Tesco in the Digital Era

COMPANY OVERVIEW
TESCO is one of the world's leading international retailers in the United Kingdom. It
was founded in 1919. With more than 2,500 stores worldwide, its products include
food and non-food products. The company operates in 13 markets outside the United
Kingdom, specifically in Europe (Czech Republic, Hungary, Poland, Republic of
Ireland, Slovakia and Turkey and Asia) and in Asia (China, Japan, Malaysia, South
Korea, Taiwan and Thailand). In 2012, TESCO ranked 4 in the best retail brands.
RETAIL IN THE DIGITAL AGE
Ian Geddes noted that the retail industry is confronted with unprecedented change.
Constant connectivity, contextual relevance, and a multi-screen world are changing
both online and offline shopping. (Sridhar Ramaswamy, 2013).
1. EMERGENT CHANNELS
Retail commerce is being reborn. Consumers decrease time with traditional
touchpoints (Store, call centre and TV etc.) and increase engagement with newer,
emerging ones (The web, mobile, social networks and LBSes, tablets etc.) (See
appendix #) The rapid expansion of sales and marketing channels-more social
commerce, gaming commerce, and mobile-will continue.
Retailers have taken a multi-channel model and evolved into a cross-channel
experience which let the customer use different channels to make decision and
purchase. (ThoughtWorks, Inc., 2013)
Recognizing and leveraging the power of multiple channels while providing a
seamless experience is critical for retailers. Rapid change requires retailers to balance
channel implementation, capability implementation and technology refresh to achieve
profit-sustaining returns.
Retailers struggled with constant pricing fluctuations by Amazon and otheronline
retailers that were able to rapidly analyze sales data and adjust almost instantaneously
to competitive conditions. (BrandZTM Top 100 Most Valuable Global Brands 2013)
2. E-CRM
Evolving technology and an ever increasing number of interactive devices is
profoundly changing consumer shopping behaviour.(CBR)
Customers are seeking a true seamless omni-channel shopping experience. Customers
prefer retailers with robust cross-channel mechanisms for ease and convenience of
moving from online to physical or between online channels. (ThoughtWorks, Inc.,
2013)
Social experience across channels has become an integral part of shopping process.
Opinions carry more weight than ever (Sridhar Ramaswamy, 2013). As consumers
increasingly place value on recommendations from social networks like facebook, this

new form of word of mouth advertising and marketing will continue to gain
prominence (PwC, 2013). Retailers are seizing the opportunities around online
comments by advertising against terms like "reviews" and working to promote the
positive and counteract the negative (Sridhar Ramaswamy, 2013). Retailers need to be
able to accumulate, consolidate and make sense of this information to define and
implement a consistent customer engagement model across channels.
3. THE EVOLVING ROLE OF THE STORE
Retailers are blurring the lines between digital and physical (Bryan Glick, 2013).
In a truly multichannel world, the purpose of the store changes from 'driving sales of
the product in store' to being a 'brand and product showroom that drives revenues
across all channels'.
The fundamental changes in the store proposition and portfolio will be farreaching
and retailers need to anticipate the ripple effects across the organisation and review all
areas of their business accordingly. The change in the role of the store will have
upstream effects throughout the organization. The winners in this altered new
environment will be retailers who can successfully align retail operations to support
the new role of the store.
TESCO BUSINESS MODEL AND STRATEGY ADAPTATION
EMERGING CHANNELS: INTERNET AND E-COMMERCE
VALUE PROPOSITIONS AND CHANNELS
As the number of Internet users proliferated (Appendix 1), E-commerce had
accelerated comparably and became a mandatory integrated channel for retailers. It
posed a number of opportunities for Tesco. Firstly, its website, Tesco.com, acted like
another channel allowing the company to communicate the entire range of value
propositions and prices to global target audience in a single place. Secondly, the
Internet emergence had enabled Tesco's to enter other online businesses (online
bookstore and online banking, launched in 1999) (Cowell, 2007).
COST STRUCTURE AND PRICING STRATEGY
Online presence changes allocation of marketing budget. Traditional marketing
remains a significant tool, although generating higher costs. On the other hand, digital
marketing usually costs less and provides the advantages of reaching broader
audience, trackable interactions and viral potential.
Making prices visible to the public reveals company's pricing strategies to consumers
and competitors. Price-sensitive consumers are most likely to shift to discounters with
best offers (Mercer, 2013). To regain this target segment, Tesco re-emphasizes on
economical "Everyday Value" product range. Additionally, it uses "Price Promise" to
guarantee lowest price amongst similar-positioned competitors, Asda and Sainsbury's
(Butler, 2013).

