Wednesday, 23 December 2009 TESCO PLC & Ansoff ‘s Matrix Introduction Tesco as a market leader with a successful business in the UK always attracts many researchers to find more about why the company has competitive advantages among other rivals. “The first basic ingredient of leadership is a guiding vision. The leader has a clear idea of what he wants to do – professionally and personally – and the strength to persist in the face of setbacks, even failures. Unless you know where you are going, and why, you cannot possibly get there” (Warren Bennis, 1994)1.
This company has a successful business history in 80 years of its activities. Today, Tesco Plc is considered as a successful retailer in the UK. The position of Tesco among other competitors in the UK shows that this company has been successful in its applied marketing strategies. As a retailer, the company could take over from other rivals and could locate itself with a distinctive gap at the top of the table of 100 lucrative businesses in the UK. Tesco has applied some series of empirical marketing strategies.
According to Ansoff matrix strategy, Tesco could develop its markets and products in the UK market, and ultimately with diversification strategy has got in front of other rivals. Market penetration, Product Development, Market Development and Diversification are the strategies in which Tesco has chosen for influence and remaining in the market. By applying these mentioned strategies, Tesco has got its competitive advantages among other rivals. In the UK, the market of groceries has been shared among some major companies where Tesco is the only one who has got the largest market share.
Internationally, Tesco could expand its business and its international growth shows that this company has a successful business among some other overseas competitors. In this essay, it has been tried to examine Tesco Company from point of view of Ansoff ‘s Matrix analysis. Firstly, for a background, this essay looks into the Tesco’s success through 80 years of its business, then this essay is going to examine of above – mentioned strategies in which Tesco has chosen for boosting its marketing and sustaining competitive advantages.
Tesco’s History Jack Cohen, Tesco establisher has started his own business when he begun to sell surplus of groceries in East of London in 1919. The first day’s profit was 1 Pound. The business could lead him to sell his first product in his own brand name of Tesco in 1924. This name has come from the two first letters of TE Stockwell, and Co from surname of Jack. In those early days, Jack Cohen had a partner in firm of tea as a supplier, TE Stockwell. In 1929, Cohen could open his first store in Burnt Oak, Edgware in north of London.
Tesco has become plc in 1932. A specified land has been bought in north of London at Angel Road, Edmonton for building a new headquarters and warehouse in 1934. In this year, Tesco could open its first modern warehouse with new modern ideas in controlling of central stock. In 1947, share price of 25 p has been modified for Tesco in Stock Exchange. The first “self-service” supermarket has been opened in 1956. Tesco diversified its business to selling of petrol by opening its first petrol station 1n 1974.
For the first time, annual sales of Tesco reached to one billion Pound in 1979 and it exceeded 2 billion Pound in the year of 1982 and also, in this year for the first time Tesco could computerize checkouts in stores. In 1985, Tesco has been considered as a first grocery retailer in which emphasizing on nutritional value of its own-brand products through ‘Healthy Eating’ initiative. In 1991 became biggest independent petrol retailer in Britain. Some various products and services have been lunched in 1992 such as Tesco Organic range, computers for schools and ‘Every little Helps’.
Tesco became pioneer in customer service to commitment at the checkouts through ‘One in Front’ in 1994. After two years in 1996, Tesco entered in Poland, the Czech Republic and Slovakia. In this year, Tesco could introduce ‘customer Assistants’, ways in which made shopping easier for the customers. In year of 1997, Terry Leahy became Tesco CEO and marked developed in Republic of Ireland. By the year, 1988 and 1999 Tesco market has developed to Taiwan, Thailand and South Korea. Tesco could publish its supermarkets price comparisons on the internet, on-line banking and on-line bookstore has been lunched in 1999.
Tesco could improve in customer service by lunching ‘Customer Champions’ policy in many stores; it became leadership of organic retailer in the UK in 2001. Internationally, Tesco could expand its market to Malaysia, Turkey, Japan, China and the united State between years of 2002 and 2007. Tesco has expanded its market as an ethical issue in its own-brand Fair-trade in 2004, one year later it has been announced that Tesco has 2 billion profit. Tesco exited from Taiwanese market and swapped all its assets with Carrefour in Czech Republic in 2005.
