Tesco, well known as Britain’s leading food retail group with a presence also in Europe and Asia has also been a pioneer online. As this Tesco. com case study shows, retailer Tesco is generally recognized as the worlds largest online grocer and it has an annual turnover of ? 1 billion online in the UK and has launched in other countries, internationally and is diversifying into non-food categories. http://www. tescocorporate. com/plc/ In 2006/7, Tesco. com sales were reported to be sales up 29. %, profit (pre-Direct start-up costs) up 48. 5%; •More details on online sales and non-food sales details are also provided in the main www. tescoplc. com/plc/ Today the tesco. com model operates in the UK, the Republic of Ireland and South Korea. Online grocery sales have exceeded ? 1 billion for the first time in the UK alone. We have an active customer base of 850,000 and more than 250,000 orders are now being completed each week. In the UK, nearly 1,860 vans operate out of 294 stores.
In our Newcastle store our service is so popular that there are now 18 vans delivering to local customers. Drivers deliver between 9am and 11pm, and our staff start picking our customers’ orders from 6am. A record-breaking 1. 3 million shoppers chose tesco. com to deliver their presents and groceries over Christmas, and to make sure that these were all picked successfully, our staff started picking even earlier, at 4am. Tesco. com have around 9,000 pickers, the majority in existing stores, but one specific delivery store has been opened in Croydon. ttp://www. theregister. co. uk/2006/01/17/tesco_mobile_xmas/ 1. Sales at Tesco. com, the UK market leader in home shopping, rose by 32% year-on-year, but they still only represent over 3% of its UK sales of ? 32. 7bn! Tesco said it had 750,000 regular customers and 200,000 orders a week online giving a total turnover approaching ? 1 billion Update – Tesco Direct launched Read http://www. internetretailer. com/2006/10/06/u-k-s-tesco-launches-tesco-direct-for-non-food-online-sales In 2006, Tesco launched Tesco Direct to rival catalogue retailers such as Argos.
Over 8,000 products will be available from beds and sofas through to kitchenware, electricals, cameras, bikes and golf clubs – giving customers more products at great Tesco prices than they have ever had access to before. Customers can choose the product they want on a new website or from a new catalogue and then order in one of three ways: •On-line via the tesco. com website •By phone •In selected stores at the new Tesco Direct desks In the press release for this update it was reported that Tesco. com now has ? million regular grocery shoppers with over 200,000 orders per week and achieved over ? 1 billion in sales in 2005.
Tesco Product ranges The Tesco. com site acts as a portal to most of Tesco’s products, including various non-food ranges (for example, Books, DVDs and Electrical items under the ‘Extra’ banner), Tesco Personal Finance and the telecoms businesses, as well as services offered in partnership with specialist companies, such as dieting clubs, flights and holidays, music downloads, gas, electricity and DVD rentals. It does not currently sell clothing online but in May 2005 it introduced a clothing website (www. clothingattesco. com), initially at to showcase Tesco’s clothing brands and link customers to their nearest store with this range.
Tesco Competitors Tesco currently leads the UK’s other leading grocery retailers in terms of market share. This pattern is repeated online. The compilation below is from Hitwise (2005) and the figures in brackets show market share for traditional offline retail formats from the Taylor Nelson Softres Super Panel (see http://superpanel. tns-global. com). 1. Tesco Superstore, 27. 28% (29% of retail trade) 2. ASDA, 13. 36% 3. ASDA @t Home, 10. 13% (17. 1%) 4. Sainsbury’s, 8. 42% 5. Tesco Wine Warehouse, 8. 19% 6. Sainsbury’s to You, 5. 86% (15. 9%) 7. Waitrose. com, 3. 42% (3. 6%) 8. Ocado, 3. 2% (owned by Waitrose, 3. 6%) 9. Lidl, 2. 49% (1. 8%) 10. ALDI – UK, 2. 10% (2. 3%) •http://www. tesco. com/talkingtesco/oldDefault. asp Some companies are repeated since both their main site and the online shopping site are reported on separately. Asda. com now seems to be performing in a consistent manner online to its offline presence. However, Sainsburys online performance seems to be significantly lower compared to its offline performance. Some providers such as Ocado which originally just operated within the London area have a strong local performance. Notably, some of Tesco. om competitors are absent from the Hitwise listing since their strategy has been to focus on retail formats. These are Morrisons (12. 5% retail share, Somerfield (5. 5%) and Co-op (5. 0%). Promotion of Tesco services As with other online retailers, Tesco. com relies on in-store advertising and marketing to the supermarket’s Clubcard loyalty scheme’s customer base to persuade customers to shop online. NMA (2005) quotes Nigel Dodd, marketing director at Tesco. com as saying: ‘These are invaluable sources as we have such a strong customer base’. However, for non-food goods the supermarket does advertise online using keyword targeted ads.
