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University: The University of Adelaide
Business strategies help to run a business in right directions and the aim of this report to develop the awareness of different types of strategies which will be used in operational, tactical and strategic role of an organization. This entire report is based on the analysis of Tesco, which is world's second largest groceries online shop in UK. It has 6,553 stores in 12 countries and now it had expand its store and deal with finance, banking and many more. The report focus on how the external and internal environment affect the performance of a business and due to fluctuation in environment, company's goodwill, financial status all are affected. The report shows how different macro and micro analysis affect the growth of a company and it also present strength and weakness of Tesco. The report also presents porter's five force model which show the position. It also explain different business strategies which make a positive, efficient and effective contribution in the development of a business. The report also describe range of theories, concept and models with a strategic planning which help in the growth of business and takes it to the further level of success.
A macro environment is broad set of economic condition which affect the growth and performance of a business. These factor include the economic factors such as legal, political and social conditions and some natural forces. These macro factors also affect the environment of TESCO. The economy also affects consumers. If consumers are not buying, or feel they are not in a position to buy specific products, economy suffer and there may a big loss to a company. Both the economy and consumer are influence in the macro environment that affects the business and that is why there is a need of conducting macro environment which shows its performance affected through political, social, environmental, legal, economical and technological (Omar and Sawy, 2013). This report presents the analysis of TESCO, is a multinational food retailing company and has many stores in 12 countries across the world. It is one of the second largest retailer company after Wal- Mart in terms of profit. But now TESCO also provide finance, mobile insurance, hardware services and many more. PESTLE analysis of a company is discuss below:
Political factors: According to employment legislation, government encourages retailers to provide a mix job opportunities from lower-paid to highly- skilled, higher paid jobs. Then TESCO understands that their business affect or destroy other jobs in the retail sector jobs such as traditional stores and those shops are forced to reduce their cost to compete with TESCO. Even it employs large number of student, disabled people, old age workers paying them lower rates. This is an industry with high turnover staff but those workers offer higher level of loyalty and represent as desirable employees. As, TESCO plays its important and crucial role in creating employment opportunities which turns increases the demand for its product and expands its workforce (Shavarini and et. al., 2013).
The UK government recently adopted a tax measure that affected Tesco. In 2011, the government increases the VAT rate from 17.5 per cent to 20 per cent with aim of increase government revenue by 13 billion per year which leads to lower customer spending. Therefore, increase in VAT rate affect the sales revenue negatively and this affect the ratio of profit margin of Tesco. Next is, UK government also proposed to adopt a fat tax to control the obesity and limit the medical problems and these also affect the sales revenue and Tesco launched a 'brand new healthy food range' in 2014.
Economic factors: Now UK government shows positive signs in terms of recovery from financial crises as they may reduce the cost, demand, profit and prices. Therefore, the company should be aware of any change in the policies such as change in taxation or any other change which may affect the finance of Tesco. As the market is growing internationally but it is still dependent on UK market where it has a market share of 30 percent. The government also declared that government's substantial reduction in interest rates help to minimize the rise in unemployment in 2009 and as a result the spending power of consumer in increasing because they are more confidential about their current financial status.
Social factors: The analysis shows that that are more retired people than children and there is disadvantage for Tesco, because they eat less from others and they are less likely to travel in supermarket as compared to younger generations. They have no interest in online shopping which result small deliveries are considered to be in effective and expensive. The attitude of consumer is also change towards food as they are more health conscious (Maniora, 2018). Researches also says that the opinion of customers quickly change as there is change in quality and price of company's product, shopping services provide to customers and competitive moves. In 2013, Tesco was accused of horse meat scandal. Horse related puns are found in Tesco's burgers and it was accused of not providing the food in good quality. This scandal affected negatively to its customers which result decline in their sales and there is adversely affected to its image.
