Analyzing the Business Environment of Tesco: A Strategic Perspective

Based on the provided data and analysis, it can be summarized that Tesco has generated a significant revenue. With a total of 7817 stores worldwide, employing 500,000 employees, and operating for over 96 years, the company has faced a major loss of ₤6.4 billion in the year end 2014-15. The strategic audit reveals that the company faces challenges from political, economic, social, technological, environmental, and legal factors. However, it also identifies strengths such as market leadership, high brand recognition, and price leadership. Opportunities for growth include market development, product differentiation, and effective promotion. Threats to the business include high market competition, loss of consumer faith, and harm to its brand image. The value chain analysis highlights the need for improvement in internal operations, particularly in employee development and retention.

MARKET AND
MARKETING

EXECUTIVE SUMMARY
Tesco is a British multinational grocery and merchandise retailer headquartered in
England UK. It is the third largest retail unit in the world on the basis of profits and second
largest retailer measured on the basis of revenue earned by the organization. The company is
operating business operation in 12 countries around the world. The STP strategy is significant for
the growth and development of the organization. This measure helps the company in analyzing
consumer categories for various products and services along with their needs and demands to
attain the market expectations.
Based of the data analysis issues have been analysed by Tesco which may result in
restricting the growth measures for the organization. Researches and industrial data revealed that
the market share of Tesco is falling significantly within the market. This has a huge impact on
the growth strategy of the company. Moreover the competitive analysis of Tesco revealed that
the organization face fierce market competition. The competitive rivalry for the business unit is
high which poses high challenge for the growth of the company.
The positioning strategy of Tesco has to effectively refined in order to develop the
consumer perception in favor of the organization. In effective position may result in losing
significant sales for the business unit. Retail promotional measures are highly complex and
competitive as well. Product discounts, combination sales and special offers is the most effective
measure in order to enhance the sales of the company. The current market share an brand image
of the company will support this measures thus will helps in regaining the trust of the consumers.

TABLE OF CONTENTS
MARKET AND MARKETING .....................................................................................................1
1. FINDINGS OF MARKETING STRATEGIC AUDIT...............................................................1
1.1 Selecting and lack of training...........................................................................................1
1.2 Ineffective customer service.............................................................................................1
1.3 Developing new rivals in the market................................................................................1
1.4 Fluctuations in prices........................................................................................................2
1.5 Reduction in market share................................................................................................2
1.6 Harm to brand image and reputation in market................................................................2
1.6.1Loss of ₤6.38 billion ............................................................................................2
1.6.2 Change of management .......................................................................................3
1.6.3 Employee turnover...............................................................................................3
1.7 Availability of substitutes.................................................................................................3
1.8 Economic and legal factors..............................................................................................3
2. CRITICAL ASSESSMENT OF THE CONCEPT OF SEGMENTATION TARGETING AND
POSITIONING................................................................................................................................4
2.1 What is STP Strategy .......................................................................................................4
2.2 Implementing STP in Tesco ............................................................................................5
3. RECOMMENDATION...............................................................................................................6
3.1 ..........................................................................................................................................6
3.1.1 Interacting with consumers trough social media..................................................7
3.1.2 Developing benchmarking in order to attain successful customer relationship
management..................................................................................................................7
3.1.3 Using concentrated marketing strategies.............................................................7
3.1.4 Offering discount and offers to attract consumers...............................................7
3.1.5 Revising the pricing strategy................................................................................8
3.2...........................................................................................................................................8
3.2.1Business can communicate with consumers trough social media and develop
interaction......................................................................................................................8
3.2.2 Providing discounts and offers to attract consumers...........................................8

4. CONCLUSION ...........................................................................................................................8
REFERENCES................................................................................................................................9
6. APPENDICIES..........................................................................................................................11
6.1 Company overview.........................................................................................................11
6.2 Strategic Audit................................................................................................................11
6.2.1 PESTEL analysis (Macro analysis)....................................................................11
6.2.2 Porter five forces................................................................................................12
6.2.3 SWOT analysis..................................................................................................13
6.2.4 Value chain analysis ..........................................................................................14
6.2.5 Company data ...................................................................................................15
ILLUSTRATION INDEX
Illustration 1: Value chain analysis ...............................................................................................14
Illustration 2: Tesco Loss figure....................................................................................................15
Illustration 3: Market share of Tesco.............................................................................................16
Illustration 4: Retail industry snapshots.........................................................................................17
Illustration 5: Tesco performance snapshot...................................................................................19
Illustration 6: Market share of Retail industry in UK ...................................................................20
Illustration 7: STP strategy............................................................................................................20

