Tesco's Competitive Advantage: A Strategic Management Report

Desklib provides past papers and solved assignments for students. This report analyzes Tesco's strategic position.

[strategic management]
2019

Table of Contents
Introduction................................................................................................................................3
LO3 Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model to a
given market sector....................................................................................................................4
LO4 Apply models, theories and concepts to assist with the understanding and
interpretation of strategic directions available to an organisation...........................................10
Conclusion................................................................................................................................13
References................................................................................................................................14
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Introduction
Every business organisation that exists in today’s world faces intense competition not
only at domestic level but the global level as well. In order to remain competitive and
ensure long term sustainability of the business organisation it has become extremely
crucial for the organisation to plans strategically about managing their business
operations. TESCO Plc is one of the multinational grocery businesses in the retail
industry which carries its business through supermarket and retail stores and has their
headquarters in Hertfordshire, United Kingdom. In order to understand various
complexities in the business market, it is essential for the business organisation to
conduct various competitive analysis such as Porter’s Five Forces analysis based on
which the strategies can be developed by the organisation to accomplish the goals and
objectives.
In this assignment, we will be discussing upon the Porter Five Forces Analysis for
TESCO and based on it we will apply various theories and concepts that can help the
organisation to design their strategy for growth and remain competitive in the market.
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LO3 Evaluate and apply the outcomes of an analysis using Porter’s Five Forces model
to a given market sector.
Introduction: TESCO Plc. was founded in the year 1919 by Jack Cohen and they
opened their first store in 1929 in Oak, Middlesex, UK. At present the organisation has
diversified their product portfolio and it is known for the quality of products and has
developed strong brand image across the globe especially in the UK market. The
organisation has more than 7000 stores around the globe and employs more than
500000 people worldwide (Statista, 2018).
TESCO
27%
Sainsbury's
15%Asda
15%
Morrisons
10%
Aldi
8%
The Cooperative
6%
Lidl
6%
Waitrose
5%
Iceland
2%
Symbols and Independent
2%
Other Multiples
3%
Share of TESCO and Other Competitors in UK Market
in 2018
(Source: https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-
kingdom-uk/)
Competitive Advantage:
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The competitive advantage which the organisation has is one of the key elements of the
organisation which results in increase in the efficiency, abilities and productivity of the
organisation. It can be only achieved when all the necessary capabilities which the
organisation has at present should be superior than its competitors which exists in the same
industry. The organisation is able to get the competitive advantage through two different
methods i.e. cost leadership and product portfolio diversification. When the organisation is
able to achieve better competitive position than its competitors than they are also able to
achieve higher market share. The competitive advantage of TESCO is discussed through
Porter five forces model which is as below:
P3.
Threat of New Entrants: To start any business on larger scale, every organisation require
huge amount of capital investments similarly, to enter in the food retail industry the new
entrants also require capital investment to develop their brand name in the market. So, the
threat of new entrants in the retail industry is relatively low as compare to other industry. As
we can understand from the figure of market share, we can understand that the major share in
retail industry has been captured by TECO, Morrison’s, Sainsbury’s and majorly these
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Porter Five
Forces
Model
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Threat of
Substitute
Products
Existing
Rivalry
Bargaining
Power of
Customers

organisations caters the shopping needs of people in the UK market. Secondly, the new
entrants also require making long term planning along with obtaining necessary permissions
from the regulatory authority which is also not very easy and it takes time to get the
organisation established in the market. The customers are also loyal toward the brands which
they are buying since very long which make it difficult for the organisation to enter into the
market.
Threat from the Substitute: In the retail industry, the threat from the substitute products is
also very low. In the food industry many a times the threat from substitute is comparatively
high as there are other small stores like convenience store also offers the similar products.
But it has also been observed that these small convenience stores which are off license are not
considered as major threat for TESCO plc. as TESCO operates its business in large scale and
the customers can make difference from the products offered by TESCO and other small
retailers. Also, now TESCO has also focused upon opening the new stores in the remote areas
which offers transportation convenience to the customers. TESCO also offers premium
pricing to certain products which falls into non-food items, in case if there is recession in the
country than the customers might shift to other competitor products which are offered at
lower price (Pereira, 2013).
