Tesco's Online Success: Critical Review - Iloka Benneth Chiemelie, Joseph Madudim

INTRODUCTION

The relationship between diversification and firm's performance is one of the most debated topics in strategic management and finance fields (Ramasamy et al., 2002; Santalo and Becewa, 2008). Diversification is a strategic choice of a firm to improve performance, but offering customers products and services that they were not offering before, or by satisfying a certain unsatisfied market with their needs and wants.

Tesco, being the largest grocery store in the United Kingdom has been able to conquer the consumer markets for FMCGs conventional, but with the development in internet technology, the company found new ways to gain more company shares. This is primary reason behind the established of Tesco.com, to provide convenience to customers; by bringing their goods to them, instead of the customers coming to their shops.  This is a great strategic approach, and made Tesco.com the market leader by 2008 with 21% of the online grocery sales in the UK.

This essay is basically developed to further illustrate the strategic approaches that have helped Tesco.com become successful in the United Kingdom. As an e-marketing concept, the business strategy (diversification) adapted by Tesco.com was treated in reference to e-business approaches. The internet is an essential business tool for companies that diversify, due to its high reach of customers and penetration of the global market in a borderless mechanism. Companies that utilize the internet as part of their business and marketing tool can use this to create a competitive advantage, because the internet offer real-life supports to virtually all the customers at the same time. For instance, the customer relationship department can send a discount voucher to all Tesco.com customers instantaneously, just by selecting their emails, inputting the voucher and clicking the "send box".

 This essay is divided into three sections. The first section which is the introductory part lays light on the business concept of diversification and approaches adapted by Tesco.com. The second section discusses these approaches, and how they have led to success in Tesco.com. the final section links the diversification process to the business model that best described Tesco.com's approach in their business as well as providing conclusion on the discussed topic.

 STRATEGIC APPROACHES THAT HAVE HELPED TESCO.COM ACHIEVE ONLINE SUCCESS

Performance rates and strategies adapted by international retailers represent an important area of practice and scholarly research (Williams, 1992). Pioneered by European firms, international retailers have witnessed high rise in foreign expansions over the past 40 years (Dawson, 1994, 2007). Though retail industries represented the largest sectors of the global economy in 1993, no retail firm was included by the list of top 100 transactional companies (TNCs). But in 2003, the number of firms under retail services within the top 100 TNCs list grew to 14, and each of these firms had over US $10 billion in annual sales from international markets (United Nations, 2005).

Currently the leading food retailer in a highly competitive UK market, Tesco has other expansions in Europe, Asia and America as well. Thus, international marketing and e-marketing is no longer an option but a necessity for Tesco. Have been successful offline, Tesco decided to conquer the global market by going online; this later turned out to be a success story for the company as they gained 27% online market share in the UK by 2008, measure by number of visitors and completed online transactions. A profile ran on Laura Wade-Gery, the CEO of Tesco.com provides an insight on the online strategies that are behind Tesco.com's success. These strategies are as discussed below.

PRODUCT RANGE DEVELOPMENT AND PRODUCT LINE EXPANSION

The success over-seen by Wade-Gery has been achieved by a combination of initiatives. Tesco.com not only handled over 150,000 grocery orders per week, but have also expanded into intangible offerings such as e-diets, music downloads and online comparison sites. The centre of operation for many consumer packaged goods is the brand management system, which has also been a role model for industries. This phase has seen changes recently, as new retail formats, private label and generic procedures as well as market changes have undermined profits (Armstrong et al., 1996).

The answer by retail industries is to improve operating efficiency and services (Pontin and Hunter., 1995). This effort is generally referred to as efficient consumer response (Robins, 1994; Yohalem, 1995). The main objective is to eliminate waste and increase service delivery through demand-driven supply chain management. Wade-Gery adapted this formula as a means of achieving synergy between ranges of services offer by Tesco.com. The company proceed to acquire e-Diet and advertised their partnership with e-Diet in their over 10 million mail deliver per annum.

