CASE STUDY

Tesco: Corporate Level and Business Level Strategies

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 Table of Content
Item Components Page
1 Introduction
- Tesco History 4
- Vision and Mission 5
2 Background of Tesco Stores (Malaysia) Sdn Bhd 6

3 Evaluation of current corporate level strategies 7

- Low Price Strategy 8

- Customer-focused Strategy 8

- Growth Strategy 9

- Differentiation Strategy 11

- Competitor Analysis 14

- SWOT Analysis & SWOT Matrix 15

- Key Success Factor & CPM Analysis 20

4 Evaluation of current business level strategies 22

- Cost Leadership

- Market Development

- Product Development

- Market Penetration

- Industry Analysis: PESTEL Framework 24

- Industry Analysis: Porters 5 Forces 27

- BCG Matrix & CPM 30

5 Conclusion and Recommendation for Improvement 32

6 References 36

7 Appendix 39

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INTRODUCTION
Tesco History

Tesco was founded in 1919 by Jack Cohen from a market stall in Londons East End.
Today it is one of the largest retailers in the world. Tescos core business is retailing in the
UK, which provides 60% of all sales and profits. Tesco has the widest range of food of any
retailer in the UK. Its two main food brands are its Finest and Everyday Value ranges, each
sell over 1 billion per year.

The position of Tesco as a leading global brand is clearly shown by its expansion of
operations into 12 countries including China, Czech Republic, India, Malaysia, Ireland,
Hungary and Poland. In 2013, Tesco employed more than 530,000 employees. This level of
success does not happen by chance. Tescos leaders have always set high standards and
clear goals, never settling for anything less than the best.

Tescos Every Little Helps philosophy puts customers, communities and employees at the
heart of everything it does. It prides itself on providing a great shopping experience for
every customer it serves, whether in stores, online or in its many other services.

Tescos core values include a commitment to using its scale for good by being a
responsible retailer. In 2010, it opened the worlds first zero-carbon supermarket in
Ramsey, Cambridgeshire and was awarded Green Retailer of the year at the Annual Grover
Gold Award 2012. Tesco aims to be a zero-carbon business by 2050. Tescos continuing
success depends on it reevaluating and formulating clear business strategies. Tesco aims to
enhance customer loyalty and its core UK business in order to help it develops better
shopping experience for its customers. It committed 1 billion to an investment program to
achieve this. Strategies to improve competitiveness were then developed. The driving
forces behind these strategies are price, quality, range and innovation as well as delivering
excellent multichannel customer service, for example through its Click & Collect service.

This case study examines Tesco strategies, the reasons behind each component and how
vision, aims and cultural value interrelate to make the strategies successful.

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Vision and Mission

Companies like Tesco, that enjoy long-term success, are focused businesses. They have a
core vision that remains constant while the business strategies and practices continuously
adapt to a changing world. In an increasingly competitive global environment, without a
clear vision a business will lack direction and may not survive. Tesco has a seven part
business strategy to help it achieve its vision.

A vision is an aspirational view of where the business wants to be. It provides a

benchmark for what the business hopes to achieve. Tesco is a company built around
customers and employees. Its vision guides the direction of the organization and the
strategic decisions it makes. Tescos vision is To be the most highly valued business by
the customers we serve, the communities in which we operate, our loyal and committed
employees and of course, our shareholders.

Tescos vision has five elements which describes the sort of company it aspires to be.
These are to be:
- wanted and needed around the world
- a growing business, full of opportunities
- modern, innovative and full of ideas
- winners locally whilst applying our skills globally
- inspiring, earning trust and loyalty from customers, our employees and
communities

The vision, mission statement and goals are interrelated and state what an organization is
seeking to achieve whereas the strategies and tactics show how it will achieve them.
Tescos mission is simple: We make what matters better, together.

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BACKGROUND OF THE COMPANY

Tesco Stores (Malaysia) Sdn Bhd

Tesco Stores (Malaysia) Sdn. Bhd. was incorporated on 29 November 2001, as a strategic
alliance between Tesco Plc UK and local conglomerate, Sime Darby Berhad of which the
latter holds 30% of the total shares. Tesco opened its first store in Malaysia in February
2002 with the opening of its first hypermarket in Puchong, Selangor. Tesco Malaysia
currently operates 49 Tesco and Tesco Extra stores nationwide.

In year 2003, Tesco launched Tesco own brand, Tesco Value. In 2004, Tesco Malaysia
launched its own house brand, Tesco Choice. In December 2006, Tesco also acquired
Makro Cash & Carry in Malaysia, a local wholesaler which was rebranded to Tesco Extra
and provides products for small local retailers.

In 2007, Tesco launched customer loyalty card, ClubCard. Club card has received an
overwhelming response from customers with over 2 million household members signed up
to date. As of January 2009, Tesco have rewarded nearly RM10 million worth of Club card
Cash Vouchers to the customers. Later in year 2008, Tesco introduce Green Club card and
Green bags making Tesco Malaysia to be the first Tesco International business to introduce
the Green Club card scheme. Tesco launched Green Clubcard Points to incentivize
customers shopping with their own bags, introduce degradable carrier bags, promote
positive behavior among employees through Energy League competition and a recycling
centre to facilitate customers to do their part for the environment.