1. FINDINGS OF MARKETING STRATEGIC AUDIT
The strategic Audit conducted for Tesco plc (Appendix 6.2) has developed some major
findings and data.Based of the data analysis issues have been analyzed by Tesco which may
result in restricting the growth measures for the organization .
1.1 Selecting and lack of training
Employees are the face of the retail organization. According to Hollensen (2015) value
chain analysis of the company reflects that the organization's core focus is on attaining price
leadership. This resulted in low impact on employee development and growth measures.
Employees are a good medium for enhancing sales of the company through sales promotion
which is regarded as a push strategy for promotion. Lack of effective training and development
measures within Tesco resulted low impact of sales promotion and persuasive measures of
company promotion.
1.2 Ineffective customer service
According to Huang and Sarigöllü, (2012) Effective consumer service is the core demand
of the retail segment as its helps the company in attaining a competitive edge in the market. The
competitive analysis of Tesco revealed that the organization face fierce market competition. The
competitive rivalry for the business unit is high which poses high challenge for the growth of the
company. The core focus on attaining price leadership has resulted the company in developing
wide gap between consumer needs and requirements and organizational services. Delays in
consumer response, late delivery issues and ineffective employee behaviour towards consumer
requests etc. are few related facts that has been analysed for the report. New international rivals
such as Aldi, Lidl etc has developed effective consumer services which results in high rate of
consumer shift.
1.3 Developing new rivals in the market
According to Aaker (2008) competitive rivalry lays effective grounds for organizational
development and improvement. The industry analysis for the retail segment revealed the fact that
the retail industry of UK has highly been challenged by the new German entrants as Aldi and
Lidl. The industry data reflects high rate of growth for these units while the growth rate of UK
retail giants such as Tesco, Sainsbury, Waitrose was highly hampered by these organizations.
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1.4 Fluctuations in prices
Proctor, (2014) analysed in many researches that price fluctuations creates an
insignificant impact on the consumers of the retail sector. Grocery segment is one of the most
strong part of Tesco. The prices of this segment fluctuates highly due to environmental actors
and ineffective agricultural issues moreover the organizational strategy for cost leadership has
forces the firm to implement fluctuating prices within the company which resulted in ineffective
brand image of the organization. Effective supplier relations have been developed by Tesco
however the fluctuating market prices due to changing environment has caused a major concern
for the organization.
1.5 Reduction in market share
According to Vargo and Lusch, (2013) market competition in the retail industry has
significantly increased in the due course of time. Researches and industrial data revealed that the
market share of Tesco is falling significantly within the market. This has resulted huge impact on
the growth strategy of the company. According to industrial data the market share of Tesco has
contracted from 29% to 28.6% in the current market scenario (Tesco: Where it went wrong,
2015.). According to Akaka, Vargo and Lusch, (2013) the minor change in market share of retail
industry is huge for the company due to vastness of the industry. Moreover, the industry analysis
revealed overall fall in the sales of the company.
1.6 Harm to brand image and reputation in market
As per the data collected, brand image of Tesco has been significantly hampered in the
due course of time. The employee as well as the consumer trust on the organization was
significantly distorted. The major reasons for the same are discussed hence forth.
1.6.1Loss of ₤6.38 billion
One of the most significant reason which resulted in hampering the brand image and
reputation of the company was that the company faced a huge loss of ₤ 6.38 billion in the span of
1 year. The continuous falling sales and low market demand resulted in the same.
1.6.2 Change of management
The new articles and headlines revealed that Philip Clarke former CEO of Tesco resigned
when the data scrutinised revealed heavy misrepresentation of financial information. This caused
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a huge impact in the growth and development of the country by shaking the trust of the
organizational stakeholders. This event caused huge impact on shareholder's interest in the
company as well.
1.6.3 Employee turnover
The company data revealed that the senior executives of the company used to bully the
junior executives who were then highly influenced by the organizational working. The low
involvement of management enhanced such practices within the organization which raised the
employee turnover rate within the company.;
1.7 Availability of substitutes
According to Proctor (2014) the consumers of retail segment are not loyal to the
organization and shifts towards the companies providing attractive offers and products as well.
This has a direct impact on the organizational growth of the company as well. Wide availability
of substitutes such as Sainsbury, Waitrose, Walmart etc. resulted in falling sales of the company.
Moreover, the products and service similarity within the industry created fierce market
competition for Tesco.
2. CRITICAL ASSESSMENT OF THE CONCEPT OF SEGMENTATION
TARGETING AND POSITIONING
2.1 What is STP Strategy
The STP strategy is significant for the growth and development of the organization.
These measures help the business unit in creating wide impact on enhancing sales within the
market. Zwijze-Koning and De Jong (2005) stated in the study that segmentation, targeting and
positioning is the factors which help businesses in developing effective growth measures in the
competitive market. The strategy helps the company in developing a bird eye view on the market
to grab significant growth prospects. These measures are the core base for creating wide market
share within the industry.
Different authors have examined different measures for differentiating products and
services for the organization. The major market segments exiting within the market which helps
in dividing the vast market includes demographic (age, gender, education, nationality etc.),
geographic (country, continent, city), psychographic (lifestyle, social class attitude, personal
3