As a measure of keeping focused on their product range, the company sold iVillage.co.uk back to its American owner as the CEO explained that iVillage.co.uk is not within their product and service range, and the profit generated through advertising was minimally low. They also expanded into mobile services with their "Tesco Mobile: Pay-As-You-Go", through partnership with O₂. By 2004, the company launched their music download site which gained 10% market share within six month. In 2005, the MP3 section was also introduced and by 2007, Tesco.com launched a price comparison website. As Wade-Grey went on to explain, the future plan is to make Tesco.com a site where you can download any virtually product.

Based on the above analysis, it is easy to visualize that the success of Tesco.com can be attributed to their product range management and product line expansion. The company have done virtually everything to eliminate products and services that are not linked with their brand, adapt new products and services to better compete in the market and gain more market shares. By developing new product lines, Tesco.com has found new ways to make their customers patronize them more and be more loyal to the company. This is because, customers don't only order groceries, but they can also rent movies and download music online instead of going to the cinema.

IMPROVED ONLINE CUSTOMER EXPERIENCE AND LOYALTY SCHEMES

The second approach adapted by Tesco.com was to improve customer's experience online. As the case study pointed out, Tesco.com has been able to decrease the time it takes for online users to fill an order from over 1 hour to 35minutes through multi web revisions. The case study also pointed out automated event-triggered messaging designed to encourage continues purchase. For instance, newly registered customers are given ₤5 discount for their first purchase with Tesco.com.

Relationship marketing shifts the focus of marketing exchange from transactions to relationships (Foss and Stone, 2001; Peck et al., 1999; Christopher et al., 1991; Buttle, 1996). The idea of relationship marketing is to acknowledge stable customer base as core business asset. The essence of this acknowledgement is business vale is rooted in customer loyalty, which helps companies to benefit from lower customer price sensitivity, reduced expenditures of attracting new customer and improved profit (Bolton et al., 2000; Hallowell, 1996; Reichheld et al., 2000).

Nowadays, loyalty schemes have become wide spread as companies look for ways to attract new customers while keeping holder of their current customers. Byrom et al., (2001) suggested that they are over 150 such schemes in the UK, resulting in circulation of over 40 million cards. Despite the growth in consumer loyalty schemes, they have been mixed conceptions on the values for both customers and companies alike. In reality, many researchers have argued that such scheme is a failure (Divett et al., 2003; Worthington, 2000; Wrights and Sparks, 1999).

As Tesco.com looked for ways to create solid customer loyalty and improved customer experience, they preceded reduction of time it takes to complete an online order with the introduction of Tesco Clubcard. The Tesco Clubcard is a loyalty scheme with a reward plan embedding multiple relationships, between Tesco and their customers. The scheme brings customers and brands together through web relationship, and thus, builds brand experience and value (Tesco, 2004, p. 3).

Although, the extent of success of this loyalty scheme is hard to visualize, a clear circus is that customers go where they are given more for less money. Based on this assumption, it can be proposed that the loyalty scheme was essential for the success of Tesco.com in keeping their customers. Nevertheless, when it comes to online business, what customers' value most is web site experience. By eliminating the psychic cost accrued from poor website experience which can make customers overlook a particular website, Tesco.com was able to attract more customers as their website offered less time to make an order at more ease.

MAKING HOME DELIVERY PART OF TESCO'S DNA

One of the main benefits of online shopping to consumers is that they have to stay at home and wait for the products to be delivered by retailers instead. This means that retailers will not handle the responsibility of delivering goods to the customers, a task which was formerly undertaken by customers themselves. Understanding this concept from CSCMP definition of logistic management from "point of origin to point of consumption" (Grant et al., 2006), which delivering directly to consumer's home attaches greater complexity to retailer's distribution system. This has a major implication to the retailer as it can reduce cost, enhance profitability and provide competitive advantage (Nicholls and Watson, 2005).

Online retailing of tangible products accounts for ²/₃ of total online sales in the United Kingdom (IMRG, 2006). This is because they involve handling and transferring of these physical products, which is picking, packaging, dispatching, delivering, collecting and retuning. It literally means that, a product purchased by customer virtually cannot be used by the customer unless it is delivered to them at the right place, right time, precise quantity, and in the right condition.

