Answer

Why Tesco UK should conduct an analysis of the UK marketing environment

Technological advancements and globalization have been cited among the powerful factors that are continuously shaping the business environment. For this reason, the business environment is extremely turbulent, thus making it hard for organizations to survive. According to Sahoo (2020), marketing environmental analysis denotes the application of strategic analysis tools to enable identification of factors within the external and internal environment that affect the profitability and sustainability of a business. As much as a business could have effective internal processes, it is important that it continuously evaluates the external environment and identifies how the changing dynamics affects its competitiveness (Venkatesh, 2017). For this reason, Tesco should conduct an analysis of the UK marketing environment to understand how changes in market dynamics affect the performance of the organization. Using the data and information collected, the organization can re-strategize on how best to counter rivals (Harvey, 2018). Secondly, the data collected through an environmental analysis is important in guiding decision making. Backed by these reasons, this research paper details a marketing environmental analysis for Tesco.

Analysis of Marketing Environment using PRESTCOM and SWOT and application to Tesco

PRESTCOM

The term PRESTCOM is an acronym for political, regulatory, economic, social, technological, competitive, organizational, and market factors (Richardson, 2019). This section analyses each of these elements in relation to Tesco.

1. Political Factors

Tesco’s global operations expose it to political factors. The company is exposed to different legislations, tax rates, exchange rates, and diverse levels of political stability. For instance, the Brexit vote has been a key destabiliser to the political environment in the UK. However, the increasing bilateral relations between countries increases optimism that the country will enter new partnerships that will boost Tesco’s access to new markets.

1. Regulatory

This element is linked to the political factors. However, regulations focus more on the level of government’s control over a business. The most significant regulations affecting Tesco’s operations include the sales and goods Act, which protects retail consumers, the safety and work Act of 1974, which has an impact on workplace hygiene and safety for Tesco’s employees, discrimination Act of 1975, employment equality regulations, disability Act, and minimum wage Act (Awadari & Kanwal, 2019; Hindryckx, 2015). Other regulations are set by international bodies such as the World Trade Organization (WTO) to regulate business operations across countries.

1. Economic

Economic factors include exchange rates, inflation, recessions, and cyclic factors. The UK has been among the worst hit countries by Covid-19 (Romei, 2020). As a result, people have lost their employment, businesses have come to a standstill, and worse still, there is supressed consumer spending. Two-thirds of the firms interviewed have blamed the global health pandemic for the negative economic outlook where the global economy is in a recession. More than 96% of the retailers have cash flow difficulties, 44% have laid off staff, while 39% have shut down (Elliott, 2020).

1. Social

Social factors entail understanding social dynamics within a given market. These dynamics affect stakeholder’s attitude towards the company. An analysis of consumer trends shows that households and individuals value one-stop bulk shopping (Sawyer, 2014). This change in consumer behaviour requires retailers to provide diverse goods. Additionally, consumers are more aware of the need for healthy lifestyles (Caroll, 2019). As a result, they are avoiding products that increase their health risks. Tesco has responded by investing in organic and healthier alternatives.

1. Technical

Technical factors are divided into processes and materials. The technicalities of improving services and products presents a challenge to retailers such as Tesco. These firms are forced to constantly update their technical capabilities to catch up with emerging market trends (Jain, 2016). For instance, there is a need for additional investment in research and development of better processes, and products that are sustainable. Additionally, Tesco needs to embrace technologies that help reach more customers such as e-commerce.

1. Competitive

Competitive factors are one of the most important aspects that influence performance of a firm. The retail industry is very competitive and this is a disadvantage for Tesco which has to be innovative to maintain its market share (Garza-Reyes et al. 2017). The emergence of the discounter, namely Lidl and Aldi, has intensified the competition, thus forcing Tesco to introduce the Jack’s supermarket chain to compete directly (Rahman, 2016; Caroll, 2018).

1. Organizational

Organizational factors refer to internal issues within organizations that affect their ability to market themselves and compete successfully. These factors could range from structural and organizational politics which has proven to deter internal progress. In the case of Tesco, the company lacks a solid succession planning scheme and thus, it is currently facing a leadership crisis (Caroll, 2019). Such a crisis is known to negatively affect a company as evident with the reshuffles of CEO and other senior leadership that has contributed towards Tesco’s declining performance since 2014.

1. Market

Market factors reiterate the need for an organization to understand its market. Some of the factors that need to be considered include market size, market structure, growth, and market share. An analysis of the UK market and the international markets where Tesco operates shows that its markets are saturated with local and international firms. This includes the UK where an exit from the European Union might further reduce the market size (Camilleri, 2018). Because of the saturation, the company is finding it hard to develop its market. As a result, it is important that the management considers internationalizing into emerging economies with large populations and high disposable income.