Towards diversification strategy, another store under name of ‘Tesco Homeplus’ lunched in 2005. Cash and Carry is a recent plan, which has been made to develop market in India in 2008. In 2009 club cards re-lunched in the UK with 150 million investment offering customers. Ansoff product and market analysis Figure 1 Source: Ansoff (1957, 1989) The well-known tool, Ansoff matrix was published in Harvard Business Review in 1957. And also this strategy has been published in Ansoff’s book in the title of ‘Corporative Strategy’ in 1965. This strategy has been chosen in this essay for finding better of Tesco position in the Market.
Regarding to Ansoff’s matrix Tesco could develop its products and its markets by penetrating into the market with using of current products and current customers. And also, it has developed market into segmentation and diversification policies. Later it would be mentioned that Ansoff matrix analysis is an empirical tool approach help businesses to find objectives and leads to a sustainable development. ‘The Ansoff matrix provides the basis for an organization’s objective setting and sets the foundation of directional policy for its future’ (Bennett, 1994)2.
Ansoff matrix model can be used as model of BCG matrix and or Porter’s five forces model to clarify what kind of strategies are applicable and when applying these kind of strategies are useful for a businesses. Figure – 1 shows that the correlation of products and market related to present and future. From one side companies should consider Markets and from other side they should develop their products. In following, this essay is trying to extend each section of the matrix more clearly and compare with the situation of Tesco. Market Penetration
Ansoff’s matrix suggests that a business attempts to penetrate and to grow in markets by existing products. Companies such as Tesco always penetrate to the markets by its current products. Tesco has benefited from its customers to penetrate the markets. It is very important market penetration starts with current customers. Market Penetration would be an empirical strategy for presenting new products or services to the current customers. In order to achieve this important, Tesco uses the strategy in three ways. Firstly, Tesco gains customers from other competitors like ASDA, Sainsbury’s, Somerfield, etc… Secondly, by providing the product quality and / or high level of service, Tesco could retain more customers, where Tesco’s customers feel Tesco is the best provider. These situations make the situation more distinctive among other Tesco’s competitors. Thirdly, attracting more non-users of the product or services to the business by using of advertising and promotion or other marketing strategies, these would be capable policies (Ansoff, 1989, Lynch, 2003). According to Lynch, Marketing Penetration strategy is very important for Tesco because retaining existing customers is cheaper than attracting new one.
For example, Tesco’s international expansion strategy has responded to meet the maximum needs of customers. it is sensitive to local expectations in other countries, by entering into joint ventures with local partners, such as Samsung Group in South Korea (Samsung-Tesco Home plus), and Charoen Pokphand in Thailand (Tesco Lotus), appointing a very high proportion of local personnel to management positions. (Tesco Preliminary Results 2006) In addition, Tesco launched its South Korean operations in 1999 and partnered with Samsung, Tesco holds 81% of the shares in the venture3.
Therefore, Market Penetration would be an empirical strategy for presenting new products or services to the current customers. It seems penetration to a market needs many factors. It is obvious that it is not easy to attract more non-user customers to a business. These factors, which significantly influence to the Tesco’s Market penetration, are mentioned as, the strength of marketing; it means Tesco is considering some capable marketing strategies towards attracting more customers with advertising or promotion tools.
Accessing to low cost materials and effective production is one of effective ways to influence into market, by recognition of lower cost supplier; it would be a privilege for Tesco to provide goods and services for its customers benefitting from lower prices. Having good experiences of customers and customers’ satisfaction would be a privilege for a retailer to retain the market. Other important issues for penetrating into market can be counted as standards, availability of materials, good quality control, problems’ regulatory and bility to explain the benefits of the offering to the prospects. The effective infrastructure in terms of organization for recruiting capable employees to support customers’ needs would be useful ways to gain customers from other competitors. Distribution, financial stability, an extended channel of utilization, reputation and familiarity with customers’ needs, all and all would be Tesco’s power for controlling market penetration. At the end, using of adequate capital with applying technology may strengthen to this strategy.