Tesco PLC has appointed George Fischer as the new Chief Executive Officer for Tesco
Store (Malaysia) Sdn Bhd in January 2013 to replace Do Sung-Hwan. Prior to this
appointment, Fischer was chairman of the management board of the Belgian operations of
Lidl Stiftung & Co, a global German discount supermarket chain.

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EVALUATION OF CURRENT CORPORATE LEVEL STRATEGIES

Tesco has a well-established and consistent strategy for growth, which allowed Tesco
Stores Malaysia Sdn Bhd (Tesco Malaysia) to strengthen core business and drive expansion
into new markets. The rationale for corporate level strategy is to broaden the scope of the
business to enable it to deliver strong sustainable long-term growth by following the
customer into large expanding markets at home such as financial services, non-food,
telecoms and new markets development in Malaysia. Tesco Malaysia adopted few
strategies to survive and sustain in the market. The few strategies are:

1. Low Price Strategy

i. Everyday Low Price

2. Customer-focused Strategy
i. To create value for customer to earn their lifetime loyalty

3. Growth Strategy (business product development)

i. Club Card scheme
ii. Green Club Card
iii. Own brand value
iv. Plug n Pay service

4. Differentiation Strategy
i. Core UK business
ii. Non-food business
iii. Community
iv. Personal Finance

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Low Price Strategy
Everyday Low Price

An Every Day Low Pricing (EDLP) is a pricing strategy of Tesco is more popular with
shoppers than one driven purely by promotions, according to a survey in the UK. Tesco
Malaysia is the first hypermarket to launch a long-term EDLP campaign in a bid to address
the rising cost of living. Pricing was a key strategy and selling point for Tesco. They have
invested about RM40mil for the campaign to be able to reduce prices up to 30%. Low
prices were adopted to maximize sales. Tesco's value-added products at low prices attracted
many customers. After the launch of 'unbeatable value' campaign in 1996, Tesco went into
massive price reductions. The company adopted the strategy of 'Everyday Low Pricing'
(EDLP), while continuing its other promotional activities. Adopting the EDLP strategy
demonstrated Tesco's commitment to its customers, putting customer interests first. This is
also a competition between companies. EDLP is essentially an advertising strategy to
attract more customers to buy their products. It is mostly seen on food stuff.

Customer-focused Strategy
Create value for customer to earn their lifetime loyalty

The core purpose is to create value for customers to earn their lifetime loyalty. Everything
Tesco did, every innovation they bring to the market, every business decision they take, is
driven by the customers. The underlying aim is of course to make higher profits, but there
is a clear focus on customer service at the top level of the company. Tesco must be able to
maintain this focus that it is widely perceived as a great corporate success story and the
dominant company in Malaysian retail market. Otherwise, it will succumb to corporate
arrogance as sometimes happens to dominant companies. Tesco believes that by living by
the values, they will encourage and demonstrate behavior that will help them achieve the
core purpose and set them apart from the competitors. Values enable them to build a
common way of working. They want people in the business feel comfortable with these
values and feel they can genuinely demonstrate them. They aren't about being soft and
lovely, but about being rigorous and single minded about how they achieve their goals.

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Growth Strategy

Club Card scheme

Tesco Club card membership scheme allows customers to save money on shopping
by providing them price-off vouchers. Customers get points on money spent at any stores
of Tesco group of companies as well as at stores of their partner companies. The
accumulated points will be converted into Club card vouchers which enable the customers
to save money on shopping. One can argue that other retailers also have similar loyalty
programs. However, while most loyalty schemes and relationship marketing strategies
similar to Club card have often failed for other retailers, Tescos Club card has worked well
and managed to succeed. It can be said that what has made Club card work so wonderfully
for Tesco is the fact that with this simple single loyalty scheme, Tesco has been able to
address to the customer segments of different age groups. The main reason behind the
success of Tescos relationship marketing strategy and loyalty program has been the way it
has managed to establish Club card not as a marketing tool but as a product of relevance
and value for the customers.

Green Club Card

Green Clubcard points are earned when customers re-use bags when shopping in store one
point per bag, or opt out of receiving bagged products when shopping online one point per
ten items delivered. They can also earn points by recycling a limited number of products,
currently mobile phones and ink cartridges, through Tesco-branded recycling services.
Green Clubcard points are equal in value to normal points, but are listed separately on
receipts and Clubcard statements. As part of its global commitment, Tesco Malaysia is
market leading on tackling climate change agenda around energy saving initiatives,
degradable carrier bags and Green Club card Points scheme to encourage customers
shopping with their own bags, Tesco also introduced its Green Club card League and Green
Club card Champions to promote positive behavior among staff through inter-stores Energy
League competitions and opened 6 recycling centers to facilitate customers to do their part
for the environment.

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Own brand value

Own brand value portrayed the strong brand image of TESCO based on effective strategy.
Tesco is very good at using design across their own label, especially strategically. Tesco is
often used as one of the best examples of own brand label in the retail industry. Majority
of consumers buy the basic Tesco brand as it is cheap and good value for money. The use
of Tesco logo is consistent in each of the products design. Brand values of Tesco are
successfully throughout Tesco own brand ranges demonstrated through experience and way
finding system. Tesco uses design to give something back to customers for shopping at
Tesco. As competition is so intense, retailers such as Tesco use design to differentiate from
the competitors.