SWOT Analysis

The four elements of this analytical model are examined as follows.

1. Strengths

These are the internal factors within an organization that influences a firm’s ability to achieve sustainable competitive advantage. Tesco’s key strengths are outlined in this section.

The first strength is that Tesco is the biggest grocery store in terms of market size and market share. The company has established its stores across the UK and other countries through acquisitions and organic growth. By fiscal 2019, the company had more than 3,968 stores in the UK and in Ireland (Mintel, 2020). The increased presence across local and international markets has helped Tesco expand its market share to 28.1%. In addition to this market development, Tesco has a wide product portfolio, including retail stores, banking services, petrol station, broadband market, electrical items, clothes, and personal finance products.

Highly skilled employees and leadership team. The Company invests in training, development, and appraisal of its employees. This strategy has helped elevate their productivity (Laffy & Walters, 2016). Tesco has high levels of customer satisfaction and positive consumer feedback. The company maintains an efficient customer relationship management department responsible for handling customer related issues and marketing the company’s products (James & Cooper, 2020).

Tesco has a strong brand portfolio backed by a reliable network of suppliers and distributors. Suppliers are essential for providing raw materials and other inputs while the distribution network is essential in facilitating efficient access to customers (Siggelkow & Terwiesch, 2019). Combining these factors has enabled Tesco to outdo its rivals.

As a result of these factors, Tesco has a high brand equity as evident with the many awards it has received. Some of these awards include the Drink Award, 25 times winner of the Grocer’s Label Food Award, and British Favourite Supermarket Award.

1. Weaknesses

One of the weaknesses is the poor corporate governance that contributed towards accounting fraud scandal in 2017 (Schleimer, 2018; Ismail, 2017). The company underreported its revenues and earnings to evade tax. The resultant law suit tainted the reputation of the brand (Pavliuk & Noda, 2020; Utami, 2018). In addition, the company made financial errors during the same period. For instance, in 2014, the management admitted that it had overstated its forecasted half-year profits by £250m.

Decreasing profit margins. In 2013, Tesco reported a drop in profitability for the first time in 20 years (Jones & Comfort, 2020). The decline has continued over the past five years. The problems worsened in 2014, leading to reduced consumer and investor confidence in the brand.

The company lacks solid investments in upgrading its technologies and e-commerce platforms (Prause, Hackfort, & Lindgren, 2020). The lack of advanced technologies has been a big disadvantage to the company as it is unable to effectively compete against aggressive rivals using technologies.

1. Opportunities

The company has the opportunity of intensively investing in e-commerce to reach local and international customers. According to Paluzzi (2020), prospects for e-commerce have grown over the past five years owing to the increased internet penetration and accessibility to mobile devices.

Policies touching on sustainability and environmental conservation present opportunities for first movers since innovating environmental friendly and sustainable products will entice pro-environmental consumers (Masterson, Phillips & Pickton, 2017).

Given that the UK market is saturated and threatened by political uncertainty due to Brexit, Tesco could explore opportunities presented by emerging markets, especially the BRICs (Brazil, Russia, India, China, and South Africa.

1. Threats

Intensive rivalry in the industry: Tesco competes against larger rivals, including Sainsbury’s ASDA, The Cooperative, Costco Wholesale, Morrisons, ALDI, LIDL, Carrefour, Kroger, and Waitrose (Alzoubi, 2020). These firms reduce Tesco’s market share.

Secondly, Brexit has caused uncertainty on the future of the UK’s relations with the wider European Union. It is possible that this political factor will increase supply chain costs and risks.

Covid-19 pandemic has destabilized domestic and international markets (Retail Economics, 2020). It has raised fears over increased unemployment, inflation, and a possible economic recession globally.

Matching Opportunities to Strengths and Threats to Weaknesses

The main opportunities identified through this analysis is the possibility of exploiting emerging markets. Tesco could tap into this opportunity by engaging its skilled workforce. The company can easily increase its shares and in return, collect more cash to finance its expansion to the target countries such as Brazil, Russia, India, China, and South Africa (Rosnizam et al. 2020). If properly managed, Tesco could make considerable profits and redeem its declining market share and performance. The second opportunity is the possibility of conductive extensive research and development to produce sustainable products. This could range from healthy food alternatives or introduction of products with a low carbon footprint. This opportunity aligns with two strengths—highly skilled employees and high brand equity (Laffy & Walters, 2016). Combining these two factors increases chances of Tesco will successfully market its new products and services to the customers. On the other hand, the customers will quickly embrace the products because of Tesco’s high brand equity.

Regarding the alignment of threats and weaknesses, poor corporate governance is a big hindrance to the firm’s ability to manoeuvre the threats posed by Brexit and Covid-19. These two threats have disrupted markets globally. It requires an experienced team of leaders to successfully lead Tesco through these challenges.