Case Study 4 Tesco online development strategy supports global expansion Context Currently, Tesco Plc is one of the world's top three Tesco is a leading global retail operation and is Britain's retailers, competing with WalMart and Carrefour for the leading food retail group. Tesco has a substantial leading position. Tesco's 2014 report described how European and international network of retailer opera- international markets beyond the UK were grouped into tions and has recently begun selling non-food goods - three 'cohorts' depending on their current performance e.g. clothing - in over 20 countries. In recent years and potential: Tesco's online operation has enjoyed significant growth . South Korea, Malaysia and Thailand - markets with in online sales; its non-food operation, Tesco Direct, significant future potential; saw sales rise by 30 per cent. International sales are . Ireland, Czech Republic, Hungary, Poland and Slova- a fundamental part of Tesco's growth strategy and in kia - markets where we are focussed on holding our Korea, for example, sales grew by 15 per cent. Tesco position and improving returns; states that its vision for online retailing takes account of . China, India and Turkey - markets where we know customer needs (Tesco 2014 annual report): we must refocus on a more profitable approach to Well, our multichannel approach is already helping growth. customers shop wherever, however and whenever Founded in 1919 by Jack Cohen, the company grew they need to. In the future, the shopping experience rapidly and has a history of delivering innovations to the will become even more seamless, convenient and ef- UK retail sector, so it is no surprise that once it became fortless. Tesco Labs are already working on turning feasible to offer online shopping Tesco was quick to that vision into a reality for millions of our customers. determine how it might trade online. By the early 1990s, (McNamara, 2014) Tesco was one of the few UK retailers that had invested 240 in a specialist e-commerce department to spearhead continue to hold its own online (Warner, 2014)(Warner, its online developments. In 1994 Tesco started offering 2014). Tesco currently leads the UK's other top grocery240 in a specialist e-commerce department to spearhead continue to hold its own online (Warner, 2014)(Warner, its online developments. In 1994 Tesco started offering 2014). Tesco currently leads the UK's other top grocery online shopping to its customers but strategically the retailers in terms of offline and online market share but, organisation had big plans for online shopping. according to Wood (201 1), Clarke (former CEO of Tesco): Tesco's former chief executive, Terry Leahy, was quoted in the Sunday Times as saying: "We will be the has promised to nurture its domestic business, which world's biggest online grocery retailer and we intend to despite ringing up almost one pound in every seven become the UK's No. 1 e-commerce business'. This spent on the UK high street has lagged behind rivals goal was quickly achieved; by December 2000, Tesco such as Sainsbury's and Morrisons in sales growth. offered a wide range of products to 90 per cent of the Despite its recent underperformance, Tesco remains UK population. The online shopping service, Tesco. the dominant force in UK retail, with a market share com, was established soon afterwards and operated of more than 30 per cent. It is estimated that 13 per as an independent subsidiary to Tesco. Tesco then cent of all the MasterCard and Visa credit card trans- started to diversify its online product range, offering actions in the UK are made on a Tesco credit card. many non-food products ranges, and the result was a Tesco has been at the forefront of the development significant increase in sales. To support logistical opera- of online shopping and while it has been making a tions, Tesco developed a sophisticated semi-automated significant contribution to the growth in online retail, it in-store picking service, supported by local refrigerated has also enabled more retailers and consumers to feel delivery vans using existing facilities rather than building that they can shop and trade online. Tesco is likely to high-tech dedicated warehouses and, according to face challenges from different sources of competition Ellis-Chadwick et al. (2007), this created a strategic as the online shopping market grows and matures. advantage that enabled faster geographical expansion of the online shopping services and a distinct advan- Staying ahead: how does Tesco promote tage of extended national coverage of Tesco's online its online offer? shopping service provision. By 2003, 96 per cent of the As with other online retailers, Tesco.online opera- UK population could shop online with Tesco.com, giving tions rely to a certain extent on instore advertising the company 65 per cent of the UK online grocery and marketing to the supermarket's Clubcard loyalty shopping market and further diversification of product scheme's customer base. The linkages between ranges, e.g. financial services and telecoms. It started Clubcard mailings (off- and online) act as a trigger to expand and offered its online services internationally, for shoppers to engage with both channels. Email for example, in South Korea through Homeplus.co.kr. marketing is an important part of Tesco's promotions Previously, Tesco has constantly focused on tech- and, according to Doherty and Ellis-Chadwick (2010), nology innovation in order to streamline services. using email marketing is a complex activity, which isadvantage that enabled faster geographical expansion of the online shopping services and a distinct advan- - Staying ahead: how does Tesco promote tage of extended national coverage of Tesco's online its online offer? shopping service provision. By 2003, 96 per cent of the As with other online retailers, Tesco.online opera- UK population could shop online with Tesco.com, giving tions rely to a certain extent on instore advertising the company 65 per cent of the UK online grocery and marketing to the supermarket's Clubcard loyalty shopping market and further diversification of product scheme's customer base. The linkages between ranges, e.g. financial services and telecoms. It started Clubcard mailings (off- and online) act as a trigger to expand and offered its online services internationally, for shoppers to engage with both channels. Email for example, in South Korea through Homeplus.co.kr. marketing is an important part of Tesco's promotions Previously, Tesco has constantly focused on tech- and, according to Doherty and Ellis-Chadwick (2010), nology innovation in order to streamline services, using email marketing is a complex activity, which