values) and behavioural segmentation (Degree of loyalty, usage, user status, readiness to buy).
These measures have helped the business units in enhancing business growth and development
measures. For example ASDA attracts consumers of every age group by providing them required
products and achieve customer satisfaction. Thus, it can be analysed that it is essential for firm to
carry out effectual STP strategy so tat best results can be attained. It also helps the marketing
team of firm to segregate the consumers and achieve desired results.Targeting is the next step of
the STP process. This measure includes targeting one or more segment in order to attain the
organizational success. Smart, and Conant, (2011) determines that effective market segments
makes it efficient for the business unit to enhance targeting measures within the economy.
Targeting helps in developing the brad image of the organization in order to gain wide growth
and success prospects.
2.2 Implementing STP in Tesco
According to Belk, Devinney and Eckhardt, (2005) STP helps the business in developing
an effective brand image within the market to enhance the growth and development measures
within the market. Tesco is a globally acclaimed business unit which focuses on enhancing its
market share to become a market leader in retail industry. According to Zwijze-Koning and De
Jong, (2005) process of STP may helps the Tesco in enhancing the growth prospect of business
by re-establishing its brand image within this competitive market. The given data and
information reflects that the market share and financial position of the company is efficiently
managed and developed by adopting effective STP policies.
Tesco has adopted this measures to enhance the growth and development within the
market to enhance organizational sales in this competitive market. According to Palmer and
Quinn, (2007) retail industry has to critically determine and establish the business policies in
order to enhance the organizational sales and create high measures for organizational growth.
Tesco adopted effective measures of market segmentation. The company adopted
undifferentiated means of segmentation in order to develop effective strategies for growth and
development. However, the main issue faced by Tesco while segmenting the consumer market is
to effectively analyse the behavioural needs of the consumers. Organization has effective growth
prospects in the retail segment to enhance organizational growth by developing sales measures
through analysing the behavioural needs of the consumers, Moreover, on the basis of marketing
audit of the company it has been analysed that the company corely focuses on cost effectiveness
4

