Competitive Advantage and Value Creation of Tesco's E-Business

This paper evaluates the competitive advantage of Tesco using Porter’s five force model and also evaluates the company’s value creation using Amit and Zott’s value creation model. The paper provides an overview of Tesco supermarket, analyzes the competition at industry level based on Porter’s five forces model, and evaluates Tesco’s value creation based on Amit and Zott’s value creation model. The subject is E-Business and the course code is not mentioned. The college/university is not mentioned.

Running head: E-Business 1
E-BUSINESS
Student Name
Institution

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Table of Contents
Introduction.................................................................................................................................................2
Overview of Tesco supermarket..................................................................................................................2
1. Competition at industry level based on Porter’s five forces model.....................................................3
1.1 The threat of new entrants................................................................................................................3
1.2 Threat of substitutes..........................................................................................................................4
1.3 Bargaining power of customers.........................................................................................................5
1.4 Bargaining power of suppliers...........................................................................................................5
1.5 Industry rivalry...................................................................................................................................6
2. Evaluation of Tesco’s value creation based on Amit and Zott’s value creation model........................7
2.1 Efficiency............................................................................................................................................7
2.2 Complementarities............................................................................................................................8
2.3 Lock‐in...............................................................................................................................................8
2.4 Novelty..............................................................................................................................................9
3. Rebuttal.............................................................................................................................................10
4. Recommendations for improvement.................................................................................................10
4.1 Competitive advantages recommendations....................................................................................10
4.2 Value creation recommendations....................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................14

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Introduction
E-business remains one of the most competitive industries that have attracted a number of
businesses within the UK’s market. The industry has many different companies that have devised
ways to have a competitive advantage in the market. The competitive advantage of a business
can be analyzed based on the Porter’s five force model. Value creation, especially through e-
business, is one of the areas that enable the company to compete in the retail market. Amit and
Zott’s value creation model gives the drivers that sued to understand the value creation of a
company. Tesco is the largest business with both online and offline business and commands
more than 28.4% UK market share. In order to understand the e-business strategy, the
competitive advantage and value creation strategy need to be analyzed. The following paper,
therefore, evaluates the competitive advantage of Tesco using Porter’s five force model and also
evaluate the company’s value creation using Amit and Zott’s value creation model.
Overview of Tesco supermarket
Tesco is UK’s grocery and general merchandise retail supermarket that is based in
Welwyn Garden City, Hertfordshire, England, United Kingdom. Tesco is the largest supermarket
in the United Kingdom with a market share of 28.4% (Butler 2014). Tesco was formed in 1919
as a group of stalls from where it grew up to become one of the largest e-business in the country.
The business has diversified its products to form a wide range of products and services and these
include books, toys, electronics, clothing, furniture, petrol, and software; telecoms financial
services and internet services (Tesco.com 2018). Tesco has a number of stores that include
Croydon, Aylesford, and Greenford among other stores. The company has expanded its branches
to other 11 countries outside the United Kingdom. Some of the branches of the company that

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forms its international operations include United States of America, Thailand, Ireland and South
Korea. Currently, Tesco has remained one of the largest online retailers within UK's market.
Evaluation and analysis of Tesco can be based on the company’s competitive advantage and
values creation through its e-business (Thorpe 2010).
1. Competition at industry level based on Porter’s five forces
model
Tesco remains competitive despite the stiff competition within the retail supermarket and
online business industry. The evaluation of the company's competitiveness at the industry level
can be conducted based on Porter’s five forces model. Porter’s five forces model gives five
various factors of competition and these include the threat of new entrants, bargaining power of
customers, bargaining power of suppliers, threats from substitutes and industry rivalry. The
competitive advantage of the Tesco can be evaluated based on Porter's five forces model (Porter
2008, pp. 78-93).
1.1 The threat of new entrants
The threat of new entrants is medium since the industry has attracted many different
companies that each has its competitive strategy. Many young companies are entering the
supermarket retail industry and particularly the e-business industry of the country. Tesco is one
of the largest retailer supermarkets in the country and has positioned itself in the market
increasing its competitive advantage (Ryle 2013, pp. 58-74). Firstly, the company’s reputation in
the market is a factor that makes the business receives a low threat from new companies.
Diversification of the company’s products line is another area that has helped the company to
remain competitive despite new firms entering the industry. Diversification of products sweeps