For existing customers, email marketing and direct mail marketing to provide special offers and promotions to customers is important. According to Humby (2003), e-retailer Tesco. com use what he describes as a ‘commitment-based segmentation’ or ‘loyalty ladder’ which is based on recency of purchase, frequency of purchase and value which is used to identify 6 lifecycle categories which are then further divided to target communications: •“Logged-on” •“Cautionary” •“Developing” •“Established” •“Dedicated” •“Logged-off” (the aim here is to winback) Tesco then use automated event-triggered messaging can be created to ncourage continued purchase. For example, Tesco. com have a touch strategy which includes a sequence of follow-up communications triggered after different events in the customer lifecycle. In the example given below, communications after event 1 are intended to achieve the objective of converting a web site visitor to action; communications after event 2 are intended to move the customer from a first time purchaser to a regular purchaser and for event 3 to reactivate lapsed purchasers. •Trigger event 1: Customer first registers on site (but does not buy). Auto-response (AR) 1: 2 days after registration e-mail sent offering phone assistance and ? 5 discount off first purchase to encourage trial. Trigger event 2: Customer first purchases online. •AR1: Immediate order confirmation •AR2: 5 days after purchase e-mail sent with link to online customer satisfaction survey asking about quality of service from driver and picker (e. g. item quality and substitutions). •AR3: Two-weeks after first purchase – Direct mail offering tips on how to use service and ? 5 discount on next purchases intended to encourage re-use of online services. AR4: Generic monthly e-newsletter with online exclusive offers encouraging cross-selling •AR5: Bi-weekly alert with personalised offers for customer. •AR6: After 2 months – ? 5 discount for next shop •AR7: Quarterly mailing of coupons encouraging repeat sales and cross-sales Trigger event 3: Customer does not purchase for an extended period •AR1: Dormancy detected – Reactivation e-mail with survey of how the customer is finding the service (to identify any problems) and a ? 5 incentive. •AR2: A further discount incentive is used in order to encourage continued usage to shop after the first shop after a break.
Tesco’s online product strategy NMA (2005) ran a profile of Laura Wade-Gery CEO of Tesco. com since January 2004 which provides an interesting insight into how the business has run. In her first year, total sales were increased 24% to ? 719 million. Laura, is 40 years old, a keen athlete and has followed a varied career developing from a MA in History at Magdalen College, Oxford, an MBA from Insead; Manager and partner in Kleinwort Benson; Manager and senior consultant, Gemini Consulting; Targeted marketing director (Tesco Clubcard), and Group strategy irector, Tesco Stores. The growth overseen by Wade-Gery has been achieved through a combination of initiatives. Product range development is one key area. In early 2005, Tesco. com fulfilled 150,000 grocery orders a week but now also offers more intangible offerings, such as e-diets and music downloads. She has also focused on improving the customer experience online – the time it takes for a new customer to complete their first order has been decreased from over an hour to 35 minutes through usability work culminating in a major site revision.
