This report examines the marketing strategies of Tesco, the market leader in the retail grocery industry in the UK. Analysis has shown that in this oligopolistic market, Tesco is following different marketing strategies to remain market leader. Tesco has been doing extremely well in focusing on different marketing strategies by constantly sticking to its principles “very little helps”.
Subsequently the report highlights the different marketing strategies adopted by Tesco, specifically market penetration, product development, market development and diversification have been analysed in order to see in which ways Tesco is competing profitably in the retail grocery market.
The following section discusses how Tesco operates in the competitive environment of the retail grocery industry. Tesco battles by expanding market demand, increasing market share and defending market share with strategies such as flank, pre-emptive or mobile. In return the main competitors Asda and Sainsbury’s are attacking the market leader by using offensive strategies such as frontal, flank or bypass, in order to gain market share. Tesco’s understanding of the customers as well as its strong defensive marketing strategies against competitors assure them the leading position in the market.
The retail grocery industry in the UK, which is generally recognized as being oligopolistic, is clearly dominated by Tesco. The market leader has a market share of 30,6 % in comparison to key players such as Asda (16,6 %), Sainsbury’s (16,3 %) and Morrisons (11,1%) (BBC 2006; Burt and Sparks 2003). Tesco with different stores formats such as Tesco superstore, Tesco extra, Tesco express, Tesco homeplus and Tesco metro operates over 1,800 stores and employs over 260,000 people in the UK. A variety of products such as groceries, non-food articles (home entertainment, clothing, health and beauty etc.), financial services, telecom and online services (Tesco.com) are offered by the market leader. Since the 1990s, Tesco has been expanding in markets particular in Europe and Asia to grow its potential further, but for the purpose of the report the focus will only be on Tesco in the UK (Tesco Plc 2007).
3.0 Marketing strategies –Ansoff´s matrix
In order to identify why Tesco is market leader and what strategies it pursues to remain at the top of the UK retail grocery market, it is essential to analyse its marketing strategies. The product and market strategy matrix by Ansoff, which provides a functional relation between products and markets, helps to analyse the different strategies in a straightforward way (Drummond and Ensor 2002).
Figure 3.1 Ansoff matrix by Jobber (2007)
The market penetration strategy aims at current products in existing markets. It involves low risk but limited growth potential. Furthermore it can be used to win competitor’s customers mainly achieved through aggressive marketing like competitive pricing, sales promotion or advertising (Drummond and Ensor 2002; Jobber 2007). Recently Harry Tuffins, a small chain of independent supermarkets, opened a new store in Ludlow with big advertisements for it. Tesco had paid attention to that and started a sales promotion campaign to shoppers within the area by distributing vouchers (£10 off for any shopping over £30) for its local store for the fortnight and the day of the opening. This has consequently resulted in a loss for Harry Tuffins (Bowers 2007). Another method of gaining market penetration is to buy competitors. This is common in the retail grocery industry. For instance Morrisons bought Safeway lately to gain market share and sales volume. In 2002, Tesco took over the chain T&S (862 convenience stores and corner shops) and therefore could extend its market share and increase sales volumes because convenience and corner shopping account for 20 per cent of UK retail grocery market (Hooley et al. 2004).
Another growth strategy is market...