Technological factors: New technology have brought various opportunities for Tesco like it develop and introduce online shopping with a facility for home delivery and self- service checkout points are also provided with an ease for customers which reduces the labor cost. The management of Tesco needs to be attentive for technology, with the introduction of e- grocers led to undisciplined wave in the supermarket because they are incapable of reaching the performance of the present technology and therefore customers value the present technology more than new ones. But as the time passes this disruptive technology will increase in popularity and will be more valuable to customers than past technology. Thus this will affect negatively to the organization.
Environmental factors: Government forces to adopt ways of operation to reduce the environmental issue which would benefit society and Tesco is clearly committed to reducing its carbon footprints by 50% it also adopt number of measures to protect the environment. For example, it is trying to diminish the consumption of energy and utilization of greenhouse gases. It also minimizing the waste produced in their store by increasing social awareness to the customers (Sarwar, Ramachandran and Hosseinian-Far, 2017).
Legal factors: Government policies and rule, laws also directly impact the performance of Tesco. The Food retailing Commission (FRC) in 2004 suggested a Code of Practice which would ban changing prices without notice or demanding payment from suppliers and to adopt this policy, Tesco provide price reduction on the fuel which customers purchase when they purchase groceries from the store. Tesco is also engaged in credit cards, saving, loans etc. There are many promotion offers which help to lower the price offered by company.
Tesco is facing serious threats that are weakening the image in supermarket industry in UK. Therefore, the financial health of its rival is quite better than that of Tesco. It needs to response those threats and use its main strength which help to gain a strong brand name in order to sustain its position and macro environment do affect its strategic planning and which may lead to decline in its sale and affect its profit margin.
Tesco is the multinational grocery and its industry is retailing. The founders are jack cihen in 1919, hack en, London, England. Headquarters is in Tesco house, shire park, kestrel way Welwyn garden city Hertfordshire, England. There are currently 6553 stores of the company. There are many internal as well external factors which increases the competition for Tesco and increase pressure of stake holders (Tesco SWOT Analysis.2017). It provides the food and non food items in the format of retail stores. The stores of the organisation is all over world. Company is renowned by its quality services. Till now organisation has made standards are following them only. By swot analysis company is showing its periodic strengths. Weakness, opportunities, threats and through this entity correct position is known. The company has faced loss in revenue due to falling in oil prices but it also has also benefit in increase in demand in future considering oil crises will affect the business for short time.
For its good work in the retail. The quality services are provided to customer and whole experience of shopping made reason to win the various awards. Tesco is supermarket which is large and earning the huge profit and many contenders are imitating the same.
The above analysis concludes that Tesco is leading retail in UK. Company has achieve both cost leadership and differentiation strategies in order to gain its position. This internal environment affect Tesco and it is important to carry out Swot analysis to determine the performance of a company. Strength and weakness focus on internal factors affecting company and threats and opportunities identify external issues but to sustain its position and maximizes its profit, Tesco must know its strength , weaknesses, opportunities and threats (Sarwar, Ramachandran and Hosseinian-Far, 2017). Tesco is a brand and it is known as a company that offers value for money, convenience, wide range of product and good management. It also used its innovative business method in order to build its so many stores like Tesco Metro and Tesco Express which are small store in local market to make shopping more convenient for its customers.
Porter's five force model tries to analyze five separate forces that determine the overall competition in the grocery retail industry. It has five model which are describe below:
Threat of Substitute: General substitute is help to reduce the demand for particular product but there is threat of consumer to switch a company. Customer's need from big investments of capital in order to be competitive and create a doom. Tesco have already captured the food retail market and represents 80 percent of all buys in United Kingdom . Therefore, new operators have to produce goods in such a low rate with high quality to establish his value in market. In the grocery industry it is found that in the form of product- for- product or substitute of need and then it weakened by new trends like the way of small chains of convenience stores which are emerging in the industry and Tesco trying to acquire these small scale industry and opening metro and express stores in local towns and city (Morelli, 2018). Tesco sell clothing and jwelery, technology and gaming, home electrical, entertainment and books, toys, DIY and car etc but these are sell in high cost. The supermarket chain sell a wide range of product as well as substitute products too. Therefore, threat of substitute products and services for Tesco is irrelevant.
