1. Apply a marketing audit framework to complete an internal and external environmental review using selected criteria for evaluation. From this analysis, which could be tabulated, a well-conceived SWOT is required to assess and summarise the current position.
2. Analyse Market Attractiveness, Market Segmentation and market targeting, Impactful brand value propositions to secure a competitive position, specific, relevant marketing mix plan for next 3 years to build customer loyalty and Marketing Resource requirement.
3. Analyse revenue growth forecasts together with the source of revenue streams link back to the market segments. The impact upon cash flow must be considered as well as profit contribution over the next three years. If appropriate, break even should be featured as a basis for illustrating cash flow and profit contributions.
Tesco considers its marketing audit a fundamental part of carrying out its marketing planning process. The company does not conduct it only at the beginning of its marketing process, but also at various other points during the implementation of the entire plan (Brand Finance, 2014). Tesco takes care that its marketing audit considers both internal and external market environments and their on its marketing plan. This marketing audit has been prepared and completed in a way that it provides a great opportunity to Tesco to thoroughly review and appraise its entire marketing activity or plan, enabling the company to efficiently assess its past and present performance, as well as provide it the basis for evaluating and gauging all possible future courses of action say for over a period of next three years. Since the business environment is constantly changing and developing, this marketing audit is an effective reference tool for Tesco, with endless updates highlighting changes ups and downs in the external business environment and its own internal business experiences and environment as a whole (Brand Finance, 2014).
No doubt, there are endless internal and external factors that are to be considered for the success and growth of a business. The audit framework consisted of both SWOT and PESTLE analysis.
PESTLE analysis has been used to gauge the external macro environment of Tesco (Blythman, 2012). It involved scanning of the following external factors:
Political Factors: Tesco operated in a globalized environment and has stores across the world. The organization’s performance has always got highly influence by the various political, as well as legislative conditions of all the countries that it operates in (Drejer, 2000). For employment rules and regulations, the government has always encouraged retailers so as to provide a plethora of job opportunities from highly flexible, low paid and locally based to greatly skilled, high paid and ventrally located ones. Also, to meet the demands of the diverse target groups, the audit has carefully considered the political factors. Tesco completely understands that retailing – being an the impact of retailing on jobs and people factors is great integrally local and labor intensive sector, has a deep impact on jobs and people factors (Finch, 2004). And so, the company recruits a large number of people from different categories of population on the basis of age, sex, etc. This is why the analysis of political factors has been done as part of this audit.
Economic Factors: These factors have been considered because these are of great concern to Tesco perhaps since they influence demand, prices, costs and profits. The audit carefully analyzed these factors because their effects on marketing mix and performance of the company can be profound. The economic factors are very important to be analyzed, especially for a company like Tesco as it is highly dependent on the UK market and hence would be badly affected by any slowdown in the UK market (Bunn & Ellis, 2014).
Social/Cultural Factors: These factors have been carefully analyzed as part of the PESTLE analysis framework. The shopping trends of British customers have witnessed a great change due to a variety of social changes (Flavián, 2010). The socio-cultural factors have been considered to gauge the all these trends and hence enable Tesco to build a marketing plan in accordance with the socio-cultural changes. The analysis of these factors would enable Tesco focus on added value products and services.
Technological Factors: Since technology is one of the major macro-environment factors that have greatly influence the development of numerous products and services of Tesco, the audit focused onto these factors so that it is easy for the company to assess its past and present performance, as well as provide for evaluating and gauging all possible future courses of action say for over a period of next three years (Graiser, 2004).
Legislative Factors: The government legislations and rules have always had a direct impact on Tesco’s performance. The legislative factors have been considered in the marketing audit so Tesco could implement effective policies in future and develop a highly productive marketing plan.
Environmental Factors: All the environmental factors were efficiently analyzed so that Tesco acts in a way which benefits the society overall. The analysis of environmental factors as part of the market audit will enable Tesco to develop a marketing plan that is in sync with the sustainable development and hence minimize the environmental damage (Bunn & Ellis, 2014). Hence, the analysis would help the organization in developing and advertising the products and services in a way that they do not harm the environment and no extra tax has to be paid (Johnson, 2003).