GLOBAL EXPANSION AND MANAGING INTERNATIONAL PARTNERS

Internet is one of the most crucial tools of Tesco's global expansion strategy. By
entering East Asia in 1998 (Cowell, 2007), Tesco has enhanced its supply chain to an
international level. Under "Globalization" approach, it is able to reach and maintain
tight relationship with regional suppliers through internet communication while
achieving better local understanding. Beyond that, Tesco offers an additional social
space for their partners to become well-aware corporate citizenship. It is the first
retailer to introduce an online hub, which share knowledge on several area regarding
carbon issues, to worldwide suppliers (Wills, 2012).
CUSTOMER SEGMENTS: GROWING E-COMMERCE IN ASIA PACIFIC
Market development in Asia Pacific proved to be a recent success. With over 30%
growths in this region of e-commerce sales in 2012, Philip Clarke, Tesco's CEO,
stated that "Asia Pacific will overtake North America as the number one market for
online sales." (Tesco, 2013) The evidence of growth has presented that the new digital
landscape has widely expanded, which demonstrates Tesco's business model tend to
become a global model.
THE EVOLVING ROLE OF STORES: FROM MULTI TO OMNI-CHANNELS
CANNIBALIZATION AND REBALANCING
As aforementioned, consumers lean towards companies that provide smooth and
consistent experience across multiple channels. Today, the brick-and-mortar stores
behave like showrooms: consumers take advantage of the in-store experience which
sometimes lead to online buying. Tesco decided to focus on convenience store rather
than hypermarkets to enhance cross-experience (see figure 1, 2012). However, along
the funnel, existence of other channels can cannibalize.
Tesco adjusted its shelf space responding to multi-channel existence. Forexample, as
online shopping for electrical/electronics category is experiencing growth and Tesco
is aware of declined impulse purchase in physical stores due to tighter disposable
income, Tesco reduced store space for specific category and utilizes the capacity in
services (restaurants and coffee shops)(Mercer, 2013b). It implied business decisions
to manage proper balance of value proposition.
Figure 1: UK Grocery sector sales: distribution by online, convenience and other,
2010-12 (Source: Mintel)
EXECUTING AND INTEGRATING OMNI-CHANNEL STRATEGY
Tesco's strategic objective toward offering seamless experience to the customers has
been carried out by a set of activities.
Firstly, to lead the mobile involvement, Tesco optimized assorted mobile websites for
their product varieties such as grocery, non-grocery, clothing etc. Tesco also includes
latest acquired digital services such as Blinkbox movies and TV, music and Clubcard
TV (Rigby, 2013).