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across the industry to include products substitutes hence reducing the impact of products
substitute that is mainly offered by new entrants. Thirdly, excellent customer service is another
factor that makes the company remains competitive despite threats to new entrants. Tesco has
remained one of the companies that offer online business services to the customer for a long time
making it remain on top despite new companies entering the industry (Butler 2014).
1.2 Threat of substitutes
Tesco has the low threat of substitutes as the business diversified portfolios gives the
company competitive advantage within the market. Tesco has diversified its products making
threat from substitutes irrelevant. One of the competitive advantages that the company has is its
wide variety of products and these products are categorized into clothes, health, home electrical,
entertainment, technology, garden and toys (Thorpe 2010). Firstly, the company under clothes
category has stock that includes a wide variety of clothes and fashion attires. Secondly, the
company sells various entertainment and gaming products that also include substitutes for these
products. In addition, the company sells a variety of substitutes of products due to the
comprehensive product line. The combination of products and their substitutes within the
organization’s products portfolios makes the company competitive in the e-business industry.
For instance, Asda and Amazon.com stores sell nearly substitute products and services through
their online shops yet these substitutes are the same as those sold at Tesco leading to low
competition from such products (Ryle 2013, pp 58-74).

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1.3 Bargaining power of customers
The bargaining power of customers is low since the company through its e-business
platforms has the clear set price of various products it sells. Tesco has preset products prices
available on its online retail where customers purchase or buy products convenient for them. In
addition, the company sometimes gives an offer to customers and this is always indicated in
price reduction. This makes those customers willing to purchase products and service at the set
prices directly purchase these products and services through electronic purchase systems
(Delivery Options 2016). Moreover, the company has a good online customer service platforms
that allow the customer to purchase or order products to be delivered to them at any location
throughout the country. For instance, in 2007 Tesco was involved in price issues with the
customer from dairy division over preset milk prices leading to many investigations. This was
due to fixed prices of products and services that affected consumer’s purchasing power. The
overall reason for price fixing that reduces the bargaining power of customers is based on the
desire of the company to protect farmers from low prices of their products (Ireland, Hoskisson &
Hitt 2008).
1.4 Bargaining power of suppliers
The bargaining power of suppliers is low given a large number of suppliers making
switching from one supplier to another easy without cost. The industry has many suppliers and
the company itself has hundreds of suppliers that periodically supply products that range from
hospital to groceries. Switching from one supplier to another has no cost due to a large number
of suppliers within this industry. According to Rainer and Turban (2009, pp 36–41), the
company uses barraging power to delay payment to suppliers in order to improve its operating

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profit margins under the previous leadership in 2014. This makes the company remain
operational within a competitive business environment. However, this method of payment is
attached to payment problems particularly among suppliers making the company lose reputation
within the market. The method of payment delay payment to suppliers leading to poor supplier
treatment making many suppliers move to other firms. On the company side, the company used
this method to reduce the bargaining power of the supplier through electronic payment (Simpson
2016).
1.5 Industry rivalry
The rivalry within the supermarket chain industry of the country is fierce. The rivalry in
the industry can be analyzed based on advertisement and products differentiation. Firstly, the
rivalry within the industry is fierce and this is evidenced by the advertisement that various
companies within the e-business industry and particularly the retail and grocery industry. There
are many advertisements that are running through the media to intensify competitions of firms
within this industry (Smithers 2016). Secondly, the intensity of the rivalry is also evidence of the
products differentiation and this makes the Tesco be competitive since the company has a wide
variety of products or product portfolio. The company has various product categories that cut
across various sectors of retailing business. For instance, the organization has products line in
entertainment, health, clothes, toys, and garden. Thirdly, another competitive advantage of the
company is based on its leadership that has kept the company moving forward despite the fierce
rivalry within the industry. The rivalry within the industry is from competitors such as
amazon.com and Asda stores that sell similar products to those of Tesco. In 2015, the company
reviews its company leadership to correct some leadership problem mostly through supplier