The various external and internal environmental factors that have been reviewed as part of this audit are the following:
Since Tesco is a market oriented organization. The following things were analyzed as part of the audit:
A. Analyzing the nature of Tesco’s customers
1. The nature of customer segmentation, targeting and positioning in its market
2. Customers perception of Tesco
3. Needs of the customers and how to satisfy them
4. Consumer behaviour and their buyer decision process
5. What customers value and how could Tesco provide that value
B. Analyzing the nature of competition in target markets of Tesco
1. Number or concentration of competitive brands
2. The competitors’ marketing plans and strategies
3. Strengths and weaknesses linked with the competition
4. Competitors’ level of profitability
C. Analyzing the cultural level of environments
1. Beliefs and religions
2. The standards of people and average levels of literacy
3. Changing shopping trends of target consumers
4. Lifestyles of target customers
5. The nature of consumerism in target markets
D. Analyzing the demography of target customers
1. Average age of target customers
2. Levels of population
3. Gender makeup of the target group
E. Analyzing how technology plays a role among customers
1. The way in which the goods are manufactured
2. Information systems available
3. Levels of adoption of mobile and ITs among the target consumers
4. Uses of marketing and technology in effective market communications
F. Analyzing the economic conditions of Tesco’s target markets
1. Taxation policy in target market
2. Levels of average disposable income
3. Economic indicators such as interest rates, inflation levels, level of unemployment, etc.
G. Analyzing if the legal andpolitical landscape changing in any way
1. Levels of regulation such as tariffs.
2. Laws and regulations
3. Labor laws, etc
The factors that were considered to analyze the internal market environment are:
A. Analyzing the resources that Tesco has at hand, i.e. the five ‘M’s
1. Men i.e. the labor and its productivity
2. Money i.e. the finances
3. Machinery i.e. all the equipment
4. Minutes i.e. the time and time management
5. Materials i.e. all the factors of production
B. Analyzing how the market team is organized at Tesco
C. Analyzing the effectiveness and efficiency of Tesco’s marketing team
D. Analyzing how the internal functions are carried out
E. Analyzing the effectiveness of the company’s Customer Relationship Management (CRM)
F. Analyzing the state of the company’s marketing planning process
G. Analyzing the effectiveness of Tesco’s customer facing processes
H. Analyzing the nature of the customer care service being provided by the company
I. Analyzing how profitable the company’s product portfolio is
J. Analyzing the company’s pricing strategy
K. Analyzing the state of Tesco’s physical evidence
L. Analyzing the strength of Tesco’s communication processes and effectiveness
As per above marketing audit, SWOT analysis can be carried out for Tesco. By definition, SWOT analysis is a structured planning carried before initiating any marketing activity (Clarke, 2012). It involves examining strengths, weaknesses, opportunities and threats involved in the project or activity to be undertaken by the company. Identification of SWOT is highly crucial since it helps the marketers at later stages to plan the objective. Objectives can be attainable depending on the SWOT analysis. If marketers feel that objectives are not attainable as per SWOT then a different objective can be set (Clarke, 2012).
S (Strengths): Tesco is one of the powerful brands across globe. The presence of the company has rapidly been expanding by opening of various stores. Statically, Tesco has around 6784 stores across different countries. The company offers complete customer satisfaction, value for money and is sensitive towards issues of customers. The business models adopted by the company are highly innovative. These include starting up of ventures such as Tesco Metro and Tesco Express. These small stores provide easy option to customers to do shopping of diverse products. The company made it a point to open different stores in every locality so that customers don’t have to move far away to get the products of daily use (Lindgreen, 2003). Apart from this, Tesco has also tried hand in global operations such as online shopping, joint ventures with other companies etc. One of the plus points for Tesco is that company can easily buy bulk and can offer products at affordable rates. Hence, the company is highly strengthened.
W (Weaknesses): Tesco has been operating in various industries such as food, clothing, furniture, petrol etc. Its diversified approach has been its weaknesses. The company offers its customers the convenience to pay through credit cards. Tesco has been impacted badly by bad credit card histories and unnecessary insurance claims. Secondly, the company lacks experience in some industries due to which it has not been able to be successful in all the industries, it operates in. For example, Tesco also deals in manufacturing tablets and Smartphone, it is a weak point for the company since the company doesn’t possess much experience in this field. Thirdly, the company has to invest in web technologies in order to minimise price reduction strategies (Collins, 2010).
O (Opportunities): Besides strengths and weaknesses, Tesco enjoys number of opportunities as well. The company can expand in fields such as digital entertainment and its investment in manufacturing its own Smartphone and tablets can be one of the plus points for this. Secondly, the concept of online shopping started by Tesco can offer greater convenience to people who are leading a fast life and don’t have time visit retail stores. As a result, Tesco is making efforts to expand their operations in this sector. Alternatively, in case of recession or financially unstable times, the company provides cost effective products to customers at maximum value. Thirdly, the company can also consider expanding in Australian market where competition in grocery retail market is comparatively low.
T (Threats): Any company with numerous strengthens, weaknesses, and opportunities is likely to face many threats as well. Being a global and leading player in retail market, the company is targeted by local and other global players such as Sainsbury’s, Morrison’s etc. Secondly, the takeover of Asda by Wal-Mart is a threat for Tesco. Alsom Wal-Mart has latest skills, experience and personnel as compare to Tesco to deal with challenges of dynamic business environment. Hence, consumers in UK are more inclined towards Wal-Mart than Tesco.