Plug n Pay Service

Tesco Malaysia has taken grocery shopping to a different level with the launch of Plug n
Pay service in October 2014. This is to facilitate payments for home delivery of goods
bought online. Plug n Pay by CIMB is Malaysias first chip-based mobile point-of-sale
(mPOS) solution that offers businesses of any size an affordable yet secure way to manage
electronic payments using smartphones and tablets.

This is how it works: Tescos Customer Delivery Assistants plugs in the portable Plug n
Pay card reader into their mobile devices, which would then accept credit and debit cards,
and safely facilitate payments for goods delivered. Customers would be issued electronic
receipts immediately via email or SMS upon confirmation of a transaction.

Tesco Malaysia was the first hypermarket to come up with the online payment method in
Malaysia, with a selection of 18,000 fresh produce and grocery items. Since the launch of
online shopping service in 2013, Tesco Malaysia have more than 150,000 registered online
shoppers in the Klang Valley, Johor Bahru and Penang.

The new electronic payment method will also enable Tesco to view real-time transactions,
track the location of transaction using the geo-location feature and user-detail management
via the mobile app and web-based Plug n Pay portal.

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Differentiation Strategy

The strategy to diversify the business was laid down in 1997 and has been the foundation
of Tescos success in recent years. The new businesses which have been created and
developed over the last decade as part of this strategy now have scale, they are competitive
and profitable. In fact, the International business alone makes about the same profit as the
entire Group did a decade ago.

Core UK business

The UK is the biggest market and the core of Tesco business. The aim is to provide all of
the customers with excellent value and choice. It has been innovative and energetic in
finding ways to expand, such as making a large-scale move into the convenience-store
sector, which the major supermarket chains have traditionally shunned. Tesco has 702
stores and is the largest food retailer in the United Kingdom. Tesco continue to increase
market share through their policy of cheaper prices, offering better value and providing
more choice and convenience for customers. Market share of the UK has grown steadily
since the early nineties as a result of our customer focused strategy

Non-food business

The aim is to be as strong in non-food as in food. This means offering the same great
quality, range, price and service for the customers as in the food business. Many
supermarket chains have attempted to diversify into other areas, but Tesco has been
exceptionally successful. By late 2004 it was widely regarded as a major competitive
threat to traditional high street chains in many sectors, from clothing to consumer
electronics to health and beauty to media products. Tesco sells an expanding range of own-
brand non-food products, including non-food Value and Finest ranges. It also has done
quite well in non-food sales in Malaysia.

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Community

Making Corporate Service Responsibility (CSR) integral to the business is essential in

applying our values as a responsible business. Tesco Malaysia believes it is also an
opportunity for growth and also is committed to stay close to the heart of the communities
Tesco Malaysia is part of. Tesco Malaysia responded and worked with many local
communities including NGOs such as the National Cancer Council (MAKNA) to raise
RM450, 000 through fundraising and Walk for Life series to raise cancer awareness. Tesco
has also raised funds for the Malaysian Nature Society through the sales of its designer
green bag and carrier bag sales and Walk for Schools donation to local primary schools.
Tesco Malaysias Charity partner of the Year 2010 is Nur Salam, and it aims to help
improve the quality of life for these children through customers and employees fundraising
activities at all its stores nationwide.

Personal Finance

Tesco has followed its customers into the growing world of retailing services, aiming to
bring simplicity and value to complex markets. Tesco Malaysia is making it easier for
customers at 22 of its stores nationwide to do hassle-free banking within 10 minutes
through Easy by RHB at Tesco stores, collaboration with the RHB Banking Group.
Following the successful launch of its first two financial products in January 2009, the co-
brand Tesco-RHB Credit and Debit Cards, there are now five new, instant banking
products being offered to existing and new customers expanding the range of products that
customers can access quickly and conveniently while shopping at Tesco. Whether it's
opening a savings account, applying for a credit or debit card, buying life and personal
accident insurance, arranging Amanah Saham Bumiputera financing or applying for
personal loans up to RM50, 000, everything is quick and convenient at Tesco. Background
checks and approvals are completed on the spot at conveniently located kiosks in Tesco
stores.

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Tesco Malaysia: Adoption of strategy

Tesco Malaysia: Corporate Strategies

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Competitor Analysis

In this retail industry there is stiff competition between hypermarkets. Names such as
Giant, AEON Big and Jusco are the biggest rival for Tesco Malaysia to compete in the
industry. This report will explain further regarding the Tesco Stores Malaysia rival.

Giant Hypermarket

In Malaysia, Giant has become synonymous with everyday low prices, big variety and
great value. This has been underscored by few surveys conduct in Malaysia, which showed
that Giant was perceived as the cheapest place, in Malaysia, to shop for everyday groceries
besides Tesco. Giant holds second biggest market share (24%) in retail industry in
Malaysia for the year of 2010 after Tesco (30%).

AEON (Previously know as Jusco)

In order to be successful, it is vital for a shopping centre to have the right environment and
tenant mix. Only then will customers be willing to spend endless hours here in pursuit of
activities that entertain and help them to relax. AEON provides laid back environment in
their shopping complex. Customers feel free to shop. They can also spend time with their
family eating at the food court provided by Jusco. Jusco holds 22% of market shares and
the third biggest after Tesco and Giant for the year of 2010.

