Customer Relationship Management of Tesco Essay

This study explored the customer relationship management of Tesco. Tesco is the leading retailer in UK. It manages over a thousand supermarkets, hypermarkets, and convenience stores in the United Kingdom, Ireland, Central Europe and Asia. The study analyzed the customer relationship management, changes in consumer behavior, business environment, and PESTEL, which is very important in strategic and competitive study of an organization, especially in the retail and service industry. Since the retail industry undergoes very diverse change almost everyday, it is just right that Tesco’s strategy on change examined.

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In analyzing how Tesco is competitive, the study also utilized the SWOT analysis and Porter’s five forces for the industry attractiveness. The study arrived to the conclusion that customer relationship management system help organizations improve the profitability of their interactions with current and potential customers while at the same time making those interactions safer and friendlier through individualization and personalization. The systems goals are to enhance customer service, improve customer satisfaction and ensure customer retention (Tesco, 2010).

Tesco still needs the aid of Michael Porter’s five forces, generic studies and cost leadership in order to stay on the top in the retail industry. This report is aimed at critically analyzing customer relationship management, changes in consumer behaviour, macro, meso, and micro business environment of Tesco, one of the largest food and grocery retailers in the world, operating around 4,331 stores. Customer relationship management system and strategic evaluation tools such as PESTEL, Porter’s Five Forces, SWOT analysis have been used in order to achieve this aim.

Tesco- Company Overview. Tesco is among the largest food retailer in the world with revenue in excess of 54 billion pounds in 2009 and employing over 470,000 people. According to Datamonitor (2010), the commercial network portfolio of Tesco comprises: over 960 Express stores which sell approximately 7,000 products including fresh foods at suitable localities; 170 Metro stores which sell a variety of food products in town and city centres; and 450 superstores which sell both food and non-food items including books and DVDs.

Tesco also provides online retailing services trough their website tesco. com and Tesco Direct. In addition, they provide broadband internet connections and financial services through Tesco personal Finance (TPF). The comparative positioning of Tesco’s market share with respect to other leading players in the market has been illustrated as follows (Euromonitor, 2010): Fig 1: Share of Leading Players in UK Food Retail Market

Customer Relationship Management (CRM) is a business strategy that is facilitated and enabled by specialized technology. In conjunction with deploying new technology and initiating information engineering and knowledge management, no project of this scope should be launched if its does not address re-engineering processes across the service delivery model and the enablement and optimization of the people and the leadership that oversee it. It is an evolution that is enabled by web-technology that will allow the creation of micro-segments, precision targeting and full view of the customer across all the contact points across an enterprise.

One of Tesco’s key weapons in the battle for retail supremacy has been its Clubcard loyalty scheme and the subsequent launch of the Clubcard plus debit card. These have shown Tesco taking a clear initiative and then building rapidly on its advantage (Tesco, 2010). One footnote to this is that loyalty cards should be seen as a longer term marketing tool since they enable retailers to learn more about their customers’ shopping habits and respond accordingly with tailored offers.

Tesco’s Clubcard enable the retailer to communicate with the customer on almost a one-to-one level and develop an offer which can be heavily focussed towards individual consumers according to their purchasing patterns. Moreover, customer retention and customer loyalty are major benefits of CRM systems to the organization as it is working to retain existing customers by managing relationships with them will generally increase revenues and reduce costs.

Positive outcomes can include a larger share of a customer’s businesses as a result of activities such as cross-selling and up selling. When CRM works, it helps to solve this problem by meshing everyone together and focusing the entire organization on the customer. CRM requires commitment and understanding throughout the company not just in marketing as it adds to a sense of expectation and loyalty being instilled within the consumer and the development of a relationship between company and customer that competitors find hard to break.

Furthermore, the club card and customer retention can be linked through the use of the internet, as internet is now the most popular means of reaching and interacting with customers having such rewards of increased customer retention, growth and profitability with the most proficient at managing their relationships with their most valuable customers with the potential to tighten connections with better service, remember customer histories and requirements to deliver personalized solutions, and improve the synchronization of dispersed points of customer contact.

The study of consumers helps firms and organisations improve their marketing strategies. It is the study of individuals, groups, or organisations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these processes have on the consumer and society (Perner, 1999). Consumer loyalty cannot be fixed because they are constantly changing and consumers are correspondingly unpredictable in their behaviour.

The shifting nature of the symbolism of consumer wants and needs makes it seem apparent to marketers that consumers do not know what they want, but only what they do not want. Moreover, what is symbolic today may not be symbolic tomorrow or alternatively it may symbolize something that is unattractive. The task for marketers is to predict what will be a fashionable symbol tomorrow, and equally important, when tomorrow will be. Moreover, business competitors may copy or improve on a product or service but they still have to make the customers switch brands.

Brands loyalty or resistance to switching can be based on lack of motivation to change from the existing brand, a genuine liking for an existing brand or the actual cost of switching. Switching costs reflect the sunken investment that has to be sacrificed in order to switch from one brand to another. Switching costs will be lower for fast-moving consumer goods but clearly higher for durable consumer white goods. An existing base of loyal customers provides an enormous sustainable competitive advantage.