is provide new features and extend the range of points largely focussed on 'grabbing customer attention' but at which customers can access (Ellis-Chadwick et al., it can be used to achieve a number of communication 2007). Diversification and expansion of the online and sales objectives. Humby and Hunt (2003) describe product portfolio and customer services continues with how Tesco.com uses 'commitment-based segmenta- the addition of a series of innovations such as: DVDs to tion' or 'loyalty ladder' based on recency of purchase, your door (a rental service), energy utilities (thousands of frequency of purchase and value to drive Tesco's customers save money on their gas and electricity bills), communication campaigns. They identified six life- getting healthy online by using the e-diets service (which cycle categories which are then further divided to target helps customers tailor their eating plans to what's right communications: for them, taking into account lifestyles, food preferences and health recommendations) and Internet telephony. . 'Logged-on' However, in 2015 Tesco's new chief executive, Dave . 'Cautionary" Lewis, has begun to restructure Tesco' in response to . 'Developing' poor performance, previous diversification (e.g. broad- . 'Established" band services, Blinkbox) and aggressive market entrants . 'Dedicated' (e.g. discounters Aldi and Lidl).' (Wood 2015). . 'Logged-off' (the aim here is to win back). Tesco then uses automated event-triggered messaging The online grocery market and competitors which can be created to encourage continued purchase - While Tesco remains the second largest online retailer e.g. Tesco.com has a touch strategy which includes after Amazon in Europe, there are legacy issues, a sequence of follow-up communications trig- which Dave Lewis has to deal with if the company is to gered after different events in the customer lifecycle.241 In the example given below, communications after event 1 strategy for attracting attention and retaining customers are intended to achieve the objective of converting a using email marketing. According to Doherty and Ellis- website visitor to action; communications after event 2 Chadwick (2010), this form of digital communication is are intended to move the customer from a first-time increasingly important as a mechanism for developing purchaser to a regular purchaser, and for event 3 to and maintaining mutually beneficial relationships with reactivate lapsed purchasers. customers. Furthermore, advertising research discov- Trigger event 1: Customer first registers on site (but ered a large proportion of the message recipient's does not buy) attention is determined by the structural, executional Auto-response (AR) 1: Two days after registration elements of a message rather than its content - email sent offering assistance and discounts to e.g. length, size, layout (Rossiter and Bellman, 2005) - encourage the first purchase. which has implications for developing effective email marketing messages. Trigger event 2: Customer first purchases online One of the marketing challenges for international AR1: Immediate order confirmation. campaigns is that Tesco, although a household name AR2: Five days after purchase email sent with link in the UK, is entering new markets with its online to online customer satisfaction survey asking grocery delivery service without a good level of aware- about quality of service from driver and picker ness. It is looking to raise awareness among a younger (e.g. item quality and substitutions). generation who are using TV less than traditionally. Part AR3: Two weeks after first purchase - direct mail of the solution is to use the 'viral marketing' available offering tips on how to use service and $5 through social media to share humorous videos. This discount on next purchases, intended to en- example (www.youtube.com/watch?v=BX5EXJwISpQ) courage re-use of online services. shows how these videos 'went viral' in Poland. It's a AR4: Generic monthly e-newsletter with online ex- great example of a campaign to show how entertaining clusive offers encouraging cross-selling. and tongue-in-cheek content can appeal to different AR5: Bi-weekly alert with personalised offers for cultures. It started off as a low-budget trial in Poland, customer. and the videos reached over 740,000 views in a couple AR6: After two months - financial discount to en- of months, peaking to 1.5 million views, at a cost of a courage the next shop. few thousand euros for each video. Speaking at the ART: Quarterly mailing of coupons encouraging re- 2014 Smart Insights Digital Impact conference, Niall peat sales and cross-sales. Walsh, Head of Group Digital and Ecommerce, admitted Trigger event 3: Customer does not purchase for an that it 'exceeded even their own expectations, and have extended period replicated this across other markets. We needed to AR1: Dormancy detected - reactivation email with wean our market away from price and promotion driven survey of how the customer is finding the videos, and certainly achieved this through more enter- service (to identify any problems) and a $5 taining videos'. incentiveAR4. Generic monthly e-newsletter with online ex- great example of a campaign to show now entertaining clusive offers encouraging cross-selling. and tongue-in-cheek content can appeal to different AR5: Bi-weekly alert with personalised offers for cultures. It started off as a low-budget trial in Poland, customer. and the videos reached over 740,000 views in a couple AR6: After two months - financial discount to en- of months, peaking to 1.5 million views, at a cost of a courage the next shop. few thousand euros for each video. Speaking at the AR7: Quarterly mailing of coupons encouraging re- 2014 Smart Insights Digital Impact conference, Niall peat sales and cross-sales. Walsh, Head of Group Digital and Ecommerce, admitted Trigger event 3: Customer does not purchase for an that it 'exceeded even their own expectations, and have extended period replicated this across other markets. We needed to AR1: Dormancy detected - reactivation email with wean our market away from price and promotion driven survey of how the customer is finding the videos, and certainly achieved this through more enter- service (to identify any problems) and a $5 taining videos'. incentive. AR2: A further discount incentive is used in order to encourage continued usage to shop after the Question first shop after a break. Based on the case study and your own research, discuss where you think Tesco should focus to en- By using this stages approach to keeping track of its sure it can continue to achieve success online and customers online Tesco has established a robust protect market share