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payment system. This new leadership ensures that the company remains competitive with clear
competitive strategy or vision. Amazon, for instance, being a company based in the United States
of America attracts customers from both within the country and regionally (Potter 2011).
2. Evaluation of Tesco’s value creation based on Amit and
Zott’s value creation model
Value creation in the e-business is important as it helps customers to receive effective and
efficient services. Amit and Zott’s value creation model (2001, pp 493-520) explores various
drivers that help in the creation of value through e-business. According to the model the e-
business drivers that make the business create value can be classified into efficiency, novelty,
complementarities and lock-in functions.
2.1 Efficiency
The value creation within Tesco can be evaluated based on the efficiency of the e-
business software infrastructure. According to the model effectiveness of the firm’s online
business can be based on simplicity, search cost, systematic information, selection range, and
speed. Firstly, the e-business of Tesco offer simple customer service that is enhanced by the click
and collect mode of the software (Mason & Barry 2015, p. 32). The software architecture
reduces the search time and any related cost since customers can click to place an order and
collect the product at the nearby store. Secondly, the selection range of the products and services
that make the company’s e-business effectiveness. The speed makes the e-business effective
since it saves time to spend on placing an order online through the company's e-business. In
addition, the company has economies of scale function that is part of the company’s e-business

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that allow those customers that purchase more products to effectively receive price offers
(Wulfraat 2014).
2.2 Complementarities
Complementarities are another aspect of e-business that can be evaluated since it helps in
the creation of value for customers. The complementarities of Tesco products is based on
products and services complementarities, technological, e-business activities and online and
offline stores. Firstly, the Tesco's e-business creates an environment that offers complimentary
between online and in-house stores. As customer just click to place an order and approach the
nearby Tesco store near to collect these products (Peiman, Alp, Emre & Cebi 2018, pp.95-103).
Secondly, products and service complementarities, on the other hand, are based on the
company’s diversified products that are also posted on the online e-business of the company.
This is also enhanced with advanced e-business architecture of the company's business. Thirdly,
technological is another area that the business show high complementarities and this is based on
the updated version of the e-business software that is currently used by the company. This
software offers faster customer service making the company competitive in the industry
(Frishammar, Javier, Björkman, Hernell & Carlsson 2018).
2.3 Lock‐in
Lock-in feature can be used to evaluate the value creation strategy for Tesco. Under lock-
in driver, the company can be viewed in terms of switching cost and positive externalities in the
company's e-business. The company has introduced switching cost to lock-in online customers
especially on the delivery subscriptions. The business has various customer loyalty programs that

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enable the company to hook customer and switching from the company to the next leads to high
cost. This includes delivery time which is slated for one hour and runs for seven days as these
enable customers to remain within this delivery time (Delivery Options 2016). Secondly, the
company has a number of products that have positive externalities mainly to dive increase in the
purchase from its stores. For instance, the company has used this driver for locking in customers
for various groceries products. This feature works for Tesco through linking more than two
products together especially for the groceries products such as food recopies that the company
has (O’Reilly 2013).
2.4 Novelty
Tesco’ value creation is also based on the Novelty of the software used in e-business. The
novelty as a driver for value creation is based on the software architecture and configurations.
For instance, the company e-business architecture majorly consists of components and link to
other components (Gummerus 2014, pp 3-10). The architecture of the e-business is divided into
groceries, home and furniture, and Tesco direct that sell variety of products and services to
customers directly through the online shop. The architecture of the company e-business makes
purchasing of the company products as it gives customers faster access to products based on their
choice. In addition, the e-business platform is developed with features that enable make online
shopping easy and simple saving both time and cost of purchasing products and services online.
Moreover, the e-business configuration enables easy payment through mobile money payment
and electronic payment system (Cunningham, Menter & O'Kane 2017, pp 136-147).