This SWOT analysis can provide an opportunity to marketers at Tesco to set marketing objectives as per the analysis. Besides this, it helps marketers to examine any risks involved in marketing campaigns (Felgate, 2011). Once risks are examined, marketers can adopt relevant measures to mitigate those risks and run marketing campaigns effectively. Strengths and opportunities must be considered in order to set clear objectives while threats and weaknesses must be considered in order to make sure that marketing campaign includes the steps to address them. In spite of this, Tesco is all set a benchmark in the retail industry and focus on innovative business models.
Market attractiveness: The ample number of opportunities provided by market makes it an alluring option to pursue the market opportunity. The field of groceries, departmental store products and merchandise retailing span over a great variety of products/services which makes TESCO the highest shareholders of the market with the market amounting to one third in the United Kingdom. The market opportunity of opening a new store can serve as a great chance of expansion and help the company carve out a space for itself in the heat of the customer where TESCO might not have ventured previously. Once this market opportunity gets successful, it offers more than several benefits to TESCO be it from the economic angle, the business point of view or the social aspects. This is a field which is never ending and newer up gradation would keep on garlanding the industry with each coming day. In the days of a specific event; be it a sporting fest, a cultural celebration or a local festival (Hall, 2011). The ease of business plays an important role in the attractiveness of the market because the legislative, political and economic policies determine the way out for utilizing the market opportunities by which the intended expansion can be realized.
Market segmentation & market targeting: Choosing a specific market is very crucial for maximizing profit from any market opportunity coming in the way for TESCO. As TESCO operates in varied amount of products and services like its groceries being found in smaller clusters called Superstores then in TESCO metro and increasing higher in the form of TESCO extras which are a larger store for sales. The specific markets are needed to be targeted where the purchasing power of the customer suits the type of TESCO stores so that the financial capabilities and profits may catch up with the intended expansion and the company can run its business successfully. A poorly targeted market can backfire and not only the market opportunity will be wasted but it can also incur losses instead of profits. This also means that the type of products which can introduce must be of the specific type which caters to the need of the customers (Koen, 2011). As many developing nations have a large consumer base but still smaller stores are preferred most of the times. So market segmentation has to be done on those specific lines only.
Impactful brand value proposition to secure a competitive position: When a market opportunity is to be utilized, there are already many competitors which are present in the market and have created a customer base which is loyal to them since long. Carving out a space for TESCO is an uncompromising task which requires lot to be done. The only way to achieve that is strengthening the brand value by which the name TESCO itself can propel the customer base to get inclined towards the products (Kotler, 2013). The reputation of the company is determined by its brand value itself. When a strong brand value is accomplished, the position in the market grows by which TESCO can attain a promising stature. This will not only help to get a respectable market share but also helps lead the competition.
Specific, relevant marketing mix plan for next 3 years to build consumer loyalty: The conventional concept of Shimizu’s four Cs stating commodity, cost, communication, channel still holds good for building consumer loyalty. Alternatively, the concept of four Ps price, product, promotion, and place by McCarthy can be used for TESCO to utilize the market opportunity available. The company has been serving the customers since 1919 which testifies the path it has covered (Ma, 2013). In McCarthy’s model, the product has to be as per the customer needs which will draw more customers to the stores and put a direct impact on the sales which would promote the sales. This concept of product also has to take into account the local tastes which can act as another factor to boost up the product sales. The pricing is to be optimistic and if products need to be customized for matching the pricing constraints, even that can form a part of the marketing mix plan. The next P comes as promotion which refers to advertising and maintaining public relations in order to reach out to wider consumer base by promoting the products and stores (Ma, 2010). The last element of four Ps is place which indicates the wider geographical distribution of it and this is the major aim to be achieved by opening a new store because it will enhance the distribution, franchising also can be employed for this purpose. The four Cs model takes communication instead of promotion emphasizing that it is a form of dialogue and establishes a channel instead of just promoting the product or services.
Marketing resource requirement: Advertising forms the backbone for marketing TESCO products and services. As the operations have been taken to more than 10 countries situated in the continents of Asia and the Europe (Piercy, 2010). TESCO is the topmost business house in The Republic of Ireland, Hungary in central Europe and countries like Malaysia and Thailand in Asia. The concept of marketing has acquired newer shapes and to cater to the needs of these many nations, marketing through media requires to be concocted with marketing through social media. The satellite offices in these nations can serve as a beacon for expansion in these countries because they offer various types of consumers (Piercy, 2010). The marketing today requires intelligent investment as it is growing as an industry in itself which is becoming country specific in selling groceries and merchandise. Expanding by opening a new store would ask for marketing staff to work upon the induction of the brand in the list of already existing businesses in the area and research a way out by which it can be safely inferred that why TESCO store would stand out from the rest of the lot. The pouring in of reliable products and services at first will be further give a positive sign because at the outset, the customers may take the products and stores as a pilot project. The conventional marketing strategies and tie ups will be required (Retail Economics, 2014).