Therefore, Market Penetration is nothing except, retaining existing customers by responding to their needs and attracting more other customers by using a sophisticated marketing strategy4. All these approaches lead businesses to achieve theirs objectives towards sustainable advantages in a rivalry environment. Product development Product development is another strategic approach in which uses for developing new products. This strategic method occurs when an organization such as Tesco wants to develop new products to satisfy its customers within a market.
It should be considered that, this kind of development refers to significant new products development. Therefore, product development happens when an organization wants to provide all customers needs in one place to make customers more dependent and also to attract more customers in one place to purchase their needs in a convenient ways. For example, our findings have led to today’s customers being able to buy a TV, mobile phone or complementary medicines in Tesco’s super stores all over the branches and even shop as far afield as Thailand and South Korea5.
Therefore, this is the reason that organization uses this strategy towards their product developments and the definition would be as follow: ‘Utilizing of maximum production capacity, countering competitive entry and maintaining the company’s reputation regarding to product innovators by use of new technologies and protecting market share. ‘ (Lynch, 2003) Vertical integration would be an empirical strategic approach, which are used by Tesco as an efficient way to maximized profitability. When a company wants to control cost of commodities and wants to expand its market share within a market, it should choose this method.
Differentiation may consider as other advantage of vertical advantages when Tesco might expand its market share by producing of many products. Vertical integration may happen in three kinds of approaches: backwards integration, forward integrations and balance integration. Most of times, balance integration happens in Tesco’s business. This kind of vertical integration means, when Tesco may involve in a business, which covers whole procedures of producing of one specific product, including from A to Z, these may start from involving in business of raw material preparations, production and ultimately distributions into markets.
For example, many food productions have been produced by Tesco such as, Cereals, Chocolate bars, many kinds of beverages etc. As a retailer, Tesco has produced many food productions and as a market retailer may distribute into the market. Applying vertical integration as a strategic method could be considered as efficient and profitable approaches towards cost regulation and expanding market shares, this policy could lead a business to differentiation. Therefore, vertical integration can be used as an approach to develop product development towards increasing market share and cost regulation.
The disadvantages of vertical integration could be known as huge investment and losing the main core of the business. Tesco may lose its core of business when it evolves to other areas of its business. Tesco as a retailer when involves in producing of some goods it seems that the core its business has changed to other area which is not related to its business or some facilities and investment which is necessary for developing its retailing business, must be focus on and invest to production section.
Therefore, this kind of strategy despite of having more profits for the business, it has a high risk for the business and if fails it may cause to bankruptcy. Brand loyalty is one of the strongest factors in which can help to product development strategy. When consumers are trustful of using of one or many commodities, which belong to productions of one company, it may motivate them to use and to purchase the products continuously. Sometimes trust on consuming of one specific brand may lead to consume other products from that particular brand. Therefore, reputation of a particular brand may lead to continues consumption by consumers.
This trust on a specific brand has known as Brand Loyalty. As it has been mentioned above vertical integration strategies has been developed because of Brand loyalty. Tesco with having a large amount of customers has got a potential situation for selling any kinds of products which has been produced by itself. Therefore, Brand loyalty may lead to differentiation and, Brand loyalty and differentiation would be two factors lead to product development. Brand loyalty may happen when customers find the products distinctively in terms of quality Therefore, standardization of product in quality may boost to constant use.
Brand loyalty may boost marketing and help to a product development. Brand loyalty of Products must be considered in prices, qualities and uniqueness in which to meet maximum needs of consumers and ultimately lead to boost product development. Market Development Market development happens when a company moves beyond its current customers in other geographical market for its existing products. This strategy is applied for finding new markets and most of the time happens internationally. Therefore, ‘Market Development is a strategy in which companies develop their market internationally for its existing products.
This may entail exploration of new segments of a market, new uses for the company’s products and services or new geographical areas in order to attract new customers. ‘ (Lynch, 2003) For example, Tesco has developed market in many countries such as china, Czech Republic, France, Hungry, Republic of Ireland, Indonesia, Japan, Malaysia, Poland, Slovakia, South Korea, Thailand, Turkey and United States. Figure – 26 shows Tesco’s influence within market of other countries in the world. As it has been mentioned before, vertical integration could help Tesco to control its market with using of cost.
