................................21
4.1 Introduction....................................................................................................................21
4.2 Thematic analysis...........................................................................................................21
CHAPTER 5: CONCLUSION AND RECOMMENDATION.....................................................35
Conclusion............................................................................................................................35
ILLUSTRATION INDEX
Illustration 1: Value chain analysis................................................................................................12
Illustration 2: Porter’s Generic Strategies......................................................................................15
Illustration 3: Bowman's Strategy Clock.......................................................................................17
Illustration 4: Relationship between cost and profitability............................................................18
Illustration 5: Market share of Tesco in UK retail industry...........................................................22
Illustration 6: Value chain analysis of Tesco.................................................................................23
Illustration 7: Porter generic strategy............................................................................................25
Illustration 8: Retail Strategies......................................................................................................27
Illustration 9: Losing market share of Tesco.................................................................................28
Illustration 10: Porter Five force analysis for Tesco.....................................................................29
Illustration 11: Tesco analysis for the year 2014-15.....................................................................30
Illustration 12: Tesco Troubles......................................................................................................31
Illustration 13: Losing market share by retail giants.....................................................................32
Illustration 14: five year timeline of Tesco....................................................................................33
Illustration 1: Value chain analysis................................................................................................12
Illustration 2: Porter’s Generic Strategies......................................................................................15
Illustration 3: Bowman's Strategy Clock.......................................................................................17
Illustration 4: Relationship between cost and profitability............................................................18
Illustration 5: Market share of Tesco in UK retail industry...........................................................22
Illustration 6: Value chain analysis of Tesco.................................................................................23
Illustration 7: Porter generic strategy............................................................................................25
Illustration 8: Retail Strategies......................................................................................................27
Illustration 9: Losing market share of Tesco.................................................................................28
Illustration 10: Porter Five force analysis for Tesco.....................................................................29
Illustration 11: Tesco analysis for the year 2014-15.....................................................................30
Illustration 12: Tesco Troubles......................................................................................................31
Illustration 13: Losing market share by retail giants.....................................................................32
Illustration 14: five year timeline of Tesco....................................................................................33
CHAPTER 1: INTRODUCTION
1.1 Background of the study
Globalization has infused high rate of competition within the market by enhancing the
reach of the company and creating high and increased measure of developing the business
operations (Ortega, 2010). The recent market scenario has helped the companies in creating an
effective impact on the overall profitability of the businesses. Every industry has a direct impact
of the current market trends and the businesses are thus developing their businesses to enhance
their market position in order to increase profitability by increasing market sales (Tavitiyaman,
Zhang and Qu, 2012). This has infused intensive price wars between various business units.
Companies presently focus on developing unique pricing measures to attract maximum
consumers while managing high profit margins.
In the current era, there is huge competition in the market place and companies are
adopting varied practices for boosting its effectiveness. Retail industry has faced a significant
impact of this from decades (Ormanidhi and Stringa, 2008). Profitability within the sector is
highly sensitive to the rising rate of competition within the global market. Every retail giant is
currently focusing on developing specific strategies to enhance the sales within the global
market. Companies such as Next plc, Tesco plc, Asda plc, Aldi and Waitrose are few key players
within the sector. The companies are now prioritising their actions to recognize the fundamental
shift in consumer shopping desires and patterns (Hollensen, 2015). Technology, data security,
agile supply chains, price wars and cost cutting are all causing retailers to re-think their business
forecasts and business models.
Cost leadership is one of the leading factors which help the business unit in creating
competitive edge within the market. Strong internal operations help in developing influential
measures for cost cutting. These strategies help in analysing unique brand aspects of the
organizational operations to create high market demand within the industry. Various competitive
strategies have been developed and implemented by business units however cost leadership is
one of most influential measure which helps in reducing the gap between organizational
objectives and business activities. This strategy focuses on providing high quality products at
low cost to enhance effective business operations for the company. It helps the businesses in
developing an edge within the market thus developing a unique and positive brand image for the
consumers. By using various models and tools the companies creates a critical insight about the
1
1.1 Background of the study
Globalization has infused high rate of competition within the market by enhancing the
reach of the company and creating high and increased measure of developing the business
operations (Ortega, 2010). The recent market scenario has helped the companies in creating an
effective impact on the overall profitability of the businesses. Every industry has a direct impact
of the current market trends and the businesses are thus developing their businesses to enhance
their market position in order to increase profitability by increasing market sales (Tavitiyaman,
Zhang and Qu, 2012). This has infused intensive price wars between various business units.
Companies presently focus on developing unique pricing measures to attract maximum
consumers while managing high profit margins.
In the current era, there is huge competition in the market place and companies are
adopting varied practices for boosting its effectiveness. Retail industry has faced a significant
impact of this from decades (Ormanidhi and Stringa, 2008). Profitability within the sector is
highly sensitive to the rising rate of competition within the global market. Every retail giant is
currently focusing on developing specific strategies to enhance the sales within the global
market. Companies such as Next plc, Tesco plc, Asda plc, Aldi and Waitrose are few key players
within the sector. The companies are now prioritising their actions to recognize the fundamental
shift in consumer shopping desires and patterns (Hollensen, 2015). Technology, data security,
agile supply chains, price wars and cost cutting are all causing retailers to re-think their business
forecasts and business models.