AEON Big (previously known as Carrefour Malaysia)

AEON Big success is based on the talent and motivation of its staff. To increase efficiency
and competitiveness, and in order to improve as a retailer, the AEON Big is about to
transform themselves and redesign its organization, enhance synergies between sales
and purchasing, and create new relationships between head offices, countries and stores.
AEON Big still sustains in the market in Malaysia and has 15% of market share in retail
industry for the year of 2010.

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SWOT Analysis for Tesco Stores (Malaysia) Sdn Bhd

The SWOT Analysis shows that Tesco Malaysia currently has the resource capabilities to
successfully enter the market and is capable of implementing a market development
strategy. The report recommends that Tesco targets the high-end market segment with a
differentiation strategy. Success in companies that operate for marketing and profit
acquisition lies on the ability of the management in positioning and establishing the
products or services being offered. Furthermore, the ability of the company and its
management to compete and maintain a competitive edge among its competitors is another
basis to say that it is successful. The constant development and innovation on the product
line and the growing number of clientele also define the corporate standing of a company.
This report analyzes the strategic capability of Tesco Malaysia.

Strengths

The main strength of Tesco is its strong brand name and its valued customer service.
The company is far less integrated than the other big company that which makes them
more flexible compared to others.
Competitive prices strategy. The focused price cuts made it possible for Tesco to
draw in far more consumers via competitors along with catch the volume that backed
the bottom prices.
Strong hypermarket format. The expansion of new stores by adding space to existing
locations has contributed to the growth of Tesco supermarket. Tesco runs two type of
hypermarkets format - Tesco Hypermarket and Tesco Extra Hypermarket.
Tesco believe in direct marketing rather that via a middleman or agent.
Customer loyalty/relationship. Tesco obtained consumer loyalty or perhaps
connection simply by introducing Tesco Clubcard.
Tesco acquire Makro and convert it to Tesco Extra. Tesco operates similar to Makro
but more flexible. For example, Makro do not allow customer to buy in small
quantity, but Tesco Extra allow with higher charges than those buy in bulk. This way,
Tesco earn profit from SMEs, besides individual customers and family type of
customers.
Plug n Pay utilizes mobile point-of-sales (mPOS), the first in Malaysia.

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Weaknesses

Dependable on UK business. Business-model which Tesco uses approaches for the

Great Britain, instead for other world. This could be the weaknesses for Tesco
Malaysia to expand their business widely. Being a foreign brand hypermarket in
Malaysia, Tesco PLC has to adapt to local business. Although international business
is still growing, and is expected to contribute greater amounts to Tesco's profits over
the next few years, Tesco Stores Malaysia is still highly dependent on the UK market
(73.8% of 2003 revenues). Any changes in the UK supermarket industry over the next
year for example, will somehow affect the Asia market such as Malaysia.
Burden of higher advertisement cost. Since Tesco Stores Malaysia launched
Everyday Low Price campaign, all the cost including papers, printing, people,
distribution and marketing promotion has to be borne by Tesco.
High turnover rate of employees. Tesco experienced high turnover rate with their
employees especially in the Operation Department. Many of employees resign after
working one or two months. They need to hire and train new employees. The cost
of training and development for new staff is a burden to Tesco.

Opportunities

Tesco have ready customer instantly which come from low and mid-income
households. Households are increasing and everyone needs to buy household
products which creates a good demand.
Tesco can carry out a high degree of purchasing capacity to guarantee, that it has a
scale effect in its home brand line.
In 2008 Tesco mobile have grown million customers and it moved profitable status
suggesting further growth and development within this technological area can be
developed.
Explore new locations in Malaysia. This is in conjunction with their current strategic
plan which is to open up more stores.

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Threats

Stiff competition within industry. There are other major supermarket chains, such as
Giant, AEON Big and AEON in Malaysia competing alongside with Tesco Malaysia.
Changing in customer tastes. Customers tastes and preferences would change over
time. Tesco Stores Malaysia has to make sure they maintain their images and create
more value for customer. Sometimes, customers would assume that by buying low
price product, it will reflect the bad images of the products.
Global economic decline is the barrier and created an impact on Tesco business.
Some environmental factors such as climate changes, political issue, and taxes issue
can become a threat for Tesco.
Raising the costs of raw resources from both food and non food will crash general
profit boundaries.
Exporting restriction on some non food products to Far East location will decrease
profit margin.

SWOT MATRIX Strength Weaknesses

1-Today Tesco Malaysia is 1:Dependable on UK market

the clear market leader 2:Burden of higher
2: Started in 2007, Tesco advertisement cost due to
strongly expanded EDLP campaign
nationwide
by increasing investments in
emerging markets such
Kuala Lumpur, Johor Baru
and Penang.
3:An inclusive offer is
how Tesco describes its
aspiration to appeal to upper,
medium-, and low-income