Threats of new Entrants: The UK grocery market is dominated by many competitors such as Tesco, Asda, Sainsbury's and Safeway that has a market share up to 70 percent. Over last 30 years, this grocery market has been converted into supermarket – dominated business. Large chains have build their majority due to operating efficiency, one way shopping and major marketing and mix expenditure. This create a great impact on small traditional shops such as bakers, butches etc. therefore, it is quite tough to entered a new business in a grocery market. Similarly, it is difficult for new entrants to raise sufficient capital because of fixed cost and developed supply chains. Tesco also invested huge capital in adopting new technology such as for checkouts and stock control system. Other barrier include economies of scale which are achieved by Tesco in their operational tactics in promotional activity and product development.
Bargaining power of suppliers: Tesco is struggling from high competition as it have hundreds of suppliers and there is minimum suppliers for supermarket chain. The company using its bargaining power to delay payment to suppliers in order to improve its profit margin, beside this the company also damaging its brand image of poor supply treatment which attract media coverage. As a result, a survey conducted by Tesco, and founds that 58 percent of suppliers indicated that they feel satisfied with the relationship of a company. There is a fear of losing its commercial contracts with big market, therefore the position of retailers like Tesco becomes more stronger and the rivals are positive in order to obtain the price as low as possible (Sarwar, Ramachandran and Hosseinian-Far, 2017). Suppliers of UK are also threatened by the growing ability of retailers to provide product from abroad at low rates. The relationship with sellers have same effect with strategic freedom of company and it also influence its profit margin. There is a force from competitors company to reduce the profit margins for super market chains as well as suppliers .
Bargaining power of customers: It is proved by porters that more products are sell will lead to lower the cost price. Clubcard is the most successful customers who significantly increases the profitability of Tesco's business (Maniora, 2018). To meet the customer's need, offer best service, ensure low prices with better choice and constant flow of in store promotion help to maintain and retain their customers base. From last many years there is a change in food consumption due to large demand of consumer doing shopping in supermarket that shows a huge need of supermarket to sell non- food items. There is wide expansion in these markets as development of banking, pharmacies etc. even customers are also aware of fairer trade. Products like tea, coffee and cocoa are now widely available at the majority of large chains.
Rivalry among existing firms: There is a high intensity of competitive rivalry in food industry. Tesco face direct competition who compete on price, products and promotions. The grocery environment is continuously increases in size of store, increase in retailer concentration. The purchasing power of food- retailing industry is completely depend on retail buyers. The consumers are demanding large chain such as Tesco fulfilling large amounts of consumer information that is useful to communicate (Morelli, 2018). This high competition run the level of development which results a situation in UK that grocery retailers had to be innovative in order to sustains its position in market but innovation may lead to change in behavior of customers. The adverse market leaders should focus again on their price and value while Tesco added value element to their services.
To improve the competition and maintain the brand image in market, Tesco follow many general strategies such as it offer product with high quality in low range as compared to its rivals. According to porter's five force models, Tesco is also trying to create brand image in market and it focus on internal efficiency that will help to control external pressure. The company will also have frequent interaction with government rules and regulations. It also have many competitors but to improve competition edge in market, Tesco has to reduce its cost price and provide good quality of product by satisfying customer's need.
Strategic planning is a systematic process which help to determine the direction and scope of an organization for a long term resources to changing its environment. There are various theories which help to make Tesco's strategies wider and sharper and these are mention below:
Ansoff's matrix: There are four different types of strategies proposed by Ansoff which are
Market Penetration Strategy: Tesco is always keep its price low to capture huge market and price and cost are two leadership competitive advantage in UK. The price offered by Tesco is quite beatable as compared to Wal- Mart and Carrefour (Fozer and et.al 2017). Recently it also introduced many stores which are eco- friendly and these are design to be able to cut down carbon foot print and these provide convenience and enhance the customer satisfaction. It also introduce 'Clubcard', it is a loyaltu card program which is designed to help the customers to save money through awarding points when consumer spent in Tesco stores. It also able to make good relationship with customers.