to enhance the sales within the market. The company had effective growth prospects by
enhancing sales through concentrated marketing measures. Effective segmentation will help the
business in creating wide and effective measures of growth in the competitive market. This will
help Tesco in enhancing the growth and development measures for the company.
According to Kotler, (2008) the targeting strategy of the company is highly in effective or
the growth and development of the company. Tesco has adopted the measure of mass targeting
measures which has developed unpersonalized measures of sales promotion. This has hampered
the competitiveness of the company in this highly competitive market. Also, business faces'
problem to position its image in the minds of consumers by adopting social media advertising,
mobile advertising etc The organizational performance within the economy is ineffective in
terms of consumer services. The positioning strategy of Tesco has to effectively refined in order
to develop the consumer perception in favour of the organization. In effective position may result
in losing significant sales for the business unit.
3. RECOMMENDATION
3.1
On the basis of literature review and organizational analysis it is evident that the organization is
facing major issues in adopting the STP strategy. The following options (theoretical approaches)
available to the organization to improve its current approach to STP are:
3.1.1 Interacting with consumers trough social media
Developing effective communication to analyse and understand the needs and
requirements of the employees is one of the most crucial need of the origination. This will help
the company in creating an effective base for growth and development within the economy.
Effective means of communication through social media will help the company in analysing the
consumers needs and requirements to develop organizational measures.
3.1.2 Developing benchmarking in order to attain successful customer relationship management
Benchmarking is one of the most effective measure to enhance the quality of
organizational performance and develop growth prospects of the company as well. Effective
benchmarking helps the company in developing growth prospects of the company. These
measures refine the organizational performance by analysing the gap between set standards and
5