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3. Rebuttal
Despite the company’s competitiveness within the UK market, there are some other
negative issues about the company. The company has various negative issues that can be noticed
in the business and this affects both competitive advantage and value creation. Firstly, poor
supplier payments services have damaged the reputation of the company in the past with
payment delaying leading to cries from customers (Seán, Kathryn & Sheahan 2018, pp 65).
Secondly, poor pricing of the company is another issue that has also affected the company as the
company sets prices that are inconsistent with other companies. Lastly, lock-in strategy is also
portraying the company as exploitative and prevents switching of customers from one business
to another. This brings the negative image of a company that as it makes the company hook
customers to the business. Though the lock-in strategy serves to retain customers thereby
preventing switching on of customers from the company to rivals, the strategy makes customers
pay more for the same products. This, therefore, leaves some areas that need improvement and
these areas for improvement are recommended (Tang 2014).
4. Recommendations for improvement
In light of the evaluation of value creation and competitiveness of Tesco, there are some
recommendations for improvement. These recommendations can be divided into two based on
the evaluations.
4.1 Competitive advantages recommendations
Competitive advantages of the company, there are some areas that need improvements.
Firstly, Tesco needs to improve a relationship with suppliers as there is supplier payment related

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problems that destroyed the reputation of the company in the past. Based on the suppliers
bargaining power analysis, the electronic payment system the business use to pay suppliers leads
to delay making the company lose image within the industry. The company needs to review its
supplier's payment system to improve its competitive advantage within the retail market of the
country (Mason & Barry 2015, p. 32).
Secondly, the company needs to improve its pricing strategy as this leads to customers
switching to other companies within the same industry. A pricing strategy that is mainly based
on fixed price reduces customer bargaining power and is based on preset price. This is viewed by
the customer as exploitative price and may drive customers away leading to a less competitive
advantage. In addition, the company has a pricing strategy that increases the bargaining power of
suppliers through the price is passed onto customers. This has made the dairy products of the
company to cost high leading to customer complains. This has an adverse effect on the
competitiveness of the company within the industry. The company, therefore, need to changes its
pricing strategy particularly when it comes to suppliers and consumers (Freeman 2010, pp7-9).
4.2 Value creation recommendations
Value creation evaluation of Tesco reveal some areas that the company need to improve
given the nature of the e-business value creation of the company. Firstly, Tesco needs to improve
on the lock-in drivers as it most likely to drive new customers away. Many customers remain
unaware of the company's lock-in strategy that hooks customers to their company and this may
lead to new customers fear exploitation (Brakus, Schmitt & Zarantonello 2009, pp 52–68).
Customer normally fear exploitations and prefers a variety of retails that allow them to choose
what they want and being hooked prevent them from moving away to new e-businesses. In

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addition, the company applications of lock-in techniques that prevent canceling of products make
the company viewed by customers as ineffective (Abdelhakim & Nabyla 2017, pp 239-257).
Secondly, the architecture of Tesco’s e-business still needs some improvement to
streamline suppliers’ payment. The company novelty drivers particularly the architecture of the
software needs to be updated serve not only consumers but also suppliers. The effectiveness that
is witnessed in the click and collects strategy need also to incorporate suppliers (Chandler &
Vargo 2011, pp 35–49). The company mobile apps need to create value to suppliers also so as to
increase the company’s reputation within the market. Moreover, the efficient mobile and web
versions of the firms have a high capability of improving services delivery that improves the
customers and suppliers' company rating. To achieve this, the company needs to firstly improve
its e-business architecture and configurations. In addition, the company needs also to add
supplier’s layer to the mobile app to accommodate suppliers. This will also help the company
utilizes its electronic payment system to instantly pay suppliers (Ahmed 2014).
Conclusion
In conclusion, Tesco remains a leading retail supermarket in the United Kingdom’s
market. Some of the competitive advantages of the company are based on low customer
bargaining power, low supplier bargaining power, the medium threat from new entrants, low
threat from substitutes and high industry rivalry. The overall strategy that enables the company
to remain competitive is diversified products and services. The evaluation of the company’s
value creation based on Amit and Zott’s value creation model shows various value creation
drivers based on the e-business software used by the company’s online platform. In light of the
evaluations, there are some suggested recommendations. Some of these recommendations

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include the need to improve suppliers' relationship and pricing strategy to remain competitive in
the market. In addition, the company needs to review lock-in strategy and e-business architecture
to continue value creation.

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