Founded in 2001, Tesco Stores (Malaysia) Sdn Bhd owns and operates hypermarkets under the name Tesco and Tesco Extra in Malaysia however Tesco Stores (Malaysia) Sdn Bhd operates as a subsidiary to TESCO PLC with a joint venture together with Sime Darby Malaysia. Tesco Malaysia is based in Kuala Lumpur with stores in Kuala Lumpur, Selangor, Perak, Penang, Kedah, Negeri Sembilan, Melaka, Johor and Kelantan amounting of a total of more than 41 stores in Peninsular Malaysia. Tesco Malaysia offers fresh produce, groceries, household essentials, it’s own brand of both food and non-food items and even apparels in all of their stores (BLOOMBERG).
Tesco Malaysia have a market share of 11% in the domestic grocery retail segment and have more than 41 stores in Peninsular Malaysia and plans to increases their market share with having over RM3.0 billion investment made Malaysia since 2002 and have more than 13,000 local employees in all of their stores nationwide (EDWARDS, Tim, 2010).
General Environment Analysis
In the present up-to-date environment for supermarket retailing industry operates their business in highly competitive environment.
There are various environmental factors, which influences the operation of the organization.
Tesco Malaysia have a a few core competitors in Malaysia, all of them are leading supermarkets withe their own share of market segments and operates in the similar nature and offers similar range of products. The competition for Tesco is highly competitive in Malaysia as the quality of products and services offered by Tesco’s competitors are relatively the same.
However with it’s expansive operational network, Tesco Malaysia got a leading position since it has outlets vary in size in all around Peninsular Malaysia. Tesco ensures its distinct identity by introducing smart marketing mix followed by carefully designed promotional mix to keep themselves to be ahead of their competitors. Competitors for Tesco Malaysia are Giant, Carrefour, Econsave, MYDIN, The Store and the relatively new Aeon Big (GROCERERS, Malaysia). Ansoff Matrix Strategy
Increasing share in the current market and obtain dominance with the same product or services can be said to be market penetration.. This can be done by either driving out competition or change the existing market. Tesco to improve long-term growth strategy by firstly penetrating the market. The market penetration of Tesco Malaysia can be seen by the purchasing of Makro Malaysia stores in 2006 to boost its market share by rebranding Makro into Tesco Extra. This move was a strategic acquisition by Tesco to strengthen its position in Malaysia and become a market lead in one of Tesco’s statement on the acquisition. (REUTERS, 2006) Stated by Tesco Malaysia’s CEO Georg Fischer, Tesco Malaysia will expand its presence by opening more stores in 2014 to not only penetrating the Malaysian market (TENG, Liew Jia, 2013).
Market development to expand the market and customer base, with the products that a company offers. The move of Tesco by introducing online grocery shopping is a clear example of market development by Tesco. This is a new distribution channel for Tesco to market themselves and capture the spenders as Tesco realise the need of the Malaysian market which is now more tech savy.
Product Development main function is to create new products for the already existing market. Tesco Malaysia recently expand its product range by launching a new range of products for babies – the Tesco Loves Baby range which comprises of three main product categories which is diapers, wet wipes and toiletries. Tesco Malaysia commercial director stated that the Tesco Loves Baby range of products is developed with care and go through stringent test before marketed on the market.
This range of products also went through panel test where only products that pass is only then sold to the public (SUN, The, 2014). Aiming to provide the best value to customers, Tesco Malaysia which also launches a new product range which compromises of 400 house hold items called “Tesco Everyday Value”. The two strategic move by Tesco Malaysia is clearly product development by them to increase market share. Market Diversification
Over the years, Tesco had not only diversify it’s products and services to their customers in order to create a whole new market rather than plunging in the red ocean market. For example, the move of collaborating with Touch ‘n Go to improve their existing Clubcard program. By doing so, the Clubcard doubles as a loyalty card and also a Touch ‘n Go card where customers can enjoy more benefits. The partnership enables customers to reload and make payment at TESCO more convenient. This move proves that Tesco always seek to diversify not only their existing products but expand the ranges of services it can do for the customers in the market diversification viewpoint.