Consequently, Tesco introduced its own tablet "Hudl" in September 2013 to broaden
online accessibility to the larger audience, enhancing its e-commerce potential. The
tablet is affordably priced with respectable specifications (over a million
applications). Meaning, Tesco initiated strategy to enter the future of digital
convergence.
E-CRM: CUSTOMER INSIGHT
KEY RESOURCES AND CRM EVOLUTION: EFFECTIVE DATA
MANAGEMENT
The digital landscape brings opportunities in collecting and analyzing data: Tesco was
the pioneer by launching the clubcard scheme, which has revolutionized CRM within
the industry. Through SEO, e-mail marketing, mobile application, online advertising,
viral campaign etc. Tesco is communicating and therefore more present in consumers'
minds, enhancingbrand preference by tailoring the value proposition.
MANAGING CUSTOMER RELATIONSHIP THROUGH SOCIAL MEDIA
Social media affects retailers in marketing, communication and branding.
It is not a platform where companies sell directly. However, according to a survey
lead by Vision Critical (2013), 38% of Facebook respondent purchases are influenced
by liking and sharing links.
Tesco is present on Social Medias: a Mintel Report in October 2013 shows Tesco as
the first retailer in numbers of Fans (Facebook) and Followers (Twitter). According to
CCA (2013), it helps Tesco delivering great customer service, finding consumer
insights, creating customer advocacy and above all ameliorating the brand image.
DIGITAL PLATFORMS
By using the multi channel strategy that varies from offline to online as mentioned
above, Tesco has gradually confirmed its differentiated position in retail industry. The
detail of some specific tools contributed to the success of Tesco in the omni - channel
world are described below.
EMERGENT CHANNEL - MULTI-CHANNEL SHOPPING EXPERIENCE
E-COMMERCE
Tesco is one of largest Internet retailer in UK with two main portal sites, including
Tesco.com (food) and Tesco Direct (non-food) (appendix 3). From Tesco's website,
customers can experience the Click & Collect service, enabling them to shop online
and have order delivered to their local store to pick up at their own time. This
convenient delivery option creates competitive advantage for Tesco and
simultaneously helps customers to save time at store. Zhang (2009) supposed that this
strategy of letting customers to pick it up in store can draw customers back to physical
stores where theymay make additional purchases. Besides, Tesco also offers home

delivery service for online customers. For example, Tesco Lotus launches online
grocery shopping in Thailand with wide product range that customers can choose
from and choose time slot for product delivery to home.
M-COMMERCE:
Tesco has developed a mobile optimized version of its online shopping website to
reach in the order of 1.5 million hits its online website has been getting from mobiles
every month. Presently passage to the m-web has increased gradually, with a 300%
increased in 2009, with as many as 1.5 million people in 2010. (Skeldon, 2010)
In 2012, Tesco launched its new mobile app, 'Tesco Grocery', which consolidates its
existing apps, such as Tesco Finder and Tesco Groceries into one app to make it
simpler and easier for customers.
With access to over 1000 products from Tesco Direct and hundreds of recipes,
customers are then enabled to order and amend their grocery orders with their mobile
phones. (Ken Towle, 2012) Moreover, functions like 'purchase from your Favourites',
'E-coupon saver' and 'Special Offers' have also improved the overall shopping
experience.
E-CRM
In building strong relationship with customers, the Tesco Clubcard scheme and email
marketing placed most important role.
LOYALTY MODEL
Smith and Zook (2011) defined loyal lifetime customers are those people who are
willing to spend more of their share of wallet on your company's product portfolio if
the brand loyalty is strong enough. In the case of Tesco, to encourage customer
loyalty and create strong relationship with customers, Tesco has pioneered with
Clubcard scheme (appendix 1).
Loyalty Clubcard was introduced in 1995, offering customers one point for every 1
expended at store and every point collected exchange to 1p worth of vouchers.
Customers then can use it to get money off next shop or spend it on Tesco's
collaborating restaurants, cinemas or attractions (Christie, 2013). Besides, customers'
data collected from loyalty clubcard also rack up Tesco's knowledge about their
spending habits. Through that, Tesco not only help customers to spend less with good
promotions, but also identify what they love and how they shop (Scoop, 2004).
Moreover, Tesco run different campaigns along with its loyalty clubcard scheme that
added value to the relationship with customers. For example, Clubcard Boost in
Christmas season to boost clubcard vouchers to more valuable offers or green
clubcard point to encourage customer recycling with Tesco.
Tesco recently launched Clubcard TV using the blinkbox platform which offers most
loyal customers free online service showing television series or family movies.
Customers have to log in with their loyalty card number to use service, contributing to
Tesco's rich database (Budden, 2013). Budden and Felsted (2013) believed that Tesco

