The chosen industry is the supermarket sector. The assignment is going to be focusing on Tesco’s due to it being the market share holder in the sector. Tesco have branched out into a wide range of markets ranging from banking, food, petrol, and clothing. However this assignment will focus on food and services. The first part of the assignment will look at Porters five forces, followed by porter’s generic strategies. The last part of the assignment focuses on three aspects being methods of growth due to Tesco growing so much over the years not just nationwide but worldwide and still growing. Porters 5 Force model is used to access the nature of competition in an industry and how it can affect business within it. Porter clarifies that there are five forces. Tesco will use these 5 forces to help them determine the industries attractiveness and long run portability which they are The 5 competitive forces are the threat of entry of new entrants, the threat of substitutes, the bargaining power of suppliers, the bargaining power of buyers and the degree of rivalry between existing competitors. It is Tesco’s job to identify all these to analyse the competitive environment. The threat of new entrants to Tesco’s is very unlikely due to Tesco’s large percentage of market which Tesco have revealed is at 29.9% as shown in the appendix z below from the BBC (2012)
As you can see there is other big companies within the industry such as Sainsbury’s and ASDA also hold a large market which will make it even harder for new entries to win other competitors customers and attract new ones. The only way new entrants will be able to compete is if they can use an innovative strategy to offer a new niche product range which has not been introduced before at a high quality at a low price to try and compete with Tesco’s. It will require high amounts of capital investment for new entries to compete with Tesco, who have a strong financial status which will only make it harder for them to compete finically and price effectively, due to Tesco being able to cut costs and still make profits, This is due to supplier relations and dominance built over the years, new entries will not have this experience and relations to do so. Tesco have a strong brand loyalty and a good reputation which has set up barriers for new entries to prevent them attracting their current customers. Tesco have introduced Tesco’s loyalty cards to help maintain and improve their customer and brand loyalty, by rewarding its customers with points which they can convert into club card vouchers to spend in store. This will help prevent new entries and competition attracting Tesco’s customers. The threat to substitutes in the food market is low the only real threat for Tesco are smaller chains such as corner shops convince stores and organic shops, because if customers want something small or just a few items instead of traveling to Tesco’s which may be some distance, they can just visit a local shop which is near them which will provide these they need. However Tesco have counter acted on this by opening up Express shops and smaller Tesco shops, in and around towns and cities this will prevent people going to local convenient stores. Bargaining Powers of buyers can be high due to the amount of substitutes available as most products sold by Tesco’s are price elastic, and slight changes in prices for products can easily sway buyers to another brand supermarket ,which is why Tesco have introduced Tesco value brands. This is to offer similar products they already sell but at a cheaper price to help maintain consumer confidence, and stop buyers from switching to another brand. Tesco have a reputation of having low prices compared to its rivals which is why they constantly release its prices and compare them to its competitors as customers prefer cheaper prices so Tesco are just reassuring them that they are the cheapest, which can be seen on their website and even in stores...
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