Porters Generic Strategies
Porter’s three generic competitive strategy is the fundamental and cardinal strategy under strategy formulation which individually are overall cost leadership which produce standardized products at low cost for price sensitive customers, differentiation which offers unique product of services to customers and focus which focus on a particular market segment (M.THENMOZHI). Overall cost leadership is a strategy which tries to provide products to customers with the lowest price in which this strategy needs continual and remarkable ways to reduce cost without setting back the products quality.
This strategy best used when, the industry have similar products, market is full with price sensitive customers, minimal ways to achieve product differentiation and etc (MITCHELL, Rex C., 2009). This can be seem clearly in Tesco Malaysia move to have a consistent daily reduced prices in selected items in their store they call “Everyday Low Price” (appendix A)which consumers preferred compared to special promotions or offers during a certain period which is a proven to have increased customer satisfaction and also retaining customers (STAR, The, 2014).
Besides that, Tesco Malaysia also implements the differentiation strategy as to achieve differentiation is to be unique and different with others regardless (M.THENMOZHI). This strategy can be seen with the collaboration between Tesco Malaysia and RHB by offering ‘Easy by RHB’ at selected Tesco stores. “Easy by RHB” program offers simple, fast and convenient banking experience within 10 minutes by RHB in certain Tesco stores. This shows that Tesco is thinking the requirements of their customers by taking a few more steps by collaborating with companies for a mutual gain. This new banking concept allows Tesco’s customers to do hassle free banking during breaks or even after working hours.
This concept is a clear example that Tesco applies differentiation strategy as to be the first and only hypermarket in Malaysia to supply banking for their customers (BERNAMA). Moreover, Tesco also introduces the TESCO-RHB card (appendix B) which doubles as a customer loyalty card and also a credit card which enables users to enjoy benefits during their shopping experience in TESCO. As quoted by Gary Hamel and C.K Prahalad, “the essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. This statement correctly depicts Tesco’s strategies to be different.
Marketing Segmentation and Market Target
The current day forces, marketing concept calls for understanding customers and satisfying their needs better than the competition. However as different customers have different needs, and it is impossible to satisfy all customers by treating them alike. Mass markets treats the market as a homogenous group and offers the same marketing mix to be applied to all customers (NETMBA). However, the setback mass marketing is that customer needs and preferences is unable to be satisfied as a whole .
For the instance for Tesco Malaysia, by implementing this strategy, Tesco ignores market segmenting differences and target the whole market with one offer, it focus on what is common in the needs of consumer which is lower product prices rather than on what is different in their competitors. By doing so, Tesco enables themselves to serve more customers as majority of the customers go to Tesco for a common reason – lower product price which is align with Tesco’s slogan “Cheapest price everyday”.
Besides that, Tesco Malaysia stores are usually located at urban and sub urban location with are usually have a dense population. This is clear that Tesco is to be using Geographic segmentation to segment its market. As stated by Philips Kolther, an effective marketing segmentation should be measureable, accessible, substantial, differentiable and actionable. Tesco Malaysia is using mass marketing targeting strategy to market itself to the mass. To talk about all the attributes mentioned above, let’s take Tesco Extra Cheras as an example.
Tesco Extra Cheras has approximately 250,000 citizens and its average income is higher than other suburban or areas in proximity with Cheras (2010). Tesco Extra Cheras can also easily reach to its customers by using flyers, tv commercials, brochures, catalogs, and other methods of medias to communicate with it’s customers. With approximately population size of 250,000 the potential customers is substantial for Tesco to open a store in the area for a long term profit.
Stated in market segmentation, as Tesco is applying a mass marketing approach their customers, this can be say that Tesco are using the undifferentiated targeting as Tesco ignores the obvious segment differences that exist within the market and uses a marketing strategy that is intended to appeal to as many people as possible. Fundamentally, media campaigning are the essential tools are used by Tesco to reach out as many consumer as they need to increase sales (BOUNDLESS). Tesco’s general advertising comes in many forms for maximum exposure to reach the public in the hope that some of them will be interested to visit Tesco stores for grocery shopping.
Marketing Targeting Tools
Tesco too needs to fork out heavy investments on media campaigning even though its market presence is humungous this can be seen the RM40mil investment in order to ensure the continuation of their long-term everyday low prices campaign (STAR, The, 2014). The highly competitive environment of the industry forces Tesco to always come up with innovative and fresh ideas when it comes to media campaigning to reach out to their customers as media campaigning has been proven to be one of the most effective tools in promotional strategy and marketing.
