What Could Tesco Have Done Differently in Order to Succeed?

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Advanced Marketing

What could Tesco have done differently in order to succeed?

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Instructor Carmen Lages

Grader Cláudia Cordeiro

March 3rd

Beatriz Graça Gonçalves nº3800

Spring Semester 2018

1.INTRODUCTION

Tesco is a British multinational grocery and general merchandise retailer. Initially, the company was just a grocery retailer but, now specializes in groceries retail plus general merchandise (clothing, electronics, books, furniture, software, internet and financial service products). With respect to profits, Tesco is the third largest company in its industry. However, this did not prevent the UK company from failing entering the US market. Tesco’s entered the US market under the name Fresh & Easy.  This was a new retail concept: a neighbourhood market emphasizing fresh and high quality products. These stores aimed to be different being conveniently located with a conveniently preselected assortment. The failure of this concept was mainly due to limited cultural adaptation that lead to a minimalistic marketing strategy and poor customer service.

2.FACTORS CONTIBUTING TO THE FAILURE OF TESCO IN US

Tesco’s US failure can be mainly attributed to three reasons: entry strategy, risk assessment and market analysis.

2.1 ENTRY STRATEGY: Tesco entered in the US market using a wholly owned subsidiary strategy, also known as greenfield (Exhibit1). This decision is one of the key factors leading to Tesco’s failure. In the past, the company had established its transnational ventures with great sensitivity and cultural awareness by adapting its actions to the local needs. In this case, Tesco failed to consider the numerous cultural differences existed between US and UK consumers. Starting with the fact that Europeans make more frequent grocery shops while the Americans are used to bigger trips and less frequent. Moreover, Americans prefer to travel high distances for finding a larger range of products, looking for big supermarkets that guarantee variety.

2.2 RISK ASSESSMENT: refers to the evaluation and estimations of any shortcoming about establishing a certain undertaking in the future. Tesco’s risk assessment was also an area of weakness in this move. Firstly, the company was located in California, Nevada and Arizona, places that were been hit hard by the economic recession and the collapse of the real estate market at that time. Additionally, US grocery industry showed a lack of mid-market retailers. Tesco tried to cover this gap by entering with small format stores. Soon, the company understood that this lack resulted from the consumers’ preferences to shop big and infrequently as mentioned before.

2.3 MARKET ANALYSIS: Tesco’s analysis of the US grocery industry failed to capture the importance of the store image. A positive image can be a differentiable factor increasing the bargaining power. Despite intensive research into US consumer purchase, Tesco failed by selling pre-packaged fresh produce rather than loose them on the shelves, limited product selection, 50 percent private labels rather than more familiar national brands. The company had only self-checkout that was an unusual concept in US, where American were used to being helped by a clerk. Tesco also discouraged price sensitive shoppers with lack of vouchers and coupons and they failed to effectively differentiate itself from its competitors. Fresh & Easy was weak with US consumers and Tesco’s simple and generic marketing techniques did little to benefit store image.

3.WHAT COULD THEY HAVE DONE DIFFERENTLY?

Before entering the US market, Tesco should have done a deep and intensive market research to better understand the cultural differences, that were the main cause of this failure. This way, the company could be able to adapt to the cultural norms and meet the local needs. In order to understand the previous dimensions, Tesco could have used to frameworks:

3.1 HOFSTEDE’S CULTURAL FRAMEWORK: is a way to find out “the values that distinguished countries from each other” (retrieved from the reading Boeing On Edward T Hall and Geert Hofstede) by seven dimensions. These dimensions, are power distance, individualism, masculinity, uncertainty avoidance, long term orientation and indulgence. By this framework it is possible to establish relationships between consumer behaviours and culture. If Tesco had used this framework, the company would be able to understood what they could have done differently to better meet the American consumers purchase(Exhibit2). This way, they would have higher probability of being fresh and easy now and prevented the disaster.  Starting for example with Individualism, US and UK tend to be strong individualistic societies, where everyone looks after their own self interest (the “me” culture). In this cultures, independence and personal responsibility are valued. If Tesco had analysed this dimension, the company could have prevented the implementation of a European model in US ("My sense is that what they tried to do was make a European model," says Prof Anthony Dukes, at the USC Marshall School of Business). For example, in UK coupons are often seen as a sign of depreciation, where in US it is a national pastime and Tesco failed to understand the US culture and used the European. Other dimension is Masculinity, a country with high score represents a society driven by competition, achievements and success. UK is a masculine society, and if they were aware of this or at least conscious of this factor, maybe they had not decided to go as a greenfield, which is the most ambitious approach, lacking local cultural awareness. Regarding Uncertainty Avoidance, UK has a low score which means that people are happy not knowing what comes next, changing the plans as information comes. In working terms this results in a lack of detailed orientation and shorter planning horizons. So this could be a reason why they did not correctly plan their move to US, not taking into consideration the singularities of the US market, such as the utilization of coupons. Other dimension is Long Term Oriented, that describes how each society maintain some links with its own past while dealing with the present and future challenges. US has a low score in this dimension which reflects that they are disposed to to new things, so the culture does not make Americans pragmatics, however, they have strong ideas. Knowing this, Tesco should have taken into consideration this before trying to change the store and distribution format of US grocery retail industry. On the other hand, UK believe in long term investment, always thinking of their long term investment that will benefit in the future. So this could be a reason why UK has assumed that replicate what they had done in the UK would be a profitable investment in US. UK has a high score of Indulgence, which means they have a positive attitude and have a tendency towards optimism. Having this in consideration, Tesco could prevent being overly optimistic when evaluating the differences between the two cultures.