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Opportunity
1:Recent trends, such as
health and wellness have
opened opportunities, even
in the saturated food
category. However, most
food retailers' growth is
expected to stem from non-
food items.
2:Tesco Malaysia is the first
hypermarket introduced
online shopping and online
distribution channels that
promised large growth
potential
3:Non-store retailing growth order to add more target
rates were expected to be
higher than store based rates, O1)
as online usage gained
popularity among Malaysian
consumers
customers in the same
stores.
4- Tesco regularly continues
to make acquisitions to
expand its business
5.Tesco is the most
customer-focused business
in hypermarket industry.
SO WO
1-Relying on its own 1-Tesco could use the
reputation and experience opportunities of online
and applying new distribution channel as the
opportunities such as beauty way for overcome the
and healthiness products weakness of the small scale
based could guarantee nature in order to get ready
success of Tesco in other to compete with major
industries( S1,O1) players in the
industry(W2,O2)
2-Tesco strongly expanded
overseas and as a market 2-Focus on healthy
leader n UK Tesco can used industries to recover the
the opportunity of the current weakness (w2o1).
internet to target the growth
of the potential customers
(S1,O2O3)
3- Tesco which is most
customer focused business
should grab the opportunity
to a new market segment in
market or consumers.(S5 ,
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 Threat
1: At the beginning of the
2007, Malaysian retail
market became more
competitive
2:While service offerings
today are quite similar, the
rivals' distribution strategies
differ significantly.
3:In 2008 competition
intensified as a price war
among these players emerged,
resulting in squeezed margins
and cost cutting. It is not
surprising that this also had an
adverse impact on the service
level these corporations
provided.
Defining the Key Success
ST WT
1-Tesco could use its 1-Regarding the pressure
dominance in expanding its exerted from foreign and
businesses in order to local rivals, Tesco,
penetrate a new market and should intelligently
minimize competitive managed itself, increased
advantages of its product diversification
competitors(S2,T3) and change some
procedures in order to cut
2-Tesco should continue the costs in order to stay
strategy of acquisition of its ahead in the industry and
small competitors in order to at the same time meet
neutralize their threat of demands of the industry
cutting prices (S4, T3) (W2T1T2T3)
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Key Success Factor
NO Key Success Case Facts
Factor
1 The stole appeals to wide reaching demographics across the country and
has built up a heritage of reliability and trustworthiness' which
Brand Value & Reputation

keeps shoppers returning to its stores.

Tesco was the first to Launch a Clubcard system. It was introduced in
1995 in the UK and 2007 in Malaysia. It has become the most popular
customer royalty card. Customers collect one Clubcard point by every
RM2 they spend in a Tesco store, Tesco Extra, or at Tesco.com.
Tesco Malaysia launched Plug n Pay services collaborated with
CIMB Bank. A whole new online shopping experience in Malaysia
using mPOS.

2 Tesco operates the world's largest food home shopping, provides

consumer goods, telecommunication and financial services online. As
of November 2006, Tesco was the only food retailer to make online
shopping profitable.

Tesco segments their shoppers from club card users. As soon as the
shopper uses the card online or in-store, product information is
IT Integration

automatically uploaded into Tesco database. Product information is used

to cross-sell additional products and services, such as food delivery.

Tesco Mutiara Damansara is the first to introduce online shopping

started in April 2013 and recorded 150,000 registered shoppers to-date.

Tesco paired its marketing strength with the expertise of existing

telecom operators. In October 2012, Tesco Malaysia has partnered
Samsung Malaysia Electronics to introduce Samsung World shop-in-
shop (SIS) concept retail experience to a hypermarket.

3 Draw goods from suppliers into regional distribution centers for

Management

preparation and delivery to stores. Tesco is extending this logistic

Supplier

practice to cover collection from suppliers (factory gate pricing) and

input to suppliers in a drive to reduce costs and improve reliability.

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Competitive Profile Matrix (CPM) Analysis

Key Tesco Giant AEON Big

SUCCESS Weight Rating Score Rating Score Rating Score
FACTORS
Brand Value 4 1.72 4 1.72 3 1.29
& 0.43
Reputation
IT 4 1.48 3 0.11 4 1.48
Integration 0.37
Supplier 0.20 3 0.60 3 0.60 4 0.80
Management
Total 1 3.8 3.43 3.57

Conclusion:
From the CPM analysis we can see that Tesco CPM value is 3.8 which is ahead of the
other competitors such as Giant and AEON Big. It is clear to know that Tesco is the
industry leader. From this analysis we can see that Giant is the closest competitors for
Tesco.

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EVALUATION OF CURRENT BUSINESS LEVEL STRATEGIES

Business Level Strategy is a plan which sets out how a business deploys its resources to
achieve its goals. The companys values set the tone for the decision-making process.
Generic strategies are characterized by an individual retailers response to the industry
structure. For a giant retailer such as Tesco, to obtain a sustainable competitive advantage
they follow one of three generic strategies, developed by Porter. Other than that, Tesco also
focus on market development and diversification.

Cost Leadership

Cost leadership is one in which Tesco can strive to have the lowest costs in the industry and
offer its products and services to a broad market at the lowest prices. This strategy is based
on Tesco ability to control their operating costs so well that they are able to price their
products competitively and be able to generate high profit margins.

Market Development

Joint development and strategic alliances by entering new markets like a new development
such as Ara Damansara, Puncak Alam etc, it can serve as a key growth driver of the
companys revenues and expansion strategy. Tesco interest in Malayis are likely to
continue growing as the markets are showing an increase in consumer spending and
increased trend towards retailing. These new markets are also demographically high
opportunity markets. In the case of Tesco, one of the successful alliances with the local
player is RHB bank, and with international player such as Samsung. It is considered as a
method of development and may be formed to exploit current resources and competence.