Figure2 Tesco around the world This strategy may help Tesco to define cost and control market. Vertical integration strategy enabled Tesco to become more competitive among other international rivals or even local competitors. By looking into porter’s five forces, vertical integration policy may act as a barrier for entry of other rivals into the business. Therefore, Tesco with investment in international countries and using of vertical integration strategy controls cost and market, and consequently has increased its market share.
For penetrating to an international market, Tesco has joined with other successful business. For example, Tesco in 1999 has joined to Samsung in South Korea, and it has 81 percent share of this venture7. In China with 50 present of shares has joined with Hymall and in 2004 Tesco has joined Ting Hsin in Taiwan8. Join venture strategy acts like vertical integration in businesses. As it has been discussed before, this strategy might consider as forward vertical integration when Tesco wants to control distribution of its business with using of market potentiality of its partner.
Therefore, when Tesco needs to penetrate to a market internationally, it would be easier and chipper with using of partner’s distribution channels. This policy is adopted by Lynch’s ideas who said, penetrating to a market by using of current customers would be chipper than finding new customers. Figure – 3 Figure – 3 shows that the strategies might be applied by Tesco regarding to Ansoff matrix and vertical integration has been successful9. Regarding to the graph, between years of 2004 and 2008 the business in Asia has been increased and it has 6 percent growth in recent 4 years.
Tesco in 2006 has entered into the USA market it has opened grocery convenient stores on the west coast Arizona, California and Nevada under a name of Fresh and Easy10. Entering to a market like America would not be easy for Tesco. Existence of Wal-mart as a biggest grocer in the world, in the USA makes the situation tougher for Tesco. Tesco should compete with a competitor who has many branches in all over the USA. Wal-mart is a mighty grocery, which has competitive prices and being well distributed. Sainsbury and Marks ; Spenser had disappointed experiences before and had sold their outlets in 1990s.
Despite of many barriers to entry, Tesco by looking into applicable strategies, which have been applied, by Lidel and Aldi (the two German retailers) which had a successful approach to penetrate the UK market. ‘Hard pricing’ approach was a lucrative strategy was applied by Lidel and aldi and it seems, Tesco has not any choices to penetrate to the US market with this strategy. Lidel and Aldi had ‘hard discount’ strategy towards their competitive advantages. They could enter into the UK market despite of many potential competitors such as ASDA, Sainsbury, Tesco, etc. ith using of competitive prices. Tesco found that there is no way except supplying the grocery goods lower than Wal-Mart prices. The aim was achievable by reducing number of employee and using of self-checking machines. The other diversified strategy was to produce some fresh food for the customers. Tesco has considered some manufacturing plants to develop its products11. Diversification Tesco as a grocer retailer has expanded its business to many other businesses (non – food) for maximizing its profitability. Diversification is a strong strategy towards meeting maximum customer needs.
Firstly, for better understanding of diversification, may look into some definitions and strategies would be useful. Diversification means variety. Richard Lynch (2003) defined diversification strategy in which a distinctive way that a company goes out of its current business, and evolves to another business. Diversification may happen in related or unrelated areas of a business. Tesco has diversified its businesses to areas such as Garden centers, with purchasing Dobbies Garden Centres Tesco has entered to business of gardening12.
Tesco with joint venturing with Royal Bank of Scotland has entered to financial market. Now Tesco can offer many financial issues in the market such as credit cards, loans, mortgages, saving accounts and many other types of insurance13. Tesco operates Internet system provider (ISP), mobile phone, and home phone and Volp businesses. Tesco with join venture strategy with O2 could develop diversification in telecommunication and also Tesco could expand it businesses in voice over internet with venturing of Freshtel Australia14. The other diversification is seen in Tesco businesses is fuel.
For the first time Tesco has entered to Fuel businesses in 1974. Recently Tesco has entered into bio fuels, which are petrol-bio ethanol and diesel-biodiesel blends instead of pure petrol and diesel at its petrol stations. This kind of energy is considered as green energy15. In general, diversification could be considered as a defensive strategy towards sustainable competitive advantages. A company could spread its businesses in all areas to prevent from fragile situations. This kind of strategy enables a business to influence to many other profitable areas to grantee its existence.
