Tesco is a UK grocery retailer and general merchandise retailer operating globally and headquartered in Hertfordshire, England. The company is considered as the most valuable brand in the UK and 14th most valuable brand globally as of 2016 (Tesco Plc 2020). In the UK, Tesco is the leading grocery retailer targeting customers who like quality foods. The company has a market share of 30% in the UK and is it classed as among the ‘big four’ supermarkets in the market with Sainsbury’s, Asda, and Morrison’s. The company is highly favoured in the market because it offers a wide range of quality products at low prices and hence it targets customers interested with the quality and cost effective grocery products (Bedford 2022a).
The company has experienced continued gradual growth in revenue whereby the revenue increased from £45,062 million in 2015 to £51,643 million in 2019 and £53,170 million in 2021 representing 18.2% increase from 2015 to 2021 (See Appendix 1) (Bedford 2022b). Further, Tesco has achieved a good performance in terms of sales whereby there was 8.2% growth increase between 2015 and 2021 with an overall revenue and return on investment (ROI) of more than £53 billion (Bedford 2022c). It was forecasted that the total sales of edible grocery products offered in the UK in Tesco stores would increase from $46,631 million in 2016 to $52,714 million in 2020 (See Appendix 2) (Statista Research Department 2016a).The predictions were based on the proposed marketing strategies implemented by the company and the marketing budget proposed.
The three main segmentations of the company are; demographic, psychographic, and behavioural. The company targets low and middle income customers mainly college and university students or self-employed people. In terms of family size, the company targets mainly the single individuals, nuclear and extended families. In terms of social status, Tesco grocery retail sub-sector targets the working class, lower middle class, the middle class, and the skilled working class. These are people who are interested in quality of the products. In terms of personality, Tesco segments customers in easy-going and determined and in terms of behavioural, they segment customers into active users, people who are positive about grocery products, and people seeking cost advantage and a variety of products in the market (Hood, Clarke & Clarke 2015).
Due to the intensity of competition in the UK grocery market, Tesco must be positioned as providers of high customer value through low prices and maintaining high quality of grocery stores. A survey conducted on the opinions of supermarket customers in the UK on the quality of supermarket brands in 2016 indicated that though some brands such as Aldi and Lidl are known to offer quality products, there is no much difference between them and others (See Appendix 3) (Statista Research Department 2016b). This indicates that Tesco has a chance of being positioned as the best in the market in terms of offering highly differentiated products than the competition.
The UK grocery sector is probably one of the most competitive sectors in the country with Tesco being the most competitive retailer commanding 30% of the market steadily from 2017 to 2021. Tesco is followed by Sainsbury’s at 15.6%, Asda at 14.4% and Morrison’s at 9.9% (Bedford 2022d). This information is presented in Fig 1. A report by Bedford 2022e) on the percentage growth of the total grocery market in the UK from 2010 to 2021 indicated that the industry reported the highest growth in 2020 (9.3%) from 1% in 2019. However, there was a growth of -3.8% in 2021 due to the effects of the pandemic that hit not only the UK but also the whole world (See Appendix 4). The analysis presented here indicates that the grocery retail market in the UK is highly competitive and hence for any company to compete effectively and achieve high market share it must be positioned as the best in terms of customer value. This is what Tesco has focused on and that is why it has remained at the top of the leadership.
Figure 1: Grocery market share in the UK: 2021
Source: Bedford (2022d)
Tesco’s key competitive advantage comes from the development of retail low prices, experienced customer service, and high quality products and services have led to profit growth (Tesco Plc. 2020). The company offer among the lowest prices in the market without compromising the quality of products and services offered. As a result, the company has attracted a large number of customers in the target market. Tesco serves customers by listening to them and acting on what they want. The company has developed a wide range of distribution channels in order to bring the best products and services to customers. Further, the company competes against the rivals in the market by offering all products and services in one place (Tesco Plc. 2020).
There is a new wave of online shoppers in the UK grocery market. A report by Mintel (2022) indicated that there are a growing number of online shoppers in the UK grocery industry. The report indicated that in 2021 11% of consumers shopped online in the grocery sector for the first time during the pandemic. It can be noted that the pandemic contributed to this trend. Online shopping trend has been accompanied by the company offering p[products to their customers conveniently especially with the introduction of social distance policy and hence customers can shop at the convenience of their homes (Tighe 2021). Another trend in the grocery industry is the use of technology such as artificial intelligence (AI) and robotics as well as virtual stores to give customers a new shopping experience. Tesco has been on the front line in the use of these technologies especially the AI and robotics to satisfy their customers and reduce the length of time customer spend on physical stores.
