International Marketing Strategy for Tesco

Executive Summary

This report outlines international marketing strategy for Tesco for its market entry into Sweden with a range of baby wear. The SWOT and PESTAL analysis show that Tesco currently has the resource capabilities to successfully enter the market and implement a market development strategy. The report recommends that Tesco target the high-end market segment with a differentiation strategy.

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This report will assist in understanding and the formulation of an international marketing strategy for Tesco Plc. The report will use PESTLE and SWOT analysis to provide an insight into Tesco’s current market situation. This will help management in making the correct strategic choices in terms of corporate and international strategy in terms of lunching a range of baby wear (infant & toddler clothes) into Eastern Europe (Namely, Sweden). The report will outline how Tesco will make such market diversity and also managing corporate portfolio. We will use the Ansoff Matrix to consider market entry models. The final part of this report will provide an activity plan for Tesco along with a profit and loss account. Measurements and control with contingency plans will also be discussed.

Company Profile

Tesco runs more than 2,300 supermarkets, hypermarkets, and convenience stores in the UK (where it is the market leader in food retail), Ireland, Central Europe, and Asia. Its operations include convenience and gasoline retailing (Tesco Express), small urban stores (Tesco Metro), hypermarkets (Tesco Extra), and financial services through Tesco Personal Finance. A global leader in online grocery sales, it owns a 35% stake in US grocery chain Safeway’s GroceryWorks. It is the leading online grocery store and it is now expanding its business with a TV channel and a “retail based education institution”.

SWOT and PESTLE Analysis of Tesco Plc

A PEST analysis of the industry will examine the local, national and global influences of political, economic, social and technological factors to understand opportunities and threats well.

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All of those (political, economic, social, technical, legal and environmental) factors will to some extent apply to the retail industry in Sweden.

POLITICAL – Following the European Integration and Free Trade Agreements, the market has opened up for British Companies to invest in Eastern Europe. Tesco already has 60 Hypermarket store in Hungary. Lidl is uncompromisingly fighting to maintain its market share with an aggressive pricing strategy.

ECONOMIC – the Retail sector is fairly recession prawn and also very sensitive to changes in interest rates. Since the events of September 11th the world economies have suffered heavily, stocks plummeted and prices are at all time lows. The world economy is however, now on the up post September 11^th. Consumers are optimistic and the retail industry is once again booming.

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SOCIAL – changes in consumer taste and lifestyle represent both opportunities and threats for the industry. Opportunities in terms of new market and consumers, however, there are added threats in terms of alternative established Swedish national retailers (foreign company bias).

TECHNICAL – Changes in retailing methods as such clothes sales via the Internet is now a common place in retailing. Paperless operation, the management and administration of the company are undertaken on IT systems, which are accessed through secure servers; provide flexibility in the running of the business. As Sweden is at the forefront of technological advancement with national companies like Ericsson, Tesco would enjoy the comprehensive logistic and distribution channels already in place.

LEGAL – National legislation for health and safety both in terms of consumer rights and also in terms of production of own natural renewable resources for making clothes.

ENVIRONMENTAL – The renewable source of resources used in production, namely cotton and wool are environmentally friendly. The threats are in terms of legal consequences for livestock’s in terms of health and safety.

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Market Entry Strategy

We can use Ansoff’s product/market matrix to identify directions for Tesco’s strategic development. This matrix offers directions for strategic option available to Tesco in terms of products and market coverage, taking into account its strategic capability and also expectation of stakeholders

Source: Johnson, G., Scholes, K., Whittington, R., (2005)

We can see from the Ansoff Matrix that Tesco’s lunch of Baby wear in Sweden will involve a market development strategy. As Tesco already sells kid’s clothing (existing product) but Sweden will be a new market. Both capability and market consideration has driven Tesco to into development into new markets. Kid’s clothing is a product that can be exploited in other market segments and also geographical spread internationally. Tesco may encounter some difficulties around creditability and expectations as they attempt to enter the new market. Tesco may not be seen as a credible ‘mainstream’ supplier.

Tesco Plc Target Customers

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Tesco must decide which market segment in Sweden it wants to target; this will subsequently determine its generic strategy. If it wishes to with the low cost retailers then it must adopt a cost leadership strategy. Otherwise it will have to look for differentiation so that it can charge premium prices at the high-end market. As the competitive rivalry in the low cost market is intense, Tesco should enter the high-end market with a differentiation strategy. However, before Tesco decides on its target customers, we need to conduct a market analysis, in terms of size of the baby clothing market in Sweden, market shares of all the existing firms in the market and finally segments within the market, to identify particular segments, so that Tesco can target these and adjust its marketing.

Marketing Objective

Tesco could have the following objectives:

• Profitability, in terms of operating margin (a 10% target)
• Swedish Market share (a 20% target)
• Customer advocacy (the number of customers who recommend Tesco branded clothing, repeat business)
• Respected company (the number of community stakeholders who respect Tesco)
• Employee motivation (the number of employees who feel motivated to deliver Tesco’s goals)

Tesco must ensure that it sets ‘SMART’ marketing objectives that are measurable, time limited, attainable and relevant.

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Marketing Strategy

Tesco’ strategy is clear, with growth being pursued from four areas – the core UK grocery business, non-food, international expansion and retailing services such as financial services, the dotcom business and telecommunication packages. Basically, Tesco is using its strong stable core to keep the business ticking over while it forges new riskier areas of growth. Pushing further into non-food in the next phase (Johnson, G., Scholes, K., Whittington, R., (2005)). Lidl is currently “destroying” the market by selling the products below cost price. Therefore, Tesco’s generic strategy will have to be cost leadership, unless we can successfully differentiate our line of clothing so that we can charge a premium price.

A marketing strategy will involve analysing the markets, and which products to offer. The strategy is implemented through marketing tactics, which involve detailed decisions about factors such as the price and the way the product is distributed. So Tesco must decide on its model of entry in terms of, own stores, Internet selling or joint venture with an existing national retailer.

Activity Plan

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1. Market Research
2. Market Analysis (including demand for baby wear)
3. Mode of Entry
4. Marketing Mix Decisions (Place, Price, Product, Promotion) decisions
5. Methods of promotion – advertising, public relations, direct mail, sales promotion and personal selling

Profit & Loss account

Measurement & Controls

Tesco must also have in place both financial and strategic controls. Financial controls are in terms of profit targets, capital bids and performance appraisal. Strategic controls in terms of overall strategic balance, agreed business plan, optional services and infrastructure and any short-term constraints such as human resources.

Contingency Plan

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The contingency plan must be in place to ensure that if the product fails having made large capital investments in new store, Tesco must have other products within its portfolio, which it can launch.

References and bibliography

1. http://www.forbes.com

2. Johnson, G., Scholes, K., Whittington, R., (2005) Exploring Corporate Strategy Text and Cases, 7th Edition, FT Prentice Hall

3. http://www.hoovers.com/nike/–ID__14254–/free-co-factsheet.xhtml

4. ACCA Paper 3.5 Strategic Business Planning and Development (2001) The Financial Training Company
5. M.E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, 1985
6. Jeannet, J., Hennessey, D.H, Global Marketing Strategies, 6th Edition, Houghton Mifflin