Revenue growth forecasting forms a part of the revenue management of TESCO in the light of market opportunities. The larger process involves gathering of information about the stores, sales and costumer statistics (Ruddick, 2014). The segmentation of market discussed in above mentioned topic comes next which subdivides the customers and classify them on the basis of purchasing power to some specific products or services of TESCO. The revenue growth forecasting can be done on the basis of certain parameters like demand, the availability of stocks, the share in the industry and the gross market. As it is a crucial part of business, it takes time to develop and be carried out. There are certain models which are to be used for this purpose like the graphical curves, cancellation curves etc. Coming to the quantitative analysis of revenue forecasting, as reported by Ken Perkins in January 2015, TESCO share increased by 10% and its U.K. like-for-like sales (excluding fuel) declined 2.9% in the third quarter but it has actually shown an improvement because in last quarter, it had declined by 5.4%. Now this decrease in decline had been seen because of multi-channel development by TESCO (Schiraldi, 2014). This growth can be reiterated by TESCO in the market opportunity like when opening a new store as well. The market segmentation comes into play for making this forecast which decide the priorities and preferences of the customer and also propel the company to formulate strategy for maximizing the profit. Now lets the case that the market opportunity is a newly opened store which falls in the category of TESCO EXTRAS. This store houses all types of products which are sold by TESCO. The segmentation can be done by cluster analysis, latent class analysis or neural networks. When the market is segmented on demographic or geographical basis, the sales of products which are customized to needs of the consumers increases rapidly. The revenue curve goes up for those certain products of TESCO in the specified time period (Stevenson, 2014). The segmentation which is based on the benefits makes division among the customer groups (or businesses, country group) also indicates increase in revenue for the next 3 years. Now there can be several other indications which forecast a positive growth for the revenue for the company in such a market opportunity when a new TESCO Extra store is intended to be opened (Tesco plc, 2014). As it is a reputed brand and has been the leading seller in the markets in Ireland and other countries, the customer base will have a general inclination towards the brand name for the new store but it requires to be tapped in such a way that the customer base is not only created in the form of new customer but also retained forever in order to run the business on profits.
The cash flow is definite to go up for the next three years which will make a profit for TESCO when the sales would be increased. Now opening a new store means the distribution will get a boost because one of the aspects of four Ps is place which means that geographical center will be increased and it will lead to enhancing of outreach (Thompson, 2012). This will also mean that the cash inflow which was previously targeted towards the local market or other companies which sell the same products or services as TESCO extra will be selling to the customers. This will also mean that the cash inflow which was previously targeted towards the local market or other companies which sell the same products or services as TESCO extra will be selling to the customers. This cash inflow is also likely to step up if the products are not regularly available or the price range which is being put up by the old stores and sellers is not well suited to the larger chunk of the customer base. When discussing about cash inflow or profit contribution, it is important to focus on the break-even point. It is an important link of the chain in evaluating the impact upon cash flow and profits over the next 3 years for TESCO (Wood, 2014). The importance of break-even can be realized from the fact that it emerged as a concept of economics and pertained only to the financial world but today it is being widely used for different fields. Basically, the break-even point is a sort of threshold which is said to be achieved when the cost or the expenditure becomes the same as the income before making any deductions. This will make both of them levelled and hence, break-even is shown graphically as the point where the cost and the revenue line intersect at the same point and in theoretical terms, it is measured by dividing the fixed cost by the contribution margin per unit (Wood, 2014). According to Fundamentals of Corporate Finance by Brealey, R., Myers, S., Marcus, A., Maynes, E., Mitra, D. value add break even analysis is a more preferred analysis because it takes into consideration all costs along with the investment required to be put in for developing a project. In the instant case of TESCO, there will be certain costs which are to be incurred by the company for utilizing the market opportunity. First and foremost is the infrastructural development and recruitment of staff. Then the training required to make the personnel acclimatize with the business so that the opportunity can be utilized to the fullest also adds up to the cost (Balchin, 1994). The former is usually a one-time cost but the latter is ongoing which has to be clubbed with the cost of running the business in the usual course of time. This all adds up in the value added break-even point method and the cash flow are to be compared against the expenditure. Now as the period given is three years, it involves 12 quarters and as per the trends the profit is likely to flow as the cash flow will increase and in such a period of three years, the revenue will outweigh the costs which had been incurred initially and also the running costs of the business of TESCO (Clarke, 1992).
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