current organizational performance. This helps the business unit in developing wide success
measures. It will also help Tesco in developing consumer relations by analysing their needs ad
developing organizational performance accordingly.
3.1.3 Using concentrated marketing strategies
Concentrated marketing strategy as per the theories are this which focuses on a specific
and most productive segment of the market. Concentrated marketing measures will help Tesco in
enhancing organizational growth by developing sales in the productive market. For example the
grocery segment of the company has wide prospects for sales and development. This will help in
enhancing organizational growth in the competitive market.
3.1.4 Offering discount and offers to attract consumers
Retail promotional measures are highly complex and competitive as well. Product
discounts, combination sales and special offers is the most effective measure in order to enhance
the sales of the company. Special discounting measures will help Tesco in attracting consumers
and making it competitive enough.
3.1.5 Revising the pricing strategy
The pricing strategy of the company is in effective to enhance growth and sales measures.
In order to attain price leadership Tesco developed in effective pricing strategies within the
company which stabilized the organizational policies. Stable and competitive pricing measures
will help the company in developing effective brand image and enhancing sales within the
market.
3.2
The above mentioned measures will help the company in enhancing the growth and development
measures within the economy. The following recommendations to improve the organization's
current approach to STP are:
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3.2.1Business can communicate with consumers trough social media and develop interaction
Effective communication will help Tesco in analysing the needs and demand of the
consumers which will helps the company in enhancing the growth prospects by the company.
This measures will create a push strategy for promotion within the market
3.2.2 Providing discounts and offers to attract consumers
Effective discounting measures will help the company in enhancing consumer demand
within the market. Moreover, this strategy will make the company competitive within the market.
The current market share and brand image of the company will support this measures thus will
help in regaining the trust of the consumers.
4. CONCLUSION
The retail industry demands wide impact on the organizational growth and development.
The vastness of the industry makes the retail business operations typical crucial as well. The
falling sales and ineffective brand image has resulted in creating low impact on the growth of the
company. Effective measures of organizational development through STP policy will help Tesco
in creating an effective impact on the growth and development of the company. This will also
help the firm in developing a competitive edge within the market. The company needs to
enhance its consumer services to develop growth prospects within the economy.
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REFERENCES
Books and journals
Aaker, D. A., 2008. Strategic market management. John Wiley & Sons.
Akaka, M. A., Vargo, S. L. and Lusch, R. F., 2013. The complexity of context: A service
ecosystems approach for international marketing. Journal of Marketing Research. 21(4).
pp. 1-20.
Arena, M. and Azzone, G., 2009. Identifying organizational drivers of internal audit
effectiveness. International Journal of Auditing. 13(1). pp. 43-60.
Belk, R. W., Devinney, T. and Eckhardt, G., 2005. Consumer ethics across cultures.
Consumption
Constantinides, E., 2006. The marketing mix revisited: towards the 21st century marketing.
Journal of marketing management. 22(3-4). pp. 407-438.
Dibb, S. and Carrigan, M., 2013. Social marketing transformed: Kotler, Polonsky and Hastings
reflect on social marketing in a period of social change. European Journal of Marketing.
47(9). pp. 1376–1398.
Golding, K. and Peattie, K., 2005. In search of a golden blend: perspectives on the marketing of
fair trade coffee. Sustainable Development.13(3). pp. 154-165.
Hollensen, S., 2015. Marketing management: A relationship approach. Pearson Education.
Huang, R. and Sarigöllü, E., 2012. How brand awareness relates to market outcome, brand
equity, and the marketing mix. Journal of Business Research. 65(1. pp. 92-99.
Kotler, P., 2008. Principles of Marketing. 12th ed. Pearson Education India.
Lages, L. F., Jap, S. D. and Griffith, D. A., 2008. The role of past performance in export
ventures: a short-term reactive approach. Journal of International Business Studies.
39(2). pp. 304-325.
Palmer, M. and Quinn, B., 2007. The nature of international retail divestment: insights from
Ahold. International marketing review. 24(1). pp. 26-45.
Proctor, T., 2014. Strategic marketing: an introduction. Routledge.
Rouziès, D. and et.al., 2005. Sales and marketing integration: a proposed framework. Journal of
Personal Selling & Sales Management. 25(2). pp. 113-122.
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Smart, D. T. and Conant, J. S., 2011. Entrepreneurial orientation, distinctive marketing
competencies and organizational performance. Journal of Applied Business Research
(JABR). 10(3). pp. 28-38.
Zwijze-Koning, K. H. and De Jong, M. D., 2005. Auditing information structures in
organizations: A review of data collection techniques for network analysis.
Organizational Research Methods. 8(4). pp. 429-453.
Online
Segmentation, Targeting, and Positioning. 2014. [Online]. Available through:
<http://www.consumerpsychologist.com/cb_Segmentation.html>. [Accessed on 8th
December 2015].
Tesco Loses More Market Share as Sales Decline. 2014. [Online]. Available through:
<http://www.ibtimes.co.uk/tesco-loses-more-market-share-sales-decline-1471037>.
[Accessed on 8th December 2015].
Tesco posts record £6.4bn annual loss. 2015. [Online]. Available through:
<http://www.bbc.com/news/business-32408661>. [Accessed on 8th December 2015].
Tesco: Where it went wrong. 2015. [Online]. Available through:
<http://www.bbc.com/news/business-30886632>. [Accessed on 8th December 2015].
Why Tesco can't compete with Aldi and Lidl. 2014. [Online]. Available through:
<http://www.managementtoday.co.uk/news/1317297/why-tesco-cant-compete-aldi-lidl/>.
[Accessed on 8th December 2015].
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6. APPENDICIES
FINDINGS OF MARKETING STRATEGIC AUDIT
Economic and legal factors
According to data collected through article Tesco: Where it went wrong (2015) company
faced some major economic and legal issues which created a wide impact on the brand image of
the company. The facts associated with employee bullying and misrepresentation of financial
data had an adverse impact on the brand image of the company. This caused in heavy loss for the
company. These unethical practices of the organization was not legally acclaimed as well
(Constantinides, 2006). Moreover, the lack of fair wages to foreign employees was also one of
the key factor which slapped a fine of ₤200000 fine for the company. Tesco also faces a legal
action from the shareholders of the organization for misrepresentation of its profit statement.
Moreover, the internal policies of the company is also not favourable for the growth and
development of the organizational unit.
What is STP Strategy
According to Arena and Azzone, (2009) Segmentation is the strategy which helps the
business unit is dividing the huge market in small segment to enhance organizational focus and
develop effective measures for developing strategies. For instance, Apple targets high class
people by adopting effective segmentation strategy so that consumers can be attracted. Dibb and
Carrigan, (2013) has examined three major strategies for market segmentation which includes
differentiated, undifferentiated and concentrated segmentation measures. According to Lages,
Jap, and Griffith, (2008) positioning is a process which helps the business in developing a
specific brand image of a product or service by implementing various elements such as price,
promotion, distribution and product quality and features. Rouziès and et.al., (2005) stated in one
of the research that effective positioning of business helps an organization in becoming a market
leader which falls in either of the three categories which are operationally excellent firm,
Customer intimate firm or technologically excellent firm.
6.1 Company overview
Tesco is a British multinational grocery and merchandise retailers headquartered in
England UK. It is the third largest retail unit within the industry on the basis of profits and
second largest retailer measures on the basis of revenue earned by the organization. The
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company is operating business operation in 12 countries around the world. The key data of the
company is:
 The company has established 7817 stores around the world
 The organization has been operating operations from 96 years
 Company has employed 500,000 employees
 It has faced the biggest loss of ₤6.4 billion for the year end 2014-15
6.2 Strategic Audit
6.2.1 PESTEL analysis (Macro analysis)
DETAILS IMPLICATIONS PRIORITY
High Low
POLITICAL ●
Retail business operations demands
low impact of government
regulations as the business activities
are common and fulfills necessity
Tesco operates in Europe, Asia and
UK.
UK is the major market for the
company thus government regulations
are minimal
ECONOMIC ●
Deals with factors such as population
rate, growth rate, economic policies
etc.
retail industry demands effective
analysis of these factors
Tesco has direct impact of these
factors
Disposable income with people assures
volume of sales for the company
SOCIAL ●
Analyses trends and demands within
the industry as social factors deals
with consumer preferences and
choices
Consumer loyalty for the company is
low as company sells products of other
organization/
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TECHNOLOGICAL ●
Technology leads to develop
operational excellence and
development of the industry.
Helps company in generating high
sales
Online infrastructure of the company
has helped the company in generating
high demands
ENVIRONMENTAL ●
Grocery and food products depend
on environmental factors
Green business operation built brand
image within the market.
Effective supplier relations has helped
the company is developing cost
effectiveness and quality management
measures
The price stability is regulated by
environmental factors within the
market (Smart and Conant, 2011).
LEGAL ●
The regulatory and legal framework
of the government regulates business
operations
Company recently was trapped in legal
issues due to misrepresentation of
financial data.
Ethical regulations have to be adopted
by the company to enhance the
business efficinecy
6.2.2 Porter five forces
PARTICULAR RANGE DETAILS
Threat of new entrant Low The established brand image and company operations of
Tesco has raised the level of competition and cost of
operations for business. This will creates barrier to entry
due to high cost and level of competition.
12