By entering into a joint ventures or partnership, in order to gain a larger economy of scale
and large market presence, Tesco will draw on the extensive local knowledge and operating
expertise of the partner whilst adding its own supply chain, product development and stores
operations skills to deliver a better shopping experience to customers.

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However, given the huge scale, potential and complexities of these markets, Tesco feels
that being the first is not necessarily and advantage. The success of the partnership will be
related to three main success criteria: sustainability, acceptability and feasibility.
Sustainability is about whether a strategy addresses the circumstances in which the
company is operating. It is about rationale of this expansion market development
strategy. Acceptability relates to the expected return from the strategy, the level of risk and
the likely reaction of stakeholders. Feasibility is regards to whether Tesco has the
resources and competence to deliver the strategy.

Product Development: Diversification

Johnson and Scholes (2003) believe that changes in the business environment may create
demand for new products and services at the expense of established provision. Ansoff
matrix also suggests that if new products are developed for existing markets, then a product
development strategy has to be considered by the management level of the company. In
expanding and diversifying Tesco product mix, it is crucial to implement internal
development when new products are developed. By following the changing needs of the
customers, Tesco introduced new product lines. This require more attention for R&D,
leading to additional spending. The retailing industry is experiencing overcapacity and
innovative services and products being the major competitive advantage. Therefore,
innovation is a major driver for Tescos product development. Tesco has exploited its
internal strengths and minimize the internal weakness in order to achieve sustained
competitive advantage.

Market Penetrations

The main objectives are to maintain or increase the market share of current products, secure
dominance of growth markets and restructure a mature market by driving out competitors
and increase usage by existing customers. Tesco maintains and increases its market share
by having a competitive pricing strategy, huge add campaigns showing this and sales
promotions.

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INDUSTRY ANALYSIS: PESTEL FRAMEWORK

Political Factors

Operating in a globalized environment with stores around in 12 countries worldwide,

Tescos performance is highly influenced by the political and legislative conditions of these
countries.

For employment legislations, Malaysian government encourages retailers to provide a mix

of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled,
higher-paid and centrally-located jobs. This includes job opportunities to meet the demand
from certain population categories such as students, disabled, working parents and senior
citizens. In an industry with a typically high staff turnover, these workers offer a higher
level of loyalty and therefore represent desirable employees.

Economical Factors

Economic factors are important because they influence demand, costs, profits and prices.
One of the most influential factors is high unemployment levels, which decreases the
effective demand for many goods, affecting the demand required to produce such goods.

These economic factors are mostly outside the control of the company, but their effects on
performance and the marketing mix can be profound. Even though international business
is still growing in Asia especially in Malaysia, and is expected to contribute higher amounts
to Tescos profits over the next few years, the company is still highly dependent on the UK
market. Therefore, Tesco would be badly affected by any slowdown in the UK food
market and are exposed to market concentration risks.

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Social Factors

Current trends indicate that customers have moved towards one-stop and bulk shopping.
This is due to a variety of social changes. Therefore, Tesco have increased the amount of
non-food items for sale.

Demographic changes in Malaysia such as the aging population, a decline in home meal
preparation and an increase in female workers mean that Tesco is also focusing on added-
value products and services. Additionally, the focus is now towards the supply chain, own-
label share of the business mix and other operational improvements which can reduce costs
of the business. Tesco also allows on their selves major local brand products supplied by
entrepreneurs to support Malaysian brands. The type of goods and services demanded by
consumers is an indicator of their social conditioning and their consequent beliefs and
attitude. Consumers are becoming increasingly aware of health issues. An example of
Tesco adapting its product mix is to accommodate an increased demand for organic
products.

Technological Factors

Technology is a major macro-environmental variable which plays a big role in the

development of many of Tesco products. The new technologies benefit both customers and
the company. Customer satisfaction rises because goods are readily available, services can
be personalized and shopping more convenient.

Tesco stores utilize the following technologies:

- wireless devices
- intelligent scale
- electronic shelf labeling
- self check-out counter (not available in Malaysia)
- Radio Frequency Identification (RFID)

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Environmental Factors

The main societal issue threatening food retailers has been environmental issues, an
important area for companies to act in a socially responsible way. Tesco Malaysia has
intended to launch a new strategy for sustainable consumption and production to cut waste,
reduce consumption of resources and minimize environmental damages. The latest
legislation created a new tax on advertising highly processed and fatty food. The tax
directly affected Tesco product ranges that have subsequently been adapted, affecting
relationship with both customers and suppliers.

Legislative Factors

As of January 2004, there is a 5-year freeze on the building of any new hypermarkets in
Malaysia's three major cities Kuala Lumpur, Penang and Johor Bahru. In 2003 the
government ruled that plans for new hypermarkets must be submitted two years in advance
and socio-economic impact studies carried out. There are also new 'zoning rules' which say
that there can only be one hypermarket for every 350,000 people. However, in March 2004,
Tesco decided to continue opening its Puchong store 24 hours a day despite having been
told not to do so by the Ministry of Domestic Trade and Consumer Affairs who cited the
negative effect it would have on other retailers in the area.