It reduces the marketing costs of doing business since existing customers are relative easy to hold whereas getting and retaining new ones is more difficult. The loyalty of existing customers represents a substantial entry barrier to would-be competitors. Excessive resources are required when entering a market in which existing customers must be cajoled away from an established brand with which they are well satisfied. The profit potential for the tentative entrant is thus reduced. Furthermore, competition is strong and the costs of getting new customers are high.

Customers that have been with a company for some length of time tend, on average, to spend more on each transaction, offer more opportunities for selling them other products and services and give better recommendations to their friends and colleagues than other customers. Customer loyalty is considered to be an important driver of success and increased profitability. However, customer loyalty and customer retention need to be distinguished from one another. Customer retention reflects only repeat purchase behaviour.

Customer loyalty, however, is more to do with how customers feel about the firm whether they trust the firm, whether they actively want to do business with the firm and whether they will recommend the firm to others. Customer loyalty is closely related to customer satisfaction. While retention can be obtained through discounts for repeat purchase and so on, getting high customer loyalty requires greater long-term investment. It involves emphasis on achieving excellent in the service activities that augment the basic product offering.

The PESTEL framework below analyses the dynamic and unpredictable environment in which Tesco operates by identifying the forces that have the most impact on Tesco’s performance: Political China’s accession to the WTO has promised a free flow of foreign trades by removing all barriers encouraging Western companies, including Tesco, to make way into the world’s most profitable market encompassing over 1. 3 billion people (Straits Times, 2010). In 2009, an agreement was signed by Tesco to set up a premeditated series of joint ventures for the development of shopping malls in China.

This joint venture included three malls: Anshan, Fushan and Qinhuangdao (Tesco, 2009). Furthermore, there have been promotion of free trading blocs by governments to benefit from globalisation (Lynch, 2003). There have been also immersion of 10 further countries into the European Union (EU) which took place in 2004 promoting trade between Western and Eastern European countries (BBC, 2009). This has provided Tesco with a platform to expand its retail network across the EU. Economic Economic factors are a matter of concern for Tesco since they impact directly on the buying behaviour of customers.

Although, the UK economy was declared officially under recession in 2008, the government’s substantial reduction in interest rates helped to minimise further rises in unemployment during 2009 (Euromonitor, 2010). As a result of this, the spending power of consumers is again on a steady rise as they are more confident about their current financial situation. However, there is still a lot of financial uncertainty meaning that consumers are likely to spend less on premium products, encompassing organics and ready prepared meals, which will adversely affect both sales value and margins (Keynote, 2010).

However, the positive aspect of recession is that the customers eat out less and eat more at home which provides opportunities for grocery retailers like Tesco to increase their output (Guardian, 2010). It must be noted that food is the last thing that customers will cut back on. The percentage of overall consumer spending on food has risen considerably over the years, as shown below (Euromonitor, 2010): Fig 2: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008 The economic downturn has been brought to light with the assistance of the following GDP growth graph since 1989 (Mintel, 2009): Fig 3: UK GDP Growth 1989-2009 Social UK population analysis shows that there are more retired people than children representing the Baby Boom generation (Herald Scotland, 2010).

The ageing population is discouraging for the food retailers older people tend to eat less. They are less likely to travel to supermarkets to shop compared with the younger generation. Although, internet literacy level drops over the age of 65 years within the population (Turban et al. , 2001), it has nevertheless een predicted that the ageing population would find on-line shopping more convenient. In addition, consumers’ attitude towards food is incessantly changing as they have become more health-conscious. An increase in the demand for organic food has been accommodated by Tesco to reflect this change in demand. Payment by cheques and cash at the checkout was first made possible by Tesco. Technological Technology is one of the key macro-environmental variables that have directly influenced the supply chain operation and processes of grocery and food retailers.

Subscriptions to the internet have grown by over 50% and it has been estimated that the internet is being used by 70% of the population in the UK (Office for National Statistics, 2010). In addition, mobile technology has also taken off as a platform for distribution within food retailing. New Wine App developed by Cortexica Vision Systems, for example, has been used by Tesco since 2009 via which the customers are directed to Tesco Wine enabling them to buy the selected wine directly from their mobile phone (Tomlinson & Evans, 2010).

Moreover, loyalty programs are being introduced through information technology which discourage customers from switching over to their competitors (Sun, 2009). Environment Tesco has introduced its Greener Living Scheme to give consumers advice on environmental issues including how to reduce food waste and their carbon footprint when preparing meals (Yuthas, 2009). Moreover, consumers reusing bags, recycling mobile phones and aluminium cans and preferring bagless deliveries are being rewarded through Tesco’s green Clubcard points (Tesco, 2010).

Tesco has added carbon footprint data on dairy products, potatoes and orange juice, and aims at expanding it to bread and non-food items in 2010 (Tesco, 2010). Legal It has been stipulated that VAT would have to rise to 20% since the government has to finance a huge budget deficit (HM Treasury, 2010). This will affect the non-food sectors of Tesco, such as clothing. Moreover, drawing upon the Low Pay Commission Report (National Minimum Wage, 2009), the 2008 and 2009 combined up-ratings have resulted in an increase in the minimum wage of 15. 5%. This will result in an increase of operating costs of supermarkets.

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