Threat of substitutes High National and international competitors are posing wide
challenges for Tesco operations.
Power of suppliers Low Raw material for retail sector is easily available thus the
company may easily change supplier to manage cost
efficiency (Lages, Jap and Griffith, 2008).
Power of buyer High Buyer's power is high for the company as they have
tendency to shift to the attractive offers and high value
benefit. Consumers loyalty for Tesco is low
Competitive rivalry High Companies such as Aldi, lidl, M&S etc are posing tough
market competition.
6.2.3 SWOT analysis
STRENGTHS
 Tesco is a market leader of retail industry as it has highest market share
 High brand recognition
 Enjoy price leadership within the market
WEAKNESSES
 High employee turnover
 Low consumer loyalty
 Ineffective internal operations
 Lack of effective training and development measure for employees
OPPORTUNITIES
 Market development
 Product development and differentiation
 Effective promotion to enhance sales
 Wide growth opportunities through organisational restructuring
THREATS
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 High market competition
 Highest loss of ₤6.4 bn
 Losing consumer faith
 Harm to brand image and reputation in market
6.2.4 Value chain analysis
The value chain analysis of the company reveals that Tesco has developed effective
means of internal operations. The primary activities of the company are well managed and
effective which has helped the company in attaining price leadership within the economy. The
supportive activities however are ineffective and demands wide measures of improvements. The
organization's core focus on attaining cost leadership has resulted in losing its focus on employee
development and retention issues which has resulted in high cost of recruitment and training
measures. Over all the internal operations of the business demands effective development.
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Illustration 1: Value chain analysis
(Source: Kotler, 2008)

6.2.5 Company data
Illustration 2: Tesco Loss figure
(Source: Tesco posts record £6.4bn annual
loss, 2015)
15

Illustration 3: Market share of Tesco
(Source: Golding and Peattie, 2005)
16

Illustration 4: Retail industry snapshots
(Source: Why Tesco can't compete with Aldi and Lidl, 2014)
17

18

Illustration 5: Tesco performance snapshot
(Source: Tesco: Where it went wrong, 2015)
19

Illustration 6: Market share of Retail industry in UK
(Source: Tesco Loses More Market Share as Sales Decline, 2014)
20
Illustration 7: STP strategy
(Source: Segmentation, Targeting, and Positioning, 2014)