Product development strategies: Tesco has become a largest store in UK market because it continuously enlarge product portfolio which is a key strategies employed by company. Today, Tesco become world wide store who offer a lot of different categories including food, non food , electrical, electronics, office equipment, gardening equipment and etc. it provide goods in cheaper rate and able to maximizes profit (Kharub and Sharma, 2017). It also establish longer relationship with customers and enhances the profitability in the competitive retailing industry. It also tries to provide healthy products to those customers who are quite extra concern with their health and they are more health conscious.
Market Development Strategy: Tesco's market size is wide in the global arena, it also export its successful business model to global landscape. It is also undeniable that expansion of Tesco profitability in many emerging countries are caused by raise in standard of living in many fast growing countries such as South Korea, Thailand, China, Malaysia. Tesco not only try to expand its new market but it also make its best efforts to venture into market share.
Diversification Strategy: To sustain the fast growth of firm, Tesco has slowly switch to related diversification strategy . It establish four new strategies in recent years namely, Tesco Bank , Tesco Telecoms and dunnhumby (Leonidou and et.al 2017). To established Tesco bank is a great move, as Tesco will be capitalize on its own existing retailing store to start the bank services to further services for the customers and this is further help to enhance the satisfaction level and at the same time to generate more revenue for a group.
Mintzberg's 5 P's: Basically, it work on 5 p's of strategy planning which are plan, ploy, pattern, position and perspective.
Plan: Strategy is a plan, a set of guidelines which deal with every situation. Plan are made in advance of the action to which they apply and they are developed to fill the need of specific target . In the context of Tesco, plans are made advance of action and the company realizes the rivals plan and to compete it, they made such strategies such as lower the price help to attract more customers.
Ploy: Just like plan, a strategy can be a ploy too, to compete with their rivals this ploy help to run business well similarly, Tesco is also make some ploy in order to complete its competitors.
Pattern: If strategy is a pattern then a pattern should be in a stream of actions and these pattern help to know the behavior of customers. To determine the need and wants, Tesco tries its best effort. It keep trying to innovate new things in their product just to attract more and more customers so the pattern of Tesco is quite different from other stores (Johnson, 2016).
Position: The company should be establish in its best locality it means that the environment of company should match. The internal and external environment of a company will definitely affect or hinder the growth of a Tesco. Get Cheap essay help at the lowest price from Australian Writers.
Perspectives: Strategy is perspective, its not a mean to chose the position but have a different way to perceiving the world and Tesco will keep trying to enhance the level of growth and development. The key objectives of a company should be share by the members and employees in order to know the position and performance level.
Strategic planning is a basic need of every company. Through proper planning a company may run and achieve its target. Tesco is also pre plan in order to run a company in better way. For example, it provides good with best quality at low price as compared to other. Similarly it also planning to pen new banks and start financing in their own store to expand its store. These all are done through proper planning and management system.
From above project report it is concluded that business strategies help to run a business in right direction. As business strategy of Tesco is a working plan for achieving vision, objectives and competing success and optimize financial performance with its business model. The report is deal with overall success of Tesco, which is second largest store in UK who sell grocery, home appliances, electric item etc. The report shows macro environment affect the environment of Tesco and through Pestle analysis it is also concluded that there are many factors which may hinder the growth of business but to get rid from those factors will take a business in next level of success. It also presents Tesco's strength and weaknesses and make it different from other store. The report presents Porter's five force model to know the competition and performance level. To fulfill the need and objective of business, there should be proper strategic management plan. The report also presents model, theories and concepts to understand the strategic decisions for Tesco.
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