Cost leadership is one of the leading factors which help the business unit in creating
competitive edge within the market. Strong internal operations help in developing influential
measures for cost cutting. These strategies help in analysing unique brand aspects of the
organizational operations to create high market demand within the industry. Various competitive
strategies have been developed and implemented by business units however cost leadership is
one of most influential measure which helps in reducing the gap between organizational
objectives and business activities. This strategy focuses on providing high quality products at
low cost to enhance effective business operations for the company. It helps the businesses in
developing an edge within the market thus developing a unique and positive brand image for the
consumers. By using various models and tools the companies creates a critical insight about the
1
current market position of the company and the future aspects of growth as well (Voola and
O’Cass, 2010).
In this regard, present study is proposed to assess the impact of cost leadership on the
profitability of the company. For this purpose, Tesco has been taken into account which enjoys
dominant market share within the UK retail sector. The company has established an effective
market share within the market (Pertusa‐Ortega and et.al., 2009). It is one of the biggest retail
supermarket chains in the UK. The business unit is globally established and is operating its
business operations in 12 countries across Asia and Europe as well (Ahmed, 2015). In recent
year of the business has faced a downturn. However the consumer preference for the store is still
maintained. Under this research, efforts have been incorporated to assess the strategies that the
company has implemented in order to gain the well-established market position across the globe
(Felsted and Smaith, 2015).
1.2 Rationale of the research
Rationale of the study is developed in order to define the logic or reason behind choosing
the specific topic for the study. Companies presently are focusing significantly to enhance the
profitability in the competitive markets. This demands a significant analysis of given problem
and seeks effective measures to overcome the same. Therefore, the research aims to study the
impact of cost analysis of the Tesco and analyse the management of company's overall
operations. The study will analyse the impact of cost leadership measures on overall profitability
of the company. High rivalry in the economy makes it difficult for the businesses to identify the
most suitable measures to manage the same. The study will focus on analysing the same to
evaluate the impact on overall organizational growth.
Strategy cannot be identified until it is been implemented and reviewed with the outcome.
Thus the research focuses on gaining a clear and effective idea about the prospective issues that
the companies are facing and also the possible outcome for the same within the industry. It is
also evident that there is frequent change in the needs and wants of the customers. Profit margin
of Tesco is also declining in recent time which is another research issue now. Therefore, the
research seeks to assess the actual requirement of customers and develop strategy accordingly.
Also strategies regarding cost, differentiation, product development, marketing and other related,
need to be applied is another prevailing issue. Hence this research focuses on different sort of
strategies i.e. Porter’s generic strategy, Value chain analysis, Porter’s Diamond and other
related models which has been applied by Tesco for the purpose of boosting its profitability.
2
O’Cass, 2010).
In this regard, present study is proposed to assess the impact of cost leadership on the
profitability of the company. For this purpose, Tesco has been taken into account which enjoys
dominant market share within the UK retail sector. The company has established an effective
market share within the market (Pertusa‐Ortega and et.al., 2009). It is one of the biggest retail
supermarket chains in the UK. The business unit is globally established and is operating its
business operations in 12 countries across Asia and Europe as well (Ahmed, 2015). In recent
year of the business has faced a downturn. However the consumer preference for the store is still
maintained. Under this research, efforts have been incorporated to assess the strategies that the
company has implemented in order to gain the well-established market position across the globe
(Felsted and Smaith, 2015).
1.2 Rationale of the research
Rationale of the study is developed in order to define the logic or reason behind choosing
the specific topic for the study. Companies presently are focusing significantly to enhance the
profitability in the competitive markets. This demands a significant analysis of given problem
and seeks effective measures to overcome the same. Therefore, the research aims to study the
impact of cost analysis of the Tesco and analyse the management of company's overall
operations. The study will analyse the impact of cost leadership measures on overall profitability
of the company. High rivalry in the economy makes it difficult for the businesses to identify the
most suitable measures to manage the same. The study will focus on analysing the same to
evaluate the impact on overall organizational growth.
Strategy cannot be identified until it is been implemented and reviewed with the outcome.
Thus the research focuses on gaining a clear and effective idea about the prospective issues that
the companies are facing and also the possible outcome for the same within the industry. It is
also evident that there is frequent change in the needs and wants of the customers. Profit margin
of Tesco is also declining in recent time which is another research issue now. Therefore, the
research seeks to assess the actual requirement of customers and develop strategy accordingly.
Also strategies regarding cost, differentiation, product development, marketing and other related,
need to be applied is another prevailing issue. Hence this research focuses on different sort of
strategies i.e. Porter’s generic strategy, Value chain analysis, Porter’s Diamond and other
related models which has been applied by Tesco for the purpose of boosting its profitability.
