External Environment of TESCO and Market Positioning in the Digital Economy

The External Environment of TESCO and Market Positioning in the Digital Economy

Executive Summary

The external environment is the most important success factor, along with the effective value proposition to the customers. The present portfolio aimed to understand the external environment of TESCO Plc, the UK, to analyze the macro and influential micro factors. The framework of PESTEL was used for macro analysis, where Porter’s five forces were used for the micro-environment. The analysis suggested that GDP growth and purchasing power of the UK population offered a chance of growth to the business operation. Similarly, the Microenvironment suggested that threat from suppliers was prominent where the probability of new market players entering into the market was identified as less impactful. However, further research work was taken to understand the market segmentation approach, adopting the demographic, behavioural and geographical segmentation approach. Moreover, the targeted customer base of the company identified along with the market positioning as a part of this report. However, the market position of TESCO defined that the company has offered values to society, stakeholders as well as customers through effective performance.

1. Introduction

1.1 Aim

Organizational success is dependent on the external environment as the value proposition has a direct connection to the success of an organization. The present portfolio has aimed to understand the external environment of TESCO to understand the strategies and market positioning of the company.

1.2 Background

TESCO is a multinational grocery and general merchandise retailing store in the UK, with 3801 stores in the UK. The UK market has acquired the major stake of the company, with more than 319,303 employee bases in this unit (Tescoplc.com 2021). However, the operational mode of this company has considered the convenience store format as well as larger store operations. The company has acquired a group sales volume of £53.4billion in 2021, compared to the £49.9billion in 2020 (Tescoplc.com 2021). TESCO has aimed to serve affordable and sustainable service facilities through sustainable operational techniques to ensure an easier way of living for the customer.

Figure 1 Annual Performance of TESCO in 2021

(Source: Tescoplc.com 2021)

1.3 Scopes

The presentation of this portfolio has a scope to discuss macro-environmental factors through PESTEL analysis and to utilize Porter’s five forces framework for microenvironment analysis. Further research has been proposed to understand the market segmentation and position through evaluation of the value creation process.

2. Organizational Environment

Nash (2019) opines that the external environment of an organization has created an insatiable impact on the flexibility of an organization. Significantly Matovic (2020) mentions that PESTEL analysis of the external environment has created a value to understand the success factors of an organization. As per Bruijl (2018), Porter’s five forces analysis has taken the context of the competitive environment of modern business to understand the strategic positioning of a business.

3. Macro-Environment Analysis

PESTEL Factors

 

Elements Influences
Political ●       A strong relationship with the USA and other European countries.

●       Member of the international business and economic corporation like G-20. G-7 and International monetary fund (State.gov 2021).

Economical ●       GDP growth of 2.3% in 2021, compared to GDP declination of 9.92% in 2020 (Data.worldbank.org. 2021).

●       The fifth-largest economy in the world.

●       Ninth largest Purchasing Power GDP of the world (TheGlobalEconomy.com. 2021)

●       The public Debt of the country has touched the value of £1.853 trillion (Imf.org 2021).

Social ●       Social class division Exists in British society.

●       Very high human development index, 0.932 (Hdr.undp.org. 2021)

●       Poverty 24% (Hdr.undp.org. 2021).

●       Literacy rate is 99% (Una.org.uk. 2021)

Technological ●       Technology Fuels the success for most of the sectors of the UK.

●       88.9% of the total population of the UK has access to smartphones (Ons.gov.uk. 2021).

●       92% of the adults in the UK have internet access (Hdr.undp.org. 2021).

●       The UK is the home of 53 Million active social media users (Ec.europa.eu. 2021).

Environmental ●       The Pollution Control Board has been established for the protection of air, noise and water pollution (Wentworth and Stock,  2021).

●       The Environment pollution act has proposed waste management and emission control (The Independent. 2021).

Legal ●       The sale of goods act has specified the cost of selling of the products and the guidelines for selling.

●       The corporate tax of the UK from the starting of 2020 has been fixed at 18% (Ec.europa.eu. 2021).

PESTLE analysis

The participation of the UK in international business and trade organizations like G-7, G-20 have offered competitive advantages to the supply chain management of the companies in terms of the globalized environment (Trade.gov. 2021).

Figure 2 GDP Performance of UK

(Source: Statista, 2019)

Additionally, the ninth-largest purchasing power of the customer has offered value to the business sectors, including retail sectors, to achieve a strong customer base. The higher human development index of 0.932 has indicated social improvement, which has resulted in social development (Ons.gov.uk. 2021). Technological improvement and 92% of active internet users have offered scope to the business entities to improve their digital presence (Ec.europa.eu. 2021). Evidently, 53 million active social media users have created a concern for the retail organization to ensure a strong social media presence.

4. Micro-Environment Analysis

Porter’s Five Forces Analysis

Porter’s Five forces have considered the five competitive elements which could be influential for the business operations.

Figure 3 Five forces of Porter

(Source: Bruijl, 2018)

The threat of New Entrants:

The UK retail sector has been formed with a strong abscess as it has contributed 5% to the UK economy. The purchasing strength of the retailing industry has increased to £180billion last year, which has indicated the strength of the realtors to exist in the competitive UK market (Oxfordeconomics.com. 2021). Considering the small, medium and large size retailers, the UK has more than 200000 retailers (TheGlobalEconomy.com. 2021). The retailing industry has seemed to be extremely competitive. In such an environment, it is hard for new players to enter the market.