Obtained from Mandate, Tesco’s advertising firm in Malaysia , Tesco have numerous TV commercials which highlights it’s essential promotions and also messages which they would like to communicate with their customers. Tesco not only focuses on TV commercials but also advertises on radio broadcasting advertising to reach the masses which also highlights it’s key campaign messages or festive season messages. The TV commercials by Tesco are designed to have eye catchy moments to ensure that customers remembers the messages that Tesco is trying to commune to them (MENDATE)
In a highly competitive market which Tesco is facing, it has to keep up with innovative promotional strategies and besides keeping it’s traditional promotional addressing methods. To do so, printed advertisement on billboards are usually provocative, memorable yet tranfers the message of having low prices at TESCO. For the ease of their customers, Tesco also prints weekly catalogs for their customer’s reference on the low prices they have (MENDATE).
The best way to explain the marketing mix is that having the right marketing variables which incorporate together to produce the best results it wants from the target market which is compromise of the 4P’s : product, price, place and promotions (MINDTOOLS). In short we can say “Putting the right product in the right place, at the right price, at the right time.” The discussion in the context of Tesco shall be discussed individually in each of the elements of the 4P’s.
Tesco offers a full line of house brand products which offers a broad variety at a lower price than other commercial products. For instance customers can find Tesco Choice and Tesco Value products are any Tesco Malaysia stores which are value and quality oriented rather than the conventional trendy, eye catching packaging of the other products. On weekends, sampling activities are held to allow customers to test the product before they purchase it and if the customer found the product was damaged after they purchased it, they can return this product to any Tesco stores and exchange for new one. Besides that, Tesco offers lot of value added services such as free parking, customer service, full air condition, baby room, toilet etc at their stores in order to attract more customer and gain customer loyalty. This strategy successfully grab the customers that emphasis more on the value instead of brand.
One way to obtain cost advantage by TESCO is by having contracts with large suppliers for cost advantages, enhancing it’s distribution channel process, and etc. Thus, competing organizations in the industry will have to slash their costs by a comparable quantity. Tesco in terms of size will be capable of sustaining a competitive anchored cost leadership by doing so. Tesco have various ways to keep up with their competitors, among of it is cost-plus pricing. Cost-plus pricing strategy is where adding a standard mark-up to the cost of product.
Another pricing which Tesco implement is cost based pricing which sets the prices of items on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk. However this strategy can only be applicable to their house brand products as this is the only range of products which Tesco manufactures their own, Therefore, Tesco brand products are cheaper by 30-40% (PHILIP KOLTER, Gary Armstrong, 2013). Last pricing strategy Tesco adopted is Good-value pricing. This pricing strategy is based on the the combination of quality of items or products at a fair price. This can be seen by the implementation of “everyday low price” campaign by Tesco in which they charge different products at promotional price in everyday basis.
All Tesco stores are strategically located in which are usually located in high population housing areas or the city in which results in the need of a hypermarket for the public to buy daily essentials. Besides that, having strategically located at dense population areas, it also means that consumption also higher and the sources of customer are sufficient for Tesco. All Tesco stores are fully air conditioned. Hence customers feel comfortable when shop in the store. To increase the shopping experience of customers, there are restaurants and cafés available in the store such as Pak Hailam Kopitiam, The Chicken Rice Shop, KFC etc to allow customer take a rest and fulfil hunger. Indoor and outdoor parking lots with cover are available for customer who driving to Tesco and it’s free of charge.
Tesco uses lots of consumer promotion tools such as sample, coupon, premium price pack and contest to accomplish sales promotion objectives. Sampling activities are offers of a trail amount of products to the customers in which before they purchase the items. Coupons enables customers to have a saving when purchasing is made of a specified product. Tesco often issue coupons to its loyalty member and with these coupons, customer can buy the goods at lower price. The Tesco’s approach to their promotions are a long term plan which aims to win the hearts of their customers with various promotions such as the “Let’s celebrate” campaign and “Back to school” campaign in which to capture the public to spend at Tesco with a cheaper product price (TESCO).
Tesco had always understand the needs of the customers and had position themselves in a way in which the marketing plan will be effective to ensure all the resources are used effectively and efficiently by identifying all the underlying factors which will have a positive effect for the business. This study concludes that Tesco Malaysia had been able to make use of marketing strategy and management to gain advantages for the local market.
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