To support the business has it diversifies into new areas, Wade-Gery’s strategy was ‘to make home delivery part of the DNA of Tesco’ according to NMA (2005). She continues: ‘What we offer is delivery to your home of a Tesco service – it’s an obvious extension of the home-delivered groceries concept. ’ My May 2005, Tesco. com had 30,000 customers signed up for DVD rental, through partner Video Island (who run the rival Screenselect service). Over the next year, her target is to treble this total, while also extending home-delivery services to the likes of bulk wine and white goods.
Wade-Gery looks to achieve synergy between the range of services offered. For example, its partnership with eDiets can be promoted through the Tesco Clubcard loyalty scheme, with mailings to 10m customers a year. In July 2004, Tesco. com Limited paid ? 2 million for the exclusive licence to eDiets. com in the UK and Ireland under the URLs www. eDietsUK. com and www. eDiets. ie. Through promoting these services through these URLs, Tesco can use the dieting business to grow use of the Tesco. com service and in-store sales.
To help keep focus on home retail-delivery, Wade-Gery sold women’s portal iVillage (www. ivillage. co. uk) back to its US owners for an undisclosed sum in March 2004. She explained to NMA: ‘It’s a very different sort of product to the other services that we’re embarking on. In my mind, we stand for providing services and products that you buy, which is slightly different to the world of providing information. ’ The implication is that there was insufficient revenue from ad sales on iVillage and insufficient opportunities to promote Tesco. om sales. However, iVillage was a useful learning experience in that there are some parallels with iVillage, such as message boards and community advisors. Wade-Gery is also director of Tesco Mobile, the joint ‘Pay-As-You-Go’ venture with O2 which is mainly serviced online, although promoted in-store and via direct mail. Tesco also offer broadband and dialup ISP services, but believe the market for Internet telephony (provided through Skype and Vonage for example) is not sufficiently developed. Tesco. om have concentrated on more traditional services which have the demand, for example, Tesco Telecom fixed-line services attracted over a million customers in its first year. However, this is not to say, that Tesco. com will not invest in relatively new services. In November 2004, Tesco’s introduced a music download service and just six months later, she estimates they have around 10% market share – one of the benefits of launching relatively early. Again, there is synergy, this time with hardware sales. NMA (2005) reported that as MP3 players were unwrapped, sales went up – even on Christmas Day!
She says: ‘The exciting thing about digital is where can you take it in the future. As the technology grows, we’ll be able to turn Tesco. com into a digital download store of all sorts, rather than just music. Clearly, film [through video on demand] would be next. ’ But it has to be based firmly on analysis of customer demand. She says : ‘The number one thing for us is whether the product is something that customers are saying they want, has it reached a point where mass-market customers are interested? ’ There also has to be scope for simplification.
NMA (2005) notes that Tesco is built on a core premise of convenience and value and Wade-Gery believes what it’s already done with mobile tariffs, broadband packages and music downloads are good examples of the retailer’s knack for streamlining propositions. She says: ‘We’ve actually managed to get people joining broadband who have never even had a dial-up service’ Tesco case study sources: Humby (2003), NMA (2005), Hitwise (2005), Wikipedia (2005) Humby, C. and Hunt, T. (2003) Scoring points. How Tesco is Winning Customer Loyalty.
Kogan Page, London, UK. Hitwise (2005) Press release: The top UK Grocery and Alcohol websites week ending October 1st, ranked by market share of web site visits, from Hitwise. co. uk. Press release available at www. hitwise. co. uk. Discussion Questions 1. Describe the major E-Commerce characteristics used by Tesco. 2. What are the advantages for Tesco – becoming an E-Commerce organisation? 3. In what ways has Tesco managed to gain competitive advantage over it’s other stores? 4. How has E-Commerce facilitated customisation of products and services? . What competitive strategy has Tesco used and how successful is it? 6. After reading the case study list the success factors for Tesco. What might the threats be? Carry out a SWOT Analysis. 7. Why might customers like Web Based Purchasing? Is it becoming more of an option due to lower prices? 8. What promotion policies does Tesco implement? Are they successful? 9. What product strategy has Tesco implemented? 10. Is Tesco’s product strategy successful – give reasons for your answers? Please be ready to discuss the answers with your tutor.