TV can help brands to offer sophisticated ads to target customers by viewing

customers' spending history. In next few months, Tesco is going to launch
blinkboxmusic and blinkboxbooks to maximise customers' experience and optimise
database.
EMAIL MARKETING
Despite of being one the oldest form of digital marketing, Tesco's email marketing
programme plays an important part in brand's communication tool. Indeed, Tesco
regards emails as its key strategy of online marketing because it is recorded 60%
online revenue came from emails (Brook, 2005). By citing easy navigation and
simplicity, Tesco was successfully in appealing customers for their first and further
purchase (appendix 2).
Especially, Tesco use E- CRM software to deliver cheaper, faster and more flexible
CRM, automating relationship building with customers through web and email
(Chaffey & Smith, 2013). For example, Tesco.com uses software tofollow up events
in customer lifecycle. When customers first register on site, email will be sent two
days after and offer first purchase discount. Following the online first purchase, online
customer satisfaction survey will be sent through email to ask about quality of service.
Along with it, the system automatically sends monthly e- newsletter and exclusive
offer with coupons to encourage further purchase. In case customers do not purchase
for long period, survey and coupon incentive will be sent again. So by taking
advantage from the combination of email and website, Tesco can monitor events and
move customer from first time purchaser to regular one.
SOCIAL MEDIA MARKETING
Tesco is known for being at the forefront of new technology and communications; and
social media presents no exception. (Anna, 2012) A variety of social platforms, such
as Facebook, Twitter, Pinterest and Google+, is engaged in. While the latter two are
newly established, Facebook and Twitter in particular play essential roles in
interactions between Tesco and its customers. Recently, Tesco launched the wine cobuys campaign where customers get the price drop as more people join the Co- buy.
This has encouraged people to use Twitter, Facebook to spread the words and share
Co- buys with their friends to receive better deal, enhancing Tesco's power of word of
mouth through social media tool.
Along with posts about its brand and products, Tesco Facebook incentivizes user
comments by offering Clubcard points in return for sharing stories on various topics
(David, 2013) with over 1,322,031 followers, 300% more than that of 2009. Tesco
also generates conversations with customers by hosting online chats with food and
health experts.
According to Social Bakers, Tesco is the world-leader in Twitter customer care
(Appendix 4), which is incredibly active, responding to and resolving hundreds of
customer queries every hour. It's also available for most of the day - 8am to 11pm
from Monday to Saturday and 10am to 8pm on Sundays (David, 2013). Its direct,
quick and personalized service (Appendix 5) improves costumers' engagement and
satisfaction, as well as the brand's reputation.

CHANGING ROLE OF STORES

Tesco not only applied different advanced technology in store but also out store,
enhancing customers' experience and changing role of stores as well.
IN STORE TECHNOLOGY
Along with multiple online - technology, Tesco tries to apply different offline store
marketing tool to increase customer experience. Apart from the RFID tag on product
and self - scanning service, Tesco improves customers' shopping experience by
launching "Scan as you Shop" technology. Customers then can scan product when
putting them into the trolley and check how much they are spending, helping them to
reduce waiting time at checkout gate. Tesco also introduces Wifi Tech into their
stores, allowing customers to compare prices and check clubcard points.
Recently, Tesco uses face- scanning technology (software from Amscreen) to scans
customers, working out shoppers' gender and their approximate age. By doing this,
Tesco can identify customer demographic and then flash up more appropriate
advertising fitting them in Tesco's 450 petrol stations (Robinson, 2013).
MOBILE MARKETING
a) Apps
Tesco embrace mobile retailing not only by creating its own native apps, which enable
customers to locate the nearest Tesco and shop online, but also via affiliate channels.
In 2013, Tesco is set to use Passbook, which is an apple's mobile wallet, allowing
users store items such as receipts, boarding passes and voucher codes on their mobile
device. The new M-commerce approach allows brands to fill the gap between
customers leaving an affiliate site and making apurchase (Sarah, 2013), which could
manage customer relations, and trigger more purchases.
But Tesco isn't resting on the success of its current technologies. It also offers
augmented "reality apps," which let consumers observe online ads or a recipe being
prepared, and then add the ingredients to an online shopping cart. In addition "virtual
mirrors" in some stores let shoppers "try on" clothes virtually as they shop (Tom,
2013).
b) QR codes and virtual store
Tesco Homeplus supermarket opened a virtual grocery store in a South Korea subway
station, permitting users to shop using their smart phones after scanning QR codes
(Appendix 6). It then delivers all the products to customers and therefore frees them
from going to supermarkets on their own.
Home Plus's subway poster shops pushed the idea of mobile shopping into the minds
of people who could use it right where they are, right now. Their sales increased 130
per cent in three months, and their number of registered users went up by 76 per cent