However, one of the weaknesses of Diversifications could be the risk of investment out of the core business of a company. For example, Recession could be a threat for this kind of strategy. When a company invests into many areas, which are not its core of business and because of lack of knowledge or specialty may lead them to bankruptcy to that area and cause them to lose large amounts of money. Conclusion To sum up, as discussed before Ansoff’s Matrix and Porter’s five forces can be used as a strategic models to enable Tesco to obtain its objectives and to sustain competitive advantages in the markets.
Tesco’s plans to enter to the United State are a bit ambitious. Directly Tesco cannot enter to this market and compete with the strongest retailer such as Wal-Mart. Wal-Mart has completely covered all the United State markets and there are not any chances for other rivals to enter to the market. Wal-Mart stores are distributed all over the market in the United State. Therefore, Tesco like the other follower who were pioneers in American market should taste the defeat. Sainsbury and Mark & Spenser who entered previously has no fate other than bankruptcy.
So it is really good strategy if Tesco could penetrate to this market from other way. For example, this penetration could be like a chain restaurant or as a fresh and easy chain store, which has already established by Tesco in the United State. The other strategy for Tesco is, to put more investment to develop market internationally in its agenda. Tesco has spent huge investment to penetrate into many countries and there must be comprehensive plans to develop and adding to its market share within these countries.
Vertical integration would be applicable and efficient way for Tesco to add its market share within these countries. Tesco needs to create a situation to make more customers to depend on Tesco. This strategy may help to extend and grantee for this business. It may happen when customers does not need to pay cash or by debit card. Tesco can open an account for customers and provide for them credits for their future porches. Involving in producing of many essential requirements within the countries as a vertical integration strategy would be other empirical approaches towards sustainable competitive advantages. ** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** *** Sahab Hosseini Sunday, August 16, 2009 Brighton ISC Sussex University Foot notes 1 Center for Public Leadership , John F. Kennedy School of Government, Harvard University, Fall 2005 2 Bennett, A. R. (1994), Business Planning: Can the Health Service Move from Strategy into Action? , Journal of Management in Medicine, Vol. 8, No. 2. 3 (“Tesco to expand in South Korea”. Food Navigator Europe. 16 May 2001. ) 4 Copyright © 1994-2009 Business Resource Software, Inc. http://www. usinessplans. org/Market. html 5 Tesco 2009 Tesco. com / careers 6source: http://www. tescocorporate. com/plc/about_us/map 7 “Tesco to expand in South Korea” Food Navigator Europe 16 May 2001 8 TESCO Extends Partnership in China 9 E-intelligence on global retailing – www. planetretail. net copyright M+M planet retail Ltd All rights reserved 10 “Tesco to enter United States” http://www. tescocorporate. com 11 copy right Richard Lynch 2009 12 Jordan, Dearbail (2007-06-08). “Tesco swoops on Dobbies Garden Centres”. The Times, (Times Newspapers). 3 “Tesco is taking full control of Tesco Personal Finance, after paying Royal Bank of Scotland 950m for its 50% stake in the division. ” Sky News 14 “Tesco launches net calls service”. BBC News. 19 January 2006 15 “O2 signs 136,000 contract customers”. Mobile Today, Noble House, http://www. mobiletoday. co. uk References * Ansoff, I. (1989), Corporate Strategy, rev. edn, Penguin, Harmondsworth. * Ansoff, I. H. (1957), Strategies for diversification, Harvard Business Review, Vol. 35, No. 2, p. 113-124. * Bennis W. , 1994 ‘On Becoming a Leader’ (ISBN 0738208175) * Center for Public Leadership , John F.
Kennedy School of Government, Harvard University, Fall 2005 * Lynch, R. (2003), Corporate Strategy, 3rd ed. , Prentice Hall Financial Times. * “Tesco: Our History”. www. tescocorporate. com. Tesco plc. * http://www. tescocorporate. com, retrieved 2009 * http://www. tescoplc. com/plc/about_us/tesco_story * http://www. foodnavigator. com/Financial-Industry/Tesco-to-expand-in-South-Korea * http://www. businessplans. org/Market. html * http://www. coursework4you. co. uk/essays-and-dissertations/ansoff-analysis. php * http://www. foodnavigator. com/news/ng. asp? id=40638-tesco-to-expand.