Strategic management refers to the process of planning, analysing, assessing and monitoring all the organisational activities so that all the organisational goals can be acquired and effective strategies can be formulated to get huge success in market. Emerging market trends and new technology affect the perception and demands of customers and it is very important for all the organisation to keep appropriate information of such factors (Doz, 2017). Leaders and managers of the company may get the information of organisation's actual position and image in the market with the help of strategic management.
It help to analyse the effectiveness of the decisions that are going to be implemented in upcoming period. Organisation chosen for this report is Tesco which is executing its business activities in UK. The whole project is based on the strategic analysis of Tesco which is going to be completed with the help of Porter's five forces and generic model.
Overview of The Company
Tesco is a British multinational retailer company who deals in grocery and general merchandise retail items. Its headquarter is in Welwyn Garden city, Hertfordshire, England, United Kingdom. According to its gross revenues it is the world's third largest retailer. It is the ninth largest retailer in world plumbed by its revenues. It has various stores across Europe and Asia. Tesco is the market leader in UK, Hungry, Ireland and Thailand with the market share of 28.4%. it was founded by Jack Cohen in year 1919 as a unit of sales booth (Eden and Ackermann, 2013). The name Tesco was first appeared in year 1924 after purchasing the shipment business of tea by its owner. The business of the company have started to attain success since year 1939. The organisation have started to operate business operations in 11 different countries sine year 1990.
According to the study in 2018 the organisation have started to acquire growth with higher percentage. Tesco has been listed on London Stock Exchange and also a constitutional of FTSE 100 Index. The business enterprise had market capitalisation of 18.1 Billion Pound in year 2015. Tesco is the 28th largest company with a primal listing on London Stock Exchange. The company is also investing its funds in a small film studio for the purpose of producing exclusive DVD's of Tesco. Currently the organisation is operating business with 440000 colleagues who serves million of customers all around the world.
Various issues and challenges have also been faced by the company. According to a market research Tesco was pulling out of the market of US in which fresh and easy stores get highly affected. It has resulted in 1.2 Billion pound loss for the organisation. Tesco has two options sell the business or come back with a new idea. Second idea have been chosen by the company and in September 2013 in which tablet computers were launched for the first time by Tesco. Currently business is executing it business with 3433 shops in the world (Evans, Stonehouse and Campbell, 2012).
Strategic management for Tesco is very important because a small mistake or a wrong decisions may affect the profitability of the organisation. It may help the managers to evaluate the result of their decisions and strategies in advance so that their appropriateness can be measured. Proper strategies are used by the managers of Tesco so that business can be operated effectively. These strategies are Porter's five force and generic model.
Porter's Five Forces
It was introduces and developed by Michael Porter to analyse attractiveness of the sector that may help to determine profitability. It is used by businesses as a strategic management tool that may guide the organisations to evaluate the external market so that competitive advantage can be achieved. It help to determine the competition which is available in the market. It guides the companies to identify those factors that are related to industry and impacting businesses whether positively or negatively (Ginter, Duncan and Swayne, 2018). Organisations may implement core competencies at their workplace in order to enhance their profitability.
All these forces may help the managers of Tesco to analyse all the forces that may affect the business and its operations. Direction for the formulation of effective strategies can be acquired by this model in which marketers, leaders and managers of the organisation may decide to overcome market issues. All the forces are described below:
Threat of substitute products or services:
Substitute products are used by organisations to fulfil same needs of customers so that large market share can be captured. If an organisation is selling a product on higher price and another company is selling the same product on less price than customers get attracted toward that product as they always try to buy products on less price. Sometimes this may also affect the brand loyal customers who have been retained by the company from a long period. This force can also affect the profitability of Tesco as there are various substitutes available in the market who may reduce sales by attracting customers.
While managers of Tesco are willing to increase price of its products than it should make sure that the price is pocket friendly for the customers or not. If a similar product is meeting the needs and demands of customers than it make the industry suffer as the profitability will definitely going to be affected (Grunig, 2013).