2
1.3 Research aims and objectives
Main aim of this research is to study the effect of cost leadership on profitability in the
retail industry. For conducting this research, Tesco PLC has been considered as it possesses high
market share and effective brand image within UK retail sector.
Objectives:
To analyse cost leadership strategies used in retail industry
To analyse factors affecting profitability of business
To identify the effectiveness of cost leadership to increase overall profitability of
business
To recommend cost leadership strategies to improve the profitability of business
1.4 Research questions
The research question developed to provide a wide and effective spectrum for the given
study includes:
What are the cost leadership strategies adopted by Tesco?
What are the factors that affect the profitability of Tesco?
What is the effectiveness of cost leadership in increasing the profitability of Tesco?
What are the recommended strategies which can improve the profitability of Tesco?
1.5 Potential significance of research
Significance of the study focuses on deriving the effective benefits and values from the
given research in order to create an effective impact on the existing researches, literatures and
scholars as well. This helps in developing a high and influential impact on the present study as
well (Askhatova and et.al., 2013). The current research helps in delivering the appropriate and
valid results about the impact of cost leadership on the profitability of companies to gain an edge
within the market. This carries academic as well as practical significance about the given topic.
The study may help in developing creating useful theoretical knowledge for the academic
aspirants and researchers. It has focused on minimizing the significant loopholes in the
theoretical and practical application of theories, models and tools.
3
Main aim of this research is to study the effect of cost leadership on profitability in the
retail industry. For conducting this research, Tesco PLC has been considered as it possesses high
market share and effective brand image within UK retail sector.
Objectives:
To analyse cost leadership strategies used in retail industry
To analyse factors affecting profitability of business
To identify the effectiveness of cost leadership to increase overall profitability of
business
To recommend cost leadership strategies to improve the profitability of business
1.4 Research questions
The research question developed to provide a wide and effective spectrum for the given
study includes:
What are the cost leadership strategies adopted by Tesco?
What are the factors that affect the profitability of Tesco?
What is the effectiveness of cost leadership in increasing the profitability of Tesco?
What are the recommended strategies which can improve the profitability of Tesco?
1.5 Potential significance of research
Significance of the study focuses on deriving the effective benefits and values from the
given research in order to create an effective impact on the existing researches, literatures and
scholars as well. This helps in developing a high and influential impact on the present study as
well (Askhatova and et.al., 2013). The current research helps in delivering the appropriate and
valid results about the impact of cost leadership on the profitability of companies to gain an edge
within the market. This carries academic as well as practical significance about the given topic.
The study may help in developing creating useful theoretical knowledge for the academic
aspirants and researchers. It has focused on minimizing the significant loopholes in the
theoretical and practical application of theories, models and tools.
3
1.6 Research structure
The current research study has developed an effective research structure in order to
develop an effective sequence for the study. This has helped in developing a clear understanding
and achieving the stated results. The structure of the present study is as follows:
Chapter 1: Introduction- This chapter provide the clear understanding and background
of the given study. It creates an overall synopsis about various research tools and
techniques employed for developing required results.
Chapter 2: Research Methodology- This section of the report creates an effective
understanding about the tools and techniques used to achieve the research objective.
Chapter 3: Literature Review-This section of the report provides a detailed analysis of
past studies, researches, tools and models to resolve the research problem. It helps in
developing a clear understanding about the research related terms, terminologies, tools &
models and issues as well.
Chapter 4: Data analysis-This section of the report has focused of the findings and
results that helped in analysing the facts and figures of the findings and create a broad
vision and critical analysis of the same.
Chapter 5: Conclusion and recommendations- This section of the report creates a clear
analysis of the overall report and evaluates the gap analysis for achieving the research
aim. It also provides the effective and practical suggestion to enhance the research topic
for developing most suitable strategies that Tesco may implement to enhance its
profitability.
4
The current research study has developed an effective research structure in order to
develop an effective sequence for the study. This has helped in developing a clear understanding
and achieving the stated results. The structure of the present study is as follows:
Chapter 1: Introduction- This chapter provide the clear understanding and background
of the given study. It creates an overall synopsis about various research tools and
techniques employed for developing required results.
Chapter 2: Research Methodology- This section of the report creates an effective
understanding about the tools and techniques used to achieve the research objective.
Chapter 3: Literature Review-This section of the report provides a detailed analysis of
past studies, researches, tools and models to resolve the research problem. It helps in
developing a clear understanding about the research related terms, terminologies, tools &
models and issues as well.
Chapter 4: Data analysis-This section of the report has focused of the findings and
results that helped in analysing the facts and figures of the findings and create a broad
vision and critical analysis of the same.
Chapter 5: Conclusion and recommendations- This section of the report creates a clear
analysis of the overall report and evaluates the gap analysis for achieving the research
aim. It also provides the effective and practical suggestion to enhance the research topic
for developing most suitable strategies that Tesco may implement to enhance its
profitability.
4
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