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Tesco.docxMarketing Excellence Tesco
Tesco hasn’t always had a reputation as a customer-friendly retailer. Back in the early 1980s, it was a UK grocery store chain that suffered from a reputation for “piling it high and selling it cheap” and trailed behind Sainsbury’s, a more upscale UK retailer. Only when the company came under the leadership of Ian MacLaurin did it began to reinvent itself as a consumer-friendly brand.
In 1983, Tesco began the long process of updating its stores and improving its product selection. Over the next decade, it took on Sainsbury’s head on with brighter stores, higher-quality products, affordable prices, and more locations. Between 1990 and 1992, Tesco launched 114 separate initiatives to improve the quality of its stores, including adding baby-changing rooms, stocking specialty items such as French free-range chickens, and introducing a value-priced line of products.
The company also developed a well-received marketing campaign titled “Every Little Helps” that helped communicate these improvements and enhance its brand image in the public eye. The campaign included 20 ads, each focused on a different aspect of its new approach: “Doing right by the customer.” As a result, by 1995, Tesco had attracted 1.3 million new customers and its market share surpassed Sainsbury’s for the first time, making it the new market leader.
In 1996, Terry Leahy took over as CEO. During his tenure, Tesco grew from the third-largest UK supermarket chain, with $7 billion in sales, to the third-largest retailer in the world, with more than $100 billion in sales.
Under Leahy’s guidance, Tesco introduced its Clubcard frequent-shopper program, an initiative that helped make the company a world-class example of how to build lasting relationships with customers. The Clubcard not only offered discounts and special offers tailored to individual shoppers but also acted as a powerful data-gathering tool, enabling Tesco to understand customers’ shopping patterns and preferences better than any competitor.
Using Clubcard data, Tesco created a unique “DNA profile” for each customer based on shopping habits. It classified each product a customer purchased on as many as 40 dimensions, including price, size, brand, eco-friendliness, convenience, and healthiness. Based on these profiles, Tesco shoppers received one of 4 million variations of the quarterly Clubcard statement, containing targeted special offers and other promotions. The company also installed kiosks in its stores where Clubcard shoppers could get customized coupons.
The Clubcard data helped Tesco run its business more efficiently too. Tracking Clubcard purchases uncovered each product’s price elasticity and helped set promotional schedules, which saved Tesco more than $500 million. Tesco used its customer data to pick the range of products and type of merchandising for each store and even to choose the location of new stores. Within 15 months of introduction, more than 8 million Clubcards had been issued, of which 5 million were used regularly.
Next, Tesco expanded its powerful private-label program with three distinctive brands in various price ranges; “Finest” offered the best-quality item at the highest price, “Mid-range” targeted the middle range, and the “Value” product line offered the best bargain prices available. Through this simple system, consumers came to expect a certain quality at variable prices.
By 1999, the company’s market share in the United Kingdom rose to 15 percent, and it was voted Britain’s most admired company. In the following years, Tesco continued to apply its winning formula of using private labels and customer data to dominate the British retail landscape.
It also moved further into “big-box” retailing of general merchandise, or nonfood products. This strategic growth plan not only provided additional convenience to consumers who preferred shopping under one roof but also improved overall profitability. In 2003, the average profit margin for nonfood products was 9 percent versus 5 percent for food products, and nearly 20 percent of Tesco’s revenues came from nonfood items. That year, the company sold more CDs than Virgin Megastores, and its apparel line, Cherokee, was the fastest-growing brand in the United Kingdom. By 2005, the company had a 35 percent share of supermarket spending in the United Kingdom, almost twice that of its nearest competitor, and a 14 percent share of total retail sales.
Tesco’s stores are now categorized into seven different formats, depending on where they are located and whom they target: Tesco Extra, Tesco Superstores, Tesco Metro, Tesco Express, One Stop, Tesco Homeplus, and Dobbies. Tesco Extra is the largest and offers a wide range of food and nonfood products and services like optical centers. Tesco Superstores are standard large supermarkets that offer some nonfood products. Tesco Express stores are neighborhood convenience stores that stock mostly higher-margin products and everyday essentials.
Tesco continues to diversify its product and service offerings to reach more consumers. The company partnered with existing telecoms to create Tesco Mobile and Tesco Home Phone and launched Tesco Broadband to provide Internet access to homes and businesses. In addition, it now offers insurance policies, dental plans, music downloads, and financial services. In 2008, Tesco joined forces with the Royal Bank of Scotland to create a banking division, Tesco Bank.
Its aggressive expansion into nonfood items was a departure from Tesco’s core focus on groceries. That, and its determination to expand in Asia, India, and the United States, led to troubled times during the recession and a 20 percent slide in its stock price in 2010. Quality within the supermarkets slipped significantly, and customers were turned off by the abundance of nonfood items in their stores during a poor economy. Tim Green, retail analyst at Brewin Dolphin Ltd., explained, “Tesco got a little bit distracted by thinking of China, the U.S., wider Asia, Central Europe, Tesco Bank, Tesco Telephony. But that is not acceptable, because U.K. food is the main profit generator.”
In 2011, Tesco came under the leadership of a new CEO, Philip Clarke, who set out to turn the company around immediately and revive its focus on supermarkets and customer service. First, he cut back on expansion programs, pulling out of Japan completely and slowing growth in the United States, India, and the rest of Europe. Next, he announced a major overhaul of the supermarket chains. Tesco hired and trained tens of thousands of employees who were dedicated to serving customers in the produce and meat departments, which had recently been deprived of sufficient staff.
The company relaunched its Tesco Value brand as Everyday Value and invested significantly to improve the quality and appearance of hundreds of Tesco products without raising the price. It renovated many of its brick-and-mortar stores to give them a homier feeling through better lighting, cleaner shelves, new fixtures and signs, warmer colors, and more spacious produce areas. Tony Hoggett, managing director of Tesco Superstores, explained how small things added up to make a big difference. “It really isn’t rocket science. We’ve improved the look and feel of our stores to make them a much warmer, friendlier place for our customers to shop in.”
Sources: Tesco Annual Report 2012; Richard Fletcher, “Leahy Shrugs Off Talk of a ‘Brain Drain,’” Sunday Times (London), January 29, 2006; Elizabeth Rigby, “Prosperous Tesco Takes Retailing to a New Level,” Financial Times, September 21, 2005, p. 23; Hamish Pringle and Marjorie Thompson, Brand Spirit (New York: John Wiley & Sons, 1999); Paul Sonne, “Tesco Loses Its Appetite for Growth,” Wall Street Journal, November 10, 2012, B.3; Renee Schultes, “U.K. Grocers Locked in Coupon Warfare,” Wall Street Journal, August 29, 2012; Harry Wallop, “Tesco Ditches 1bn Value Range,” BST, April 4, 2012; Peter Evans, “Britain’s Tesco Tries Out New Retail Recipe,” Wall Street Journal, July 9, 2012, B.8; Julia Werdigier, “Tesco to Invest Heavily in a Domestic Revival,” New York Times, April 19, 2012; Terry Leahy, “Lessons from a Retail Veteran,” Wall Street Journal, June 27, 2012.