Tesco is dealing in large rage of items like home appliances and electrical, toys, clothing and jewellery, baby and toddler, garden and health and beauty care. This range is extremely comprehensive and same products are also provided on less price that may affect the future sales of Tesco and also going to affect profitability in future. All of them can be dealt with the help of effective strategies like enhancing switching cost for the consumers, to be service oriented rather than to be focused on product, identify the main need of the customers etc.
Source: Porter's Five Force Model, 2016
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Bargaining power of supplier:
It can be defined as the market of input. Suppliers provide raw material and other components that are required to manufacture or produce the products. If there are few suppliers in the market than they may sell the goods on high price and the companies may not have any other choice to buy goods form others (Hill, Jones and Schilling, 2014). On the other side if there are end number of suppliers than it may help the business entity to buy goods on less price. This may help to increase profits and save monetary resources so that operational activities can be performed effectively. Bargaining power of Tesco with its supplier is low as organisation is buying products from limited suppliers who assure the quality of goods hence the organisation is not able to bargain with them as there are limited suppliers. It is very important for the companies to have good relations with their suppliers so that it may benefits them in future. Tesco may deal with such type of forces by building effective supply chain with different suppliers, try experiments by selling good with multiple materials etc.
Rivalry among existing firms:
Rivalry in retail and food and beverage sector is extremely high and organisations have to face competitions with other companies who are operating business under the same sector. It is very important for all the companies to have information of their challenger so that appropriate policies can be implemented at workplace to ignore competition. Having information all the available rivals in the industry may help to use effective methods to market products and services to grab attention of the customers. A business enterprise should have knowledge of competitor's marketing strategies so that more effective strategies can be used to deal with all the challenges that have been occurred due to high competition. Tesco is having a tough competition with companies like Sainsbury's, ASDA, ALDI and other who are operating their business in the same industry (Porter's Five Force Model, 2016).
High competition may result in increased cost of marketing, promotions and advertising activities as Tesco have to use more appropriate strategies that may help to acquire more profits as compare to other companies. It is also very important for Tesco to retain its customers by providing them good quality products this will help to enhance profitability. Tesco is currently operating business with higher market share but organisation is also having threat of a merger of Sainsbury's and ASDA because after this merger 30% of share is going to be acquire by them. This merger can also affect profitability of whole organisation.
Bargaining power of customers:
It refers to the power of customers that may influence the company to change the prices as customers are not satisfied with the price that industry is charging for a particular product. The bargaining power of them can be controlled by whole sector if it is having idea of few factors like buyer density to firm concentration ratio, switching cost of customers, appropriate information about the substitute products and price sensitivity of buyers. Tesco is dealing with high bargaining power of customers as there are various retail stores available and they feel like king of the market. If there are end number of same companies are available in the market than buyers will definitely bargain as they have different options and they will choose that company who is providing products on lower prices (Hill, 2017).
Threat of new entrants:
It refers to the launching of new companies in the same industry. New and innovative ideas are continuously launching in retail industry in which threat to the existing company has been increased. As old companies are using traditional techniques in their companies and the new companies are launching with new techniques because they have more creative ideas in the industry. Tesco is also dealing with the same force as it has the threat of new entries in the same sector who may target the acquired market of Tesco. Tesco may tackle these threats with the help of using innovative techniques in supply chain and use new market trends retain all its existing and attract prospect customers. It can also be resolved by building effective economies of scale to lower the fixed cost per unit of production. Tesco may invest more in the activities of research and development so that market information can be gathered and products can be modified according to perception of customers (Hitt, Ireland and Hoskisson, 2012).
All the above mentioned forces are affecting the business on retail, food and beverage and supermarket sector because of increasing competition in the market. For Tesco it is essential to have all the information about the industry as this may help to formulate effective strategies to deal with challenges. Customers and supplier's bargaining power may impact upon the marketing and other promotional activities of the company. Organisations are trying to grab attention of customers and acquire higher market share with the help of effective policies.