(Telegraph, 2011).
CHALLENGES AND RECOMMENDATIONS
DELIVERING CUSTOMER EXPERIENCE
40% of retail executives agree on the major challenge they might have is- provide
persistent customer experience both in-store and online (Shoppinpal, 2013).
According to Nielsen Global Survey, 74 percent of UK customers buy groceries
online (Nielsen, 2013). It is believed that such trend will increase in Asia, Europe and
the US within five years. Tesco might experience difficulties in creating the same
shopping experience for online and offline customers. Thus, it will need to improve
the usability of digital tools such as website, mobile app, user interface etc. and create
an appealing atmosphere in digital channels and physical stores.
EMERGING TECHNOLOGIES
It can be predicted that in five-year period, Smartphone and tablet usage will increase
even more dramatically. Nowadays customers can easily make purchases using their
portable devices. Tesco will need to respond to such trends promptly and offer
customers a more simple way to shop online. Understanding the customer and their
spending habits is crucial, especially for large retailer like Tesco. Improving their
existing omni-channel retailing can be done with heavy investments and time
dedication. As this type of retailing is relatively new, it can be forecasted than in five
years, Tesco will be able to achieve an effective omni-channel approach. One thing
Tesco's IT department can do is to improve the grocery mobile app, as it has very low
ratings on the app store and is difficult to use.
With technological innovations nowadays, it can be said that in 5 year period it will
be even more advanced and groundbreaking. The emergence of wearable technology
(e.g. Wearable devices like Google glass, Smartwatches, iWatch) is forecasted to have
a dramatic growth in its market size and might even result in decrease in cell phone
and tablet market (Businessinsider, 2013) (appendix 1).
Technology is evolves rapidly, thus it can be advised that Tesco closely observes the
innovations and tailors their marketing campaigns accordingly. Keeping up with the
technology will help the retailer to provide products and services more efficiently thus
improving customer's shopping experience. For example, in case of Mobile wallet
payment becoming widespread, Tesco will need to quickly respond to such trend.
EDUCATION
With the introduction of new digital channels and marketing campaigns, a possible
challenge for Tesco could be that employees and customer will not understand the
technology; therefore it is crucial to educate employees on the services offered by
Tesco. Alongside educating staff members, it is also important to educate the
consumers, as people, especially seniors are stillreluctant to purchase groceries or
other products online and may not understand the usage of e-coupons, QR codes etc.
Therefore Tesco will have to provide necessary training for employees, so they can
provide helpful service to customers. Furthermore, the retailer will have to send

newsletters, provide online assistance etc.

GROWING COMPETITION AND DATA EXPOSURE
The challenge for Tesco, is and always will be to attract and obtain more customers.
As there are other retailers, who provide similar services e.g. Waitrose, Sainsbury's
etc. Tesco needs to differentiate their digital tools, providing better offers, more
convenient ways of purchasing and use existing omni-channel more effectively,
through continuous innovation and interaction e.g. Mobile app with cooking recipes.
Customers can easily browse through websites for price and product comparisons
from their smart phones, which exposes them to extensive amount of data, thus
offering consumers a variety of choices. Tesco will have to invest in marketing
research including secondary and primary research to keep up with the competitor
offerings and techniques, deliver powerful messages and communicate integrated
campaigns to their customer base.
CONNECTED RETAIL
"Connected retail technology is linking consumers, devices and data for smarter
shopping experiences, from the high street to online, in-store to mobile applications"
(The Guardian, 2013). It is a potential challenge for Tesco to find the right balance
between the online and offline tools and experiences. Forrester predicts that by 2016,
connected retail will influence 44% of sales (The Guardian, 2013). With extensive
marketing research and data analysis, Tesco will be able to measure the effectiveness
of digital campaigns, and enhance their operations and cross-channel customer
experience.