The Malaysian Government has a tight control on media like TV, radio, newspapers,
outdoor advertising etc for broadcasting of commercials and advertisements. The
advertising code & code of ethics are to be followed by all the companies & business in
Malaysia. Advertisement of products like alcohol, pork, products with unacceptable
images etc are banned. Also, advertisement related to exposure of body parts & anti social
content like foul language, religious comparisons etc are strictly prohibited.

Tesco needs to change its marketing and advertising strategy in Malaysia. The government
control on advertising & media disallow certain advertisement & commercials of many
products of Tesco UK. The company also needs to do repackaging & re labeling on their
products in Malaysia to comply with the local legislation.

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INDUSTRY ANALYSIS: PORTERS FIVE FORCES

Threat of New Entrants

Majority of large chains have built their power due to operating efficiency, one-stop
shopping and major marketing-mix expenditure. This had a great impact on the small
traditional shops, such as butchers, bakers and etc. It becomes difficult for new entrants to
raise sufficient capital because of large fixed costs and highly developed supply chains.
This is also evident in huge investments in advanced technology for checkouts and stock
control systems that impact new entrants and the existing ones. Other barriers include
economies of scale and differentiation (in the provision of products or services with a
higher perceived value than the competition) achieved by Tesco seen in their aggressive
operational tactics in product development, promotional activities and better distribution.

Bargaining Power of Suppliers

This force represents the power of suppliers that can be influenced by major grocery chains
and that fear of losing their business to the large supermarkets. Therefore, this consolidates
further leading positions of stores like Tesco in negotiating better promotional prices from
suppliers that small individual chains are unable to match. In return, local suppliers are
also threatened by the growing ability of large retailers to source their products from
abroad at cheaper deals. The forces of competitive rivalry have reduced the profit margins
for supermarket chains and suppliers.

Bargaining Power of Buyers

Bargaining power of buyers is rather high. Porter theorized that the more products that
become standardized or undifferentiated, the lower the switching cost, and therefore, more
power is yielded to buyers (Porter M, (1980). It means that the buyers can easily be
switched from one brand to another.

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Tescos famous loyalty Clubcard, remains the most successful customer retention strategy
that significantly increases the profitability of Tescos business. In meeting customer needs,
customizing services, ensure low prices, better choices constant flow of in-store promotions
enable brands like Tesco to control and retain their customer base. In recent years a change
in food retailing has occurred due to a large demand of consumers doing the majority of
their shopping in supermarkets that shows a greater need for supermarkets to sell non-food
items. It has also provided supermarkets with a new strategic expansion into new markets
of banking, pharmacies, etc. Tesco Malaysia also considers the influence of western
consumers on the expectations and aspirations of third world producers.

Threat of Substitutes

The threat of substitutes in the grocery retail market is essentially below for food stuffs and
from an average up to high for non food items. In retail trade of food stuffs, substitutes of
the giant food retailers are chain of small convenience stores and organic shops which are
not considered as threat for supermarkets as Tesco which offer products of high quality
under significantly lower prices. However, threat of substitutes for non food products, for
example clothes is rather high. It is necessary to note, that until then as economic recession
prevails, clients will be inclined to discounts, and consequently, Tesco is threat for special-
purpose shops. (Porters Five Forces, 2008).

Bargaining Power of Competitors

In Malaysian retail industry, there is stiff competition between hypermarkets. Names such
as Giant, AEON and AEON Big are the biggest rival for Tesco Malaysia to compete in the
industry. Threat of occurrence of new competitors in the food-processing industry is low.
It requires huge capital investments to be competitive and to create a brand. The basic
brands which have already grasped retail trading in food stuffs are Tesco, Giant
Hypermarket, Econsave and AEON Big and their fraction is 80 % of shopping in Malaysia.
Thus, new participants should make something at extremely low price and/or high quality
to establish their market. Reception of permit from planning local self-management

Page 27 of 38
borrows a significant amount of time and resources for creation of new supermarkets and it
is therefore a significant obstacle for new participants.

Comparison of market share between hypermarket in Malaysia for 2010

Page 28 of 38
Boston Consulting Group Matrix (BCG) for Tesco Malaysia

BCG matrix is another marketing tool, a business would place the products
under each stage. Each part of the matrix has its own role.

Relative Market Share Position

High Medium
Low

High Star Question Mark

Tesco is a Star with high market share and

high market growth retail industry. It is
because Tesco has the potentiality of
generating significant income. Tesco is
investing more money to attain maximum
benefit of being a Star.
Tesco is definitely not the question mark.
Because of the Tesco financial service,
Tesco insurance and the Tesco Mobile has
not yet have the maturity in the market.

Medium Cash Cow Dog

Tesco could be considered as a cash cow

with high market share but high market
Tesco can be considered as a Dog in that
share. Because its Distributions, Quality
case of removing the idol product from
and extra service to the consumer and
the Market.
equipped with new innovation product. It
has to maintain the current strategy and the
existing market activities.