The online shopping market is shared by pure-play and multi-channel retailers. Pure players are company that have no conventional existence; all their business activities are done virtually (Rao et al., 2009). Mufti-channel retailers also referred to as bricks and click retailers, supplement conventional stores with online presence (Burt and Sparks, 2003). With more adaptions of online presence by conventional stores, debates on which is more effective and efficient has been initiated (White and Daniel, 2004; Klinger et al., 2003).

Tesco.com is a multi-channel retailing firm, which supplements their conventional stores with online presence; allowing customers to shop online and get their goods delivered at their home without going to the Tesco store. With more customers having less time and growing interest on online purchase, more customers have adapted to online shopping. Tesco have been successful as the case study highlighted in this area, as they constantly expand their conventional stores to ensure that customer's orders are delivered as quickly as possible. This is essential for building strong customer loyalty and triggering repeat purchase.

With product range expansion, Tesco now offers intangible products such as music downloads and movie streaming. All of the current business models involve consumer paying for their delivery together with the cost of the groceries, and waiting for a schedule time for their product to be delivered at their homes. This creates a new market chain as highlighted above, as the company will be able to reach customers that are limited with time. This will ensure more sales at the end of the day and in return improve profitability of the company as the transportation costs are also incurred by the customers.

ANSOFF's MATRIX INTEGRATED INTO TESCO.COM

The above essay has been able to discuss the approaches adapted by Tesco.com as a means of illustrating the key features behind their online success in the UK. Nevertheless, a clear look into the case study show that Ansoff's matrix theory is the business model used by Tescon.com to pioneer their online success. As illustrated below, Ansoff's matrix is divided into four sections cover two business dimensions.

A part of Ansoff's matrix discussed in the case study is the diversification section. The case study illustrated the strategies used by Tesco.com in diversifying both their product lines and product ranges online. Over the past 2 decades, e-marketing has been seen as an important business section, as it has the capabilities of reaching marketing's globally, penetrating and cross all bothers, and providing real life experience. As shown above, product diversification is applicable where companies intend to introduce new product in a new market.

Apply this concept to the case study, it can be argued from the positive viewpoint that the business idea adapted by Tesco.com has been their main success foundation. Coming from a wide range of both academic and field experience, Wade-Gery the CEO of Tesco.com understood the importance of incorporated tried and tested business models into company's strategic business profile. In the UK, Tesco.com already have an established conventional business and marketing, but to enter the new market (online) they discovered that they must diversify (offer e-products) in other to attract the e-consumers. Taken all these into consideration, the company was able to developed strategic e-business models that lead to the success of Tesco.com.

CONCLUSION

From the above, many insights on the possibilities presented by adapting the internet as a medium for communication in businesses are as clear as crystal. The internet without a doubt have offered many businesses the reach they once longed for; by providing them with the possibilities of reaching new markets as less costs and faster than it has been with conventional business processes.

Tesco.com, the online section of the Tesco groceries is a living example in the contemporary business world on how successful the internet can be in business diversification and now market penetration when fully utilized to the best of possibilities. Tesco.com understood these opportunities and went on to adapt the internet medium as a business process in their organisation. These approaches have made them both the pioneer and market leader of online groceries shopping in the UK.

These strategies are as discussed above. Tesco.com expanded their product line and improves their product range, to ensure that they can offer customers all they need at the same time. Instead of shopping the mall, and renting movies from the theatre, Tesco.com provides customers the opportunity to shop, rent movies and even recharge their mobile all at the same time and spot. Through this process, they improved customers' experience with the company, and offered loyalty schemes to reward loyal customers. Another business approach was the adaption of home delivery as part of Tesco's DNA.

The company starts picking orders as early as 4am, to ensure that they are delivered within the said time and in pristine conditions. This is also essential in maintaining customer loyalty and close relationship with the company, as they can chat  with the delivery men and send direct feedbacks to them in case of any complain on either the delivered goods or services offered by Tesco. Thus it can be concluded, that the internet is a helpful tool for product diversification, as it can offer real-time support from the company to the customers, increase customer experience by allowing them to have all the need and want at the same spot and time, and increasing market shares, as satisfied customers have the possibilities of coming back for more services.

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