Studies on marketing performance measurement such as Clark and Ambler (2011) and Hanssens, Pauwels, Srinivasan, Vanhuele and Yildirim (2014) have indicated that companies have to measure their marketing performance in order to achieve their marketing mission and visions. There are several metrics for measuring marketing performance discussed by Pauwels and Hanssens (2016) and Pauwels (2014) which can be categorised as financial and mind-set metrics. Return on marketing investment (ROMI) is an important metric that is used in this report to determine the marketing performance of Tesco. According to an article by Vizard (2014), Tesco sales at stores fell by 1.3% in 2013-2014 financial year while the total sales increased by 0.9%. The company announced £200 million price investment in February 2014 which was to help in bringing down the cost of items such as eggs, milk, vegetables, and chicken by about 24%. However, the move attracted the rivals in the market to invest in price whereby Morrison’s planned to invest £1 billion over the three consecutive years. It is important to understand that the sales performance in the market is determined by the price. Price, according to Hanssens, Pauwels, Srinivasan, Vanhuele and Yildirim (2014), is an internal factor that is influenced by external factors such as the political environment, economic, social, and technological environments. For instance, during political instability times, a company is not able to effectively offer its products and services in the market as it is required and hence it tends to increase the prices in order to make profits with the little sales it make. Further, the cost of production and supply of grocery products increases during hard economic times hence forcing a company to increase price in order to make profits. However, customers are influenced by the market prices and hence they may opt not to make purchases when they perceive that there is no value in the prices offered.
Revenue Market Share is another financial matrix that can be used to determine the marketing performance of Tesco. Comparing the revenue history for Tesco from 2016 to 2021, it is clear from the information presented in Table 1 that the company had the least revenue in 2016 ($67.21 billion) and the largest percentage change in the year (-27.17%). Comparing the revenue between 2020 and 2021 it is clear that Tesco suffered reduced revenue in 2021 (Tesco Plc. 2021). This can be explained as a result of the effects of the pandemic.
Table 1: Revenue history of Tesco: 2016-2021
|Year||Revenue ($ billion)||Percentage Change|
Source: Tesco Plc. (2021)
As indicated in Fig 1, Tesco (30.0%) has the highest market share in the UK’s grocery market followed by Sainsbury’s (15.6%) and Asda (14.4%) according to the 2021 estimates. This indicates that measured by the market share, Tesco is ahead of the competition. This can be contributed by a wide range of factors such as brand popularity, customer satisfaction, customer perception, quality, and price. The discussion of the Tesco brand indicated that the retailer has been successful in the UK’s retail market because of its low price and high quality products and services as well as providing customers with the products they require at their convenience. Analysing the competition from the external environment it can be stated that Tesco has managed to compete against the rivals in the market due to the advantage of technology. In this case, the company has adopted digital technology and hence taking advantage of the new trend of online shopping in the market (Kim, Kim, Yoo & Park 2020).
The analysis of the marketing performance of Tesco is clearly indicated by the three metrics analysed. For instance, the share of hearts and minds metric (market share and revenue market share) indicate that the company has managed to market its brand effectively in the market and hence increasing brand awareness. As noted by Hood, Clarke and Clarke (2015) and Kim, Kim, Yoo and Park (2020), customers become more aware of a brand when they can recognise it among others in the market and when they can develop some attitudes towards it. The marketing strategy of Tesco is based on quality, price, and distribution (convenience) and hence customers develop a positive attitude towards the brand based on these three elements. Tesco is the leading grocery retailer in the UK and has the highest revenue year- by- year. This means that the company is effective with its marketing strategies that are aimed at increasing brand awareness in the market and attracting customers to the brand. The company performs well in almost all areas especially in online sales. However, based on Appendix 3, it is clear that most of the respondents in the survey indicated that there is no much difference between Tesco and supermarket brands. This is a challenge because any positive change in supermarket brands would lead to a decrease in sales and performance of Tesco in the market.