Existing Rivalry: the completion level in the food and retail industry is already very intense
as there are several organisations like ALDI, LIDL, Morrison’s etc have invested huge capital
toward establishment of the organisation in the UK market. These competitors also try to
switch the customers from one organisation to other by offering better pricing for their
products, promotion and channel of distribution. Waitrose, Morrison’s and Sainsbury’s have
gained the share in the market despite of slow growth in the industry. All these shows that the
competitors who are established at large scale are trying to catch the customers from their
competitors which are again putting pressure upon increased competition.
Bargaining power of the Buyers: Since, the presence of competitors in the industry, the cost
of switching for customers from one organisation to other are very low or almost zero. So, the
bargaining power of the customers in this case is relatively high. When the customers finds
that the similar product is offered at lower prices by other competitors which is also offering
the similar or better quality than they shift from one company to other. In retail industry, the
customers wants superior quality products at lower price which forces all the organisation to
keep their prices lower and offer better quality of products to increase their sales and
customer base (Joshaddo, 2017).
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Bargaining power of Suppliers: the position of supplier in UK market is not very strong.
Because the big organisation like Sainsbury’s, Tesco already have contract with the major
suppliers and these suppliers has fear to lose the contract from big organisation in-case if they
bargains with them that is why, the bargaining power of the supplier is very low. These
suppliers also want to increase their profits and get recognition when they are associated with
these giant organisation and they do not want to lose their relationship with them because of
which they do not make change in their positions and tries to offer the best quality of
products at lower prices.
M3. The current business operations of TESCO are performing well and the market position
of TESCO is also placed rightly. In order to control the Five Forces which are designed by
Michael Porter the organisation need to understand their current market position based on
which they can design the growth strategies which are through the following:
1. Ansoff Matrix: it is developed by Igor Ansoff. It is one of the marketing planning
Model which helps the business to determine their products and growth strategies in
the market.
(Source: https://www.tutor2u.net/business/reference/ansoffs-matrix)
This matrix suggests that if a business is willing to grow will depend on whether the new
market or existing products in the new market or in the existing market. there are four generic
growth strategies which are as follows:
Market Penetration
Product Development
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Market Development
Diversification
TESCO follows Ansoff matrix with their existing markets and product range to penetrate
their market. The product range which TESCO offers is very huge and their share of market
is also very high because of which penetration of the market for TESCO is not a problem.
The second quadrant which shows product development under this also TESCO ensures that
they keep developing newer and innovative products to remain competitive in the market. As
and when TESCO finds the opportunity in the market they look forward for it. TESCO has
expanded its business not only in UK market but in other countries as well which have given
them an opportunity to capture the new and emerging market as well which falls under the
third quadrant. The last one, under which TESCO ensures that they do not remain in the same
retail industry, for the purpose of which they have also diversified there business into, gas,
petrol, mobile etc. in UK market (Pradhan, 2013).
Boston Matrix:
The BCG Matrix on TESCO will help to analyse the profit making ability of the company
along with the future prospects of the various business that are managed under TESCO which
are as follows:
Cash Cows: For TESCO, the fresh meat products are currently in the mature stage and fresh
fruit and vegetables also constitute as one of the profitable business which also has high
market share. There is constant rise in the demand of these products and the high market
share in these products will result in increase in the revenues for TESCO.
Stars: there are certain products that are available with TESCO that fits into star category and
has the ability to generate more income for the company and it also gives them growth
opportunity. TESCO bank has expanded its services into insurance and loans which has high
growth potential market. Therefore, the organisation will be able to gain more market share in
coming years.
Question Mark: There are certain products of TESCO which are not performing with their
full potential. TESCO lard is one of the products among them which is able to generate some
cash income for the company but still it is not able to boost the demand in the customers.
Dogs: The mobile business of TESCO falls under the dogs category as there are other big
giants in the industry which is performing better in that segment. The Mobile industry also
require heavy investment in order to fetch income which is right now not the priority for
TESCO (Adamkasi, 2016).