Low

Page 29 of 38
Competitive Profile Matrix (CPM)

TESCO GIANT AEON Big

Critical
success Weight Rating Score Rating Score Rating Score
factors
Advertising
and 0.1 3 0.3 2 0.2 3 0.3
marketing
Packaging 0.1 2 0.2 2 0.2 2 0.2
Product
0.1 2 0.1 2 0.2 2 0.2
quality
Brand
0.2 3 0.6 1 0.2 2 0.4
loyalty
Customer
0.1 2 0.2 2 0.2 1 0.1
taste
Price 0.4 4 1.6 2 0.8 1 0.4
Total 1.0 3.0 1.8 1.6

Page 30 of 38
Conclusion and Recommendation for Improvement

Conclusion

The success of the Tesco Stores Malaysia shows how far the branding and effective service
delivery can come in moving beyond splashing one's logo on a billboard. It had
fostered powerful identities by making their retailing concept into a virus and spending it
out into the culture via a variety of channels which are cultural sponsorship, political
controversy, consumer experience and brand extensions.

In a rapidly changing business environment with a high competitors pressure Tesco have to
adopt new expansion strategies or diversified the existing in order to sustain its leading
market position in an already established retailing market. The company must constantly
adapt to the fast changing circumstances. Strategy formulation should therefore be
regarded as a process of continuous learning, which includes learning about the goals, the
effect of possible actions towards these goals and how to implement and execute these
actions. The quality of a formulated strategy and the speed of its implementation will
therefore directly depend on the quality of Tescos cognitive and behavioral learning
processes.

In large organizations as Tesco strategy should be analysed and implemented at various

levels within the hierarchy. These different levels of strategy should be related and
mutually supporting. Tescos strategy at a corporate level defines the businesses in which
Tesco will compete, in a way that focuses resources to convert distinctive competence into
competitive advantage.

Tesco holds 30% share of the Malaysian retail market. Its multi-format capability means
that it will continue to grow share in food, while increasing space contribution from
hypermarkets will allow it to drive a higher share in non food. Tesco general growth and
ROI show no sign of abating.

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Recommendation

Improve customer offer

Listening to customers in a wide variety of ways is the key of what to do. Engage with
customers through a range of focus groups and ongoing research trackers, and actively seek
feedback on what is good or not so good, such as through Every Comment Helps scheme.
Online and social media make it easier to listen and respond to large numbers of customers
in real time, through webchats, Facebook and Twitter

Tesco loyalty schemes, such as Clubcard or Plug n Pay, are not only benefit the customers
but also provide data insight to enable Tesco to continually improve the shopping trip. With
a loyalty scheme in all stores worldwide and around 44 million active customers in total,
Tesco is in a unique position to understand customers' shopping patterns.

Promote the right products at the right time

Tescos network of distribution centres ('DCs') and advanced technology support a modern,
efficient and cost-effective supply chain. An efficient distribution system starts with
understanding which products the stores need. There are two ways of doing it. First,
forecast what customers will buy using sophisticated, detailed models to consider variables
such as seasonality, weather forecasts and likely response to promotions. Second, the
ordering systems automatically update in real time based on what customers do actually
buy, so that the system can quickly and accurately generate information in supplying stores
with the right products at the right time.

Tesco must plan the distribution processes, systems and network of DCs to maximise
efficiency. Labour scheduling and transport planning systems enable the pickers and
drivers to operate highly effectively, and to develop distribution networks to minimise the
mileage needed to get products to store in perfect condition. Tesco can use transport other
than lorries such as the four train services, which save 15,000 tonnes of CO 2 per year.

Page 32 of 38
People Development:

Great service can make a customer's day, and this can be achieved when the employees live
the Tesco Values: 'No one tries harder for customers' and 'Treat people how we like to be
treated'. Tesco business is built on the commitment of more than half a million people
across the world and, in return for their commitment, Tesco offer them good jobs and
careers with Tesco.

Developing employees take many forms, from training in our state-of-the-art training
academy in Asia, to offering jobs to the long-term unemployed through Regeneration
Partnerships and supporting the development of women to management positions.

The best located and best designed stores

Optimal sites for new store developments and extensions are to be identified by the site
research departments. Tesco have a flexible approach to property acquisition, considering
both freehold and leasehold sites and assessing each opportunity on its merits. Using a
range of data, such as demographics and competitor activity, Tesco forecast sales for a new
store to a high degree of accuracy, so that we can develop the stores with the greatest
potential.

Ensuring that growth is sustainable

By operating responsibly, Tesco not only benefit and secure the future of its business but
also bring real benefits to the communities in which its operate. It is Tescos commitment
to operating responsibly in providing the customers with good quality, safe and affordable
food. This is easily taken for granted in developed economies, but can be a real challenge
in economies with low penetration of modern retail and under-developed supply chains.

This can be achieved by working closely with the suppliers to ensure the supply chain is
both resilient and efficient. Strong, fair, mutually beneficial, long-term partnerships with
suppliers, from local to global, are at the heart of this. The strength of supply network was

Page 33 of 38
evident during the Thai floods few years ago, enabling Tesco to secure essential supplies
from Malaysia and other markets.

Tesco is committed to the responsible sourcing of raw materials, ensuring the resilience of
our supply chain and managing our impact on the environment. Tesco aims to be a zero-
carbon business by 2050 and are mapping the biggest opportunities to cut carbon in our
supply chain, as well as continually exploring new energy efficiency measures to be
introduced across the Group.

Page 34 of 38
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Appendix A

Tesco Business Model

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