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International Marketing - Tesco USA
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Introduction
International marketing is the application of the principles of marketing to various countries. International marketing involves setting up of a global or international plan which enables the effective marketing of goods and services. Companies have realized that if they target just one market that may be global or domestic, they cannot survive in the long run because the concentration of one market limits the audience or the consumers of a particular good. So the companies have started thinking about overseas opportunities for increasing their market share and base of customers. The advancement of technology has made it easier for the companies to reach the international market. In the present report, the marketing strategies, segmentation, branding, cultural issues, distribution management of Tesco Ltd., USA will be discussed.
Company background and business environment
Tesco is a leading retailer of food, and it is the third largest food retailer in the world. In 1929, it opened its first store in London. It became familiar to most of the people in the UK and a popular store at the streets by 1960s. Then many new innovations were pioneered by the company in the 1990s. A new store like Tesco Metro was opened by the company which was a center city store and met the needs of local shoppers. Another was Tesco Express that was the first petrol station convenience store. Clubcard, the loyalty card for customers was introduced in 1995. It started an international operation in 1994 that has made the company expand steadily which now accounts for half of the retail’s store space in total.
It receives huge competition from other retail grocery stores. Wal-Mart poses a great threat to Tesco as it has all the required skills, experience, funds, etc. that create problems for Tesco. The expansion of Tesco is hindered by the town planning activities, intolerance of customers for the out-of-town stores and the concern for the small shops livelihood. Due to the increase in the VAT by the government, the customer spending might reduce, and it might negatively affect the sales of the company. The government also proposed that it will adopt a fat tax to control the medical problems in people due to obesity; this will also adversely affect the sales of certain products.
Marketing mix
Standardisation
Here it is believed that a union of cultures exists that have a similar environment and customer demand all over the world. With the lack of barriers to trade and advancement in technologies, the companies can display a strategy of marketing that has an international orientation. With the standardization strategy, the companies can achieve consistency among the customers and lower costs (Robles & Akhter, 1997). As per this approach, the long-term success of companies depends on their concentration on delivering what everyone wants rather than thinking about customizing products as per needs of individual customers.
Adaptation
Here the importance of customization is emphasized. When the companies enter any international market, it has to consider the factors like language, climate, culture, and education, etc. of that country and if it does not tailor the product as per the country, the company will fail there (López, 2004). Therefore, it is important for the companies going for international marketing to adjust their strategies as per the market and ensure that it is suiting to the tastes and demands of the people there.
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Strategy of Tesco
The company has adopted a strategy of “think global, act local”. The company tries hard to adapt the local cultural variances and responsiveness of the foreign customers for its products. Hence, it can be said that Tesco is more tilted towards adaptation marketing mix.
Factors affecting standardization and adaptation marketing mix:
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Environment: When R&D causes the economies of scale in the production process then it favors the standardization marketing mix. But the government influences and the regulatory policies makes the companies go for adaptation.
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Competition: the global competition favors standardization marketing mix and local favors adaptation.
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Needs of consumers: when the needs and demand are homogeneous then standardization works well but variations in demands of consumers' favors adaptation marketing mix.
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Management: standardization works on centralized management of the international operations and adaptation works on fragmented and decentralized management with the subsidiaries of the dependent country.
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Competitors: they use a standardized concept to compete with each other in standardization marketing mix, and an adapted concept is used in adaptation marketing mix
Benefits and limitations of standardization and adaptation marketing mix:
Standardisation Adaptation
Benefits
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Achievement of economies of scale
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Set up time is faster
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Establishment of single coherent international image
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Monitoring of communication is easy
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Increased respect for domestic specifications and expectations of local people
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Excellent local image
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Landmark is kept by the customers, and they feel noticed.
Limitations
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Probability of loss of effectiveness of advertising
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Less reactivity and flexibility
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Neglecting local needs can create negative image in the public
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Cost is higher than standardization
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More consumption of time and poor execution speed.
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Difficult to understand the real needs and wants of consumers.
Acceptance of this strategy by local people
The local people accept this strategy in a positive way. They like to see the products as per their needs and preferences. They like to watch the company making efforts in meeting their needs and satisfying them. The employees of the company also feel that they are working in a comfortable culture and not in a variety of cultures as company molds itself as per the country's culture in which it operates. The people develop trust and respect for the company, and they accept its products and offerings too.
Market entry modes
The international market entry methods being used by Tesco are (Taylor & Udell, 2011):
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International joint ventures and acquisitions: the company saw an opportunity in South Korea, and it decided to expand there as it is one of the biggest economies. Tesco acquired the distribution unit of Samsung in South Korean market and hence took over the managerial rights. With this one acquisition, Tesco became one of the largest retailers of grocery in SK. Then it came into a joint venture with Ting Hsin International in 2004 and entered the Chinese market too. There it got a great opportunity to grow as it has access to Asia’s biggest market.