Porter's generic model
Porter's Generic Model:
This model is used to identify the position of the business in the industry. It also directs the companies to analyse that profitability of one company is higher or lower than industry average. Competitive advantage and long term sustainability can also be measured with the help of this strategy. Managers of Tesco may also use this model to get the idea of organisational performance and market image as there are four different type of strategies in this theory (Porter's Generic Model, 2018). All of them may help to identify that organisations is operating its operations effectively or not. Management of Tesco is using Porter's Generic model to evaluate position and performance of the business and its competitive advantage in its sector. All of them are explained below:
Porter has introduced this strategy to gain competitive advantage and long term sustainability in the market. It is possible with the help of proper market research. It guides the companies to be a low cost seller or producer in the industry so that higher market share can be acquired. Tesco needs to be more customer oriented so that it may offer products to the customers according to their budget (Keupp, Palmié and Gassmann, 2012). If the organisation is offering products on lower prices than large number of individuals get attracted toward the company and this will result in increased sales of the organisation. Cost can be reduced by effectively managing all the monetary resources and the process of selling. Cost leadership can be acquired with the help of mass production in which large number of products are stored and all of them are sold on lower prices. This step of Tesco may help to increase its contribution in the industry's profit and meet the industry average.
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Source: Porter's Generic Model, 2018
In this strategy the organisations launch a new product in the market with new and innovative products or some unique features so that attention of the customers can be grabbed to acquire higher market share. This may help to be more competitive in the market and attractive in the market (Meyer, Neck and Meeks, 2017). It is very important for the organisations to provide some new and innovative products or services to the customers so that they may be retained for future perspective. Tesco is a leading retailer and supermarket of UK and it is providing good quality products or services to its customers which is beneficial for the company as it may help to retain them and also pull new and prospect consumers. Differentiation element is very beneficial for the company because it can result positively for the company as most of the individuals look for this factor in products and services and than make buying decision.
In this step organisations launch a product with low cost in a small market segment so that reaction of the customers can be recorded and this will help to make future decisions. Tesco can also use this strategy to be more competitive in the industry because it may get the idea of customer's reaction to its products by launching them in a small market segment. This strategy is mainly focused with cost in which existing products are provided to a new and small market on low cost. It is very beneficial for Tesco because this may result in increased market share and number of customers. Mainly the niche market is targeted in this type of strategy by the company as it is the best way to record feedback of the customers on the products or services. While thinking for expansion it is the best strategy that can be implemented by the organisation as response of a small market segment may help to take appropriate decisions about the marketing and launching in new market activities (Ward, 2012).
In this strategy companies mainly focus on addition of un9ique features in their products for the purpose of expansion of business. This strategy is very beneficial for the companies because unique things always help to attract customers. Tesco may also use this strategy by launching an innovative or unique product or service in niche market to analyse that it is able to achieve competitive advantage in the market or not. It is essential for Tesco to formulate such strategies to that may help to be more competitive in the market. Brand loyal among customers can be spread with the help of differentiation focus technique because a unique product which is made according to perception of customers can help to increase sales and also retain consumers for a long period in future. Strength and competencies of the company may help to choose the right strategy that may help to attain organisational goals and objectives.
All the above mentioned strategies can be used by the management of Tesco because it is very important for the company to expand it business in different geographical locations so that different type of customers can be attracted. If Tesco is willing to be more competitive in the industry than it is essential for the company to have idea of market conditions and the trends so that a new product on a new location can be launched to acquire large market share. From all the strategies differentiation focus strategies should be adopted while expanding business as Tesco is having good market image and this may help to attract customers (Wheelen and et.al., 2017). Positive marketing image and unique features of services and products of the organisation can help to expand the business more effectively.
From the above project report it has been concluded that strategic management may help an organisation to determine the result of the actions that are going to be implemented in the future. Companies may use two different tools for strategic management these are Porter's five force model and generic strategy. Both of them may help to analyse the forces and factors that are affecting whole industry. This will also affect the business on the enterprises who are operating business under that particular sector. There are various external factors that may result negatively for the businesses. These factors are competitors, perception of customers and their needs.
It is recommended to the managers of Tesco to implement effective strategies so that the business can be expanded all around the world. The organisation may use Porter's five force and generic strategies to be more competitive advantage. As there are various competitors in the market than it is essential for the company to use effective tools and techniques to get less affected due to their business activities.
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