The threat of Substitute :

TESCO has been termed as one of the most valuable brands of the UK, with total assets of £12.879 billion, and the total equity of the firm has reached the value of £13.253 billion in the year 2020.   Starting from the 1990s, the company has expanded their locations in 11 different countries to strengthen its operation. Such a strong operation of TESCO plc is hard to substitute.

Figure 4 Forbes ranking of TESCO

(Source: Forbes, 2021)

Bargaining Power of Customers:

Strong market competition in the UK retailing industry has offered scope to the customer to switch from TESCO. Sainsbury’s, Morrison and ASDA have offered scope to the customer to bargain with TESCO in terms of the pricing  (Oxfordeconomics.com. 2021). However, the quality of the product and brand value has mitigated the bargaining power of the customer, and it has shown a medium impact.

Bargaining Power of Suppliers:

The supermarket industry has more than 0.2 million organizations with millions of active customers. Consequently, the supplier has enough options to bargain with the retailing companies to achieve competitive pricing for the products (Ec.europa.eu. 2021). The presence of numerous organizations in the retailing sector has created a higher bargaining power of the suppliers.

The rival situation among the Competitors:

ASDA and Morrisons, as well as Sainsbury, have demonstrated market share in the UK retail sector.  In terms of the operating sectors, all of those companies have dealt with the same type of inventories (Guo and Wang, 2019). An analysis of the UK supermarket has identified that TESCO has increased their market performance and touched the mark of 26.4% compared to the close competitor Sansbury’s with 14.3% (Coppola, 2021). It has identified the medium market competition from the rivalries.

Figure 5 Competitors of TESCO

(Source: Coppola, 2021)

 

Five Forces Impact
The threat of New Entrants Medium
Threat of Substitute Low
Customer’s Bargaining Power Medium
Supplier’s bargaining Power High
Competitive Rivalry Medium

5. Segmentation, Targeting and Positioning

Segmentation

Segmentation of the market has been performed on the four elements. Consideration of the context of the TESCO plc has selected to take only three of them. Quach and Lee (2021) have mentioned that psychographic profiling has been performed based on attitude. So, the context of psychographic segmentation would be analyzed through a behavioural approach.

Geographic Segmentation:

TESCO has mainly dealt with groceries and conventional items like books, clothing, toys, electronic gadgets under their supermarket and high street store operations. Considering the essentiality of the products, TESCO has an option to consider different geographic locations of the UK, from rural locations to urban and semi-urban areas (Forbes, 2021). Rural and Urban areas would be geographic market segments for TESCO.

Demographic Segmentation

Products and services of the high street and supermarkets have equal acceptability to the people of all ages. People of all genders have a need for the products offered by TESCO (BBC News. 2021). However, the groceries and common household items section could focus on the middle-aged population as most of the time, and they have responsibilities to run the house (Wood et al., 2017).

Behavioural Segmentation:

Quality and cost advantages are the two facilities of the behavioural market segment of TESCO Plc. a quality loving customer would be the first preference for the products of TESCO (Melacini et al., 2018). Brand loyal customers with a positive attitude towards life would be the major target for the behavioural market segment of TESCO.

Targeting

The products and service of TESCO have considered the general need of the customers. Moreover, the company has designed customized sets of products for different customers based on their needs and demands. Unlike other high street stores, the company has taken care of the bargaining power of the customer  (Forbes. 2021). The product of TESCO plc has targeted the customer with bargaining power to get assured quality products from the retailers. The pricing strategy and the product portfolio of the company have been focus on brand loyalty to create a brand-aware customer base (Tescoplc.com, 2021).

Positioning

Price and quality both have been kept at a high margin in the products of TESCO. Compared to TESCO, Sansbury has offered medium quality products at moderate prices (Guo and Wang, 2019). In terms of the high-quality product segment, TESCO has more strong operational performance (Tescoplc.com, 2021). Comparatively, the cost of the products is low compared to Waitrose and M&S.

Figure 6  Market Positioning of TESCO

(Source: Forbes. 2021)

Comparative market positions of the company have been represented in the aforementioned image.

6. Evaluation and Value Creation


The stock market performance of TESCO plc and dividend per share have shown the strong performance of the company. The rate of dividend has remained unchanged compared to the last year. It has remained fixed at 9.15p (Forbes. 2021). Diversified operation for value creation has been taken as an important aspect of operation (Coppola, 2021). The business operation of the company has been diversified with the introduction of Tesco bank and TESCO mobile. The growth of digital technology in the UK has been utilized by the firm, as it has invested a surging amount in the development of the virtual network system  (Coppola, 2021). The brand TESCO has also created social value as during the time of Covid-19, the company has decided to repay the business rates relief to help the organizations who are in need of more support. Values to the stakeholders have been offered through the Club card facility (Tescoplc.com, 2021). The company has decided to introduce the Aldi Price match to offer exclusive benefits to the loyal customers of the brand.

7. Conclusion

The parliamentary democracy of the UK has a low stability rate which has impacted the business performance of the UK. Oppositely, the supply chain of the retail business has achieved strength from the transparent business relationship with the USA and other European countries. TESCO has shown excellent performance in the retail industry. The annual report of the company has claimed that the business has been built for the customers only, where the value proposition to the customer has been taken with utmost importance.

Appendix

Figure 7 Revenue of TESCO

(Source: Forbes, 2021)

Figure 8 Assets of TESCO

(Source: Forbes, 2021)

Figure 9 Profit of TESCO

(Source: Forbes, 2021)

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