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It is essential for the organisation to identify the right products which can help them to
generate more cash and revenues for the company. TESCO need to innovate their products
and ensures that they offer the best quality of products to their customer at lower or
competitive prices which can help them to retain the existing customers along with capturing
the new customer base form the market.
Conclusion: Henceforth, it is essential for TESCO to analyse those business which can help
the organisation to generate more profits based on which they can develop their strategies to
expand their business operations.
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LO4 Apply models, theories and concepts to assist with the understanding and
interpretation of strategic directions available to an organisation.
An organisational position within the industry help to determine whether the organisational
profitability is above or below the as per the average of the industry. There are majorly two
types of competitive advantage which a firm can possess which is either maintaining low cost
or offering differentiation. These type of competitive advantage can help to combine the
scope of various elements that an organisation seek to achieve which result in development of
three generic strategies in order to achieve the at par performance across industry which is
cost leadership, differentiation and focus. In order to develop the strategy for TESCO we
have to implement Porter Generic Strategy which is as below:
P4.
Porter Generic Strategy:
(Source: https://www.ifm.eng.cam.ac.uk/research/dstools/porters-generic-competitive-
strategies/)
The first strategy of cost leadership is the one under which TESCO can look forward to opt
for offering lower cost in the market and offer the products and services at the lowest price in
order to capture more share in the market. this strategy can be only successful when Tesco is
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able to reduce their operating cost so that they can priced their product lower than their
competitors and when they sale the products in higher volume the profit margin for the
organisation will be also very high which will give TESCO a competitive advantage.
The second strategy which TESCO can look forward for is differentiation, under which they
have to offer the products or services which has unique characteristics that can offer better
value to the customers. By applying this strategy, TESCO will be able to gain the brand
loyalty among the customers and the customers will not think before buying the product even
if it is priced higher than its competitors. The various methods through which differentiation
can be created in by adding some features to the product, providing additional services and
technology that can create differentiation in the mind of customers (Kumerra, 2012).
The third strategy is related with focusing upon the market either through implementing cost
leadership or differentiation strategy. In order to obtain cost leadership, TESCO focuses
upon the development of internal competencies that will help them to face the external
pressure. Thus, both the differentiation and cost leadership strategy is aimed majorly at broad
market. Tesco can confine the cost leadership or differentiation strategy which is either based
upon the particular market or with particular products (Marketing Teacher, 2014).
Bowman Clock Strategy:
(Source: https://myassignmenthelp.com/free-samples/strategic-management-analysis-of-
tesco)
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The Bowman’s strategic Clock is one of the models which explore various alternatives for the
purpose of strategic positioning i.e. how best the product can be positioned in order to gain
the competitive position which is the best across the market.
Here, for TESCO it is essential to distinguish its product from other competitors. TESCO is
known as one of the Finest Brand which focuses more upon the quality that is based upon
focusing on those customers whose purchasing power is really high. This type of focused
approach fits into the focused differentiation under which the perceived value of the product
in the eyes of the customer results into increase in price. In contrast, The Value brand of
TESCO focus upon the lower costing along with lesser perceived value which appeals more
to those customers which are price sensitive. This is more fitted for the low frills position on
the strategic clock.
It shows that TESCO has implemented Hybrid strategy which focuses upon both price and
the strategy (Tesco Plc, 2018).
D1. The overall economic condition of UK has resulted in declining in the purchasing power
of the people which has slowdown the growth in the industry. It will prevent the overall
growth of the industry along with TESCO and its competitors as well. The only method to
grow the in the UK market for TESCO is to capture the market share from its competitors.
And to achieve it, it is essential for TESCO to understand the need and want of the customer.
There are several other factors like micro and macro environmental factor which affects the
working of the TESCO and they have to plan strategically in order to deal with all these
factors in the most effective manner. TESCO can further improve upon its delivery services
in both the online and in-store which can give them a competitive advantage over its
competitors and it will result in increasing the customer experience. TESCO can also focus
upon offering differentiation to its customers which can be either through offering better
quality of the product or doing some value addition or they can offer some value added
services to the customers which can result in preference of TESCO products over its
competitors. TESCO can also focus upon developing newer technologies which can help
them to control the long term costs and ensure growth in future.
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