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Greenfield investment: It is a type of FDI where a new venture is started by a parent company in a foreign country by constructing new operational facilities from the ground up a level. Tesco entered the market of America by Greenfield investment under the name of ‘Fresh and easy’. Though it expanded at a slower pace but still it could stay there for five years.
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Place Your OrderInternational segmentation
It is necessary because when the targeted markets are segmented, they help the company in earning higher ROI. Tesco makes its strategies for segmentation by making use of the databases of customers which gives direct marketing messages to the company. The company segments on the basis of geography. It operates in 13 markets internationally. It pays great attention to the particular needs of each geographic segment and it makes subdivisions too between cities and local markets so that it can suit its products to the specifications of people. Then demographic segmentation is also done by Tesco. It makes use of the Clubcard to know about the variables like age, sex, family size and stage of life, the generation of income, occupation, education, social class, etc. and hence it classifies the customers in a better way ("Sharpen your marketing", 2008). The company does a psychographic segmentation by capturing the lifestyle of customers from the Clubcard and make the lifestyle magazines that target the different personalities of people and their tastes. Lastly, the company does a behavioral segmentation to know about the purchasing behavior of people like where and when do they shop, time spent by time on particular products, etc.
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Branding: Tesco has always tried to position itself in the international market by establishing itself as a popular brand. It has always introduced new products under a brand name like Extra, Superstore, and Metro, etc. almost 50% of the sales of the company come from its brand names. The company has developed a brand loyalty through the sale of its products, through aggressive advertising, increasing its visibility in the streets and offering customized products worldwide.
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Cultural issues: Since the company has adopted an adaptation marketing mix strategy, therefore it has to deal with a variety of cultures of different countries. It manages the cultures and places its marketing strategy successfully by understanding the behaviors of people in different cultures. It studies the values and preferences of people there by doing a market research in the country beforehand. As a brand, Tesco understands and takes into consideration the cultural factors of each market and makes the product and market strategy accordingly. Then the communication of marketing strategy of the company also depends on the religions, ethnicity, age groups, etc. of the people of the respective country.
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Distribution management: The operation of distribution of Tesco employs almost 1500 people. This shows that how big this function is. It has established its channels in every country it operates, and the competitors find it difficult to take over those channels.
Conclusion
Tesco has established a good reputation in the international market. It has used the strategy of acquisition, joint venture, and green investment to expand internationally. Tesco has always tried to position itself in the international market by establishing itself as a popular brand. The company has adopted a strategy of “think global, act local". The company tries hard to adapt the local cultural variances and responsiveness of the foreign customers for its products. Hence, it can be said that Tesco is more tilted towards adaptation marketing mix.
References:
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Tesco.com. (2016). Tesco | Online Groceries, Homeware, Electricals & Clothing. [online] Available at: http://www.tesco.com [Accessed 29 Apr. 2016].
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Barnes, R. (2011). The great Tesco beauty gamble (the Tesco supermarket chain?s marketing strategy for breaking into the UK beauty services market). Strategic Direction, 27(7).
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Wilkinson, M. (2000). The Tesco Roundabout. Books Ireland, (236), p.373.
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Taylor, J. & Udell, J. (1973). Successful Marketing Strategies. Journal Of Marketing, 37(4), 120. http://dx.doi.org/10.2307/1250370
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López, N. (2004). Marketing Mix and the Internet: Globalisation or Adaptation?. Journal Of Euromarketing, 13(4), 31-58. http://dx.doi.org/10.1300/j037v13n04_03
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Lages, L. & Jap, S. A Contingency Approach to Marketing Mix Adaptation and Performance in International Marketing Relationships. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.881841
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Robles, F. & Akhter, S. (1997). International Catalog Mix Adaptation. Journal Of Global Marketing, 11(2), 65-91. http://dx.doi.org/10.1300/j042v11n02_05
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Sharpen your marketing. (2008). BDJ, 205(5), 284-284. http://dx.doi.org/10.1038/sj.bdj.2008.787
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Barnes, R. (2011). The great Tesco beauty gamble (the Tesco supermarket chain?s marketing strategy for breaking into the UK beauty services market). Strategic Direction, 27(7). http://dx.doi.org/10.1108/sd.2011.05627gad.006
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Stone, M. (2003). Scoring Points: How Tesco is Winning Customer Loyalty. Journal Of Database Marketing & Customer Strategy Management, 11(2), 185-187. http://dx.doi.org/10.1057/palgrave.dbm.3240219
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Boothby, K. (2007). Tesco Stores Limited: The IDM Business Performance Awards 2006, Silver Award Winner and Innovation Winner Campaign: Tesco Clubcard — Simpler and more rewarding. J Direct Data Digit Mark Pract, 9(2), 191-197. http://dx.doi.org/10.1057/palgrave.dddmp.4350078
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Palmer, M. (2004). International Retail Restructuring and Divestment: The Experience of Tesco. Journal Of Marketing Management, 20(9-10), 1075-1105. http://dx.doi.org/10.1362/0267257042405213
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