Customer satisfaction is a mind-set metric that is measured through customer satisfaction score (CSAT). According to Rego, L.L., Morgan, N.A. & Fornell, C. (2013), a company’s customer satisfaction is related to the future market share when it is benchmarked to the company’s nearest competitor. This metric is effective in determining the future consumer behaviour because they are likely to purchase from a brand which they have high level of satisfaction from. However, the study notes that this metric is faced by the challenge of the non-response bias whereby some customers or respondents selected for gathering information they do not respond to the questions asked that would determine the effectiveness of the matric. Further, the term being satisfied is subjective in nature as it focuses on the feelings of the respondents towards services or/and products offered or the brand. Customers can have different responses towards the same brand (Luo & Homburg 2007).
Customer commitment is an important metric used to determine the level of customer satisfaction towards a brand. Customers are committed to a brand or a product which they perceive as having value for them (Verhoef, Langerak, Donkers & Leeflang 2003). This means that customers are likely to be loyal to a brand which satisfies them most. However, it may not be easy to measure the loyalty level of a customer especially in a mature market such as the UK because customers are influenced by a wide range of factors when purchasing grocery products. For instance, some customers may be interested with the price charged while others are influenced by the online shopping opportunity. Therefore, lack of a single method of determining the level of customer loyalty is a key challenge to this metric (Luo & Homburg 2007).
The marketing performance of a brand can be measured by brand attitude. Customer brand attitude can be understood as the strength of negative or positive valence experienced by customers in response to a particular brand. The considerations in customer brand attitude is subjectivity whereby one customer may rank a brand 7out of 10 while another one ranks the same brand 9 out of 10. This indicates that the ranking in this case is done based on the subjectivity nature of the customers. There is no standard ranking process which can be followed by all customers in order to be objective. One of the ways in which customers express their attitude is the digital networks hence showing their brand association. However, this method is subjective in that customers mainly share data in words rather than numbers hence making it difficult quantifying the data. Sometimes what is commonly referred to as brand association is known as electronic word of mouth. However, the qualitative data in digital networks can be analysed through sentiment and text analysis (Tellis & Johnson 2007).
This metric shows that marketers’ decisions have become more imperative in determining capital- based decisions. Economic value added metric is highly preferred by stakeholders in an organisation because they can tell if the company operating profits is higher than the return on investment. When the operating profits are higher than the return on investment it shows that the marketing investment was profitable and hence worth for the company. For instance, shareholders and investors can tell whether the marketing investment made by Tesco in a particular market is profitable or not by evaluating the economic value added metric. However, this metric involves calculations and hence it may be a challenge to some people who are not conversant with it.
The performance of a company can be determined by evaluating the margins. Margin is the profit made by subtracting cost per unit from the selling price per unit. This metric helps in indicating whether the cost incurred in marketing a product was higher than what was accrued from the product and hence make decisions on the best budget to set.
The findings of the company and industry analysis have indicated that there is intense competition in the market. This is a challenge as it may result in price wars among the major players in the market and increased marketing budget hence reducing the profit margins. Therefore, to address this challenge Tesco should focus on increasing customer satisfaction, customer loyalty, and brand awareness. By increasing brand awareness, the company is in a position to influence the purchasing behaviour of the customers in the market because customers are likely to purchase from a brand they are aware of as compared to one they are not aware of (Tellis & Johnson 2007; Aghazadeh 2015). Secondly, by increasing customer satisfaction the company would influence the purchasing behaviour of customers because they are likely to purchase from a brand that satisfies them or based on the past experiences of their friends and relatives. Lastly, the company should invest in developing digital brand associations in order to develop high levels of brand loyalty. Online customers communicate to their friends their experiences with a brand and hence they help in marketing a brand in the market ahead of the rivals especially in the modern wave of online shopping where customers seek information online (Rego, Morgan & Fornell 2013).
Figure 2: Dashboard marketing metric
The rules of designing an MPM system were well reflected in the work because it included the main or the key measures for the company. The benchmark for the metric is conversion of online clicks to sales. Tesco has a strong website where customers can visit and learn the variety of products and services offered by the company but converting online customers to sales is the main benchmark. This is because as a large number of customers are converted to sales, the online marketing platform becomes very effective. The company should measure and report the metrics after every two weeks and monthly basis to allow time for information. The proposed metrics help Tesco to manage its business because they indicate when the company has high performance and low performance. The parameters may signal success when the conversion metrics register high percentage and there are danger parameters when the rates are low. This shows that the business should be keen on the changes reported on the parameters in order to make decisions.