Post on 22-Dec-2015
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
1987 1990 1995 2000 2004 Tesco 8.5 9.8 13.6 16.1 19.2 Sainsbury’s 10.0 11.3 12.5 11.6 10.8 ASDA 4.9 7.0 7.2 9.5 11.2 Safeway 5.9 7.1 7.2 7.7
9.7 Morrison 1.5 1.7 2.4 3.2 Other 69.2 63.1 57.1 51.9 49.6 S
ourc
e: ID
G, T
NS
, Key
note
, Fro
ntie
r
UK Grocery Retailing, 1987-2005
Tesco.comClubcardIntroduction
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Tesco’s Growth Strategies
Introduction
Products
Services
Expanded non-foods
Financial services
Hypermarkets
Convenience stores
Internet
How to increase sales
New customers in new channels
More to existing customers in existing stores
New geographies
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
All customers can be placed at some point in this 3-D cube
A customer’s location in the cube suggests actions suitable to earn his/ her lifelong loyalty
• Contribution: profitability today
• Commitment: future value
- likelihood of remaining a customer
- ‘headroom’
• Championing: ambassador
Scoring Points (2003), Humby et al
Why do retailers invest in loyalty programmes?
Key goal is to increase customer loyalty
Commitment
Contribution
Consumer
Champion
Clubcard
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Why do retailers invest in loyalty programmes?
Clubcard
For a loyalty programme to be effective, it must increase contribution, commitment, and championing
Contribution
Championing
Commitment
Attitudes that must be created by programme
Behaviour generated by attitudes
Retailer becomes customer's first choice
Retention of existing customersRecruitment of new customers
Customers spend larger share of wallet inthe retailer's stores instead of rivals' stores
Volume of buying increases
Customers buy additional products and services from retailer
Diversity of products increases
Customers are willing to recommend retailerRecommendations attract new
buyers
Customers have high overall satisfactionDisinterest in switching to
alternatives
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
But if everyone does the same thing, isn’t it a zero sum game?
Clubcard
If all retailers are able to copy one another’s moves, we would not expect customers to become loyal to a particular retailer
But by 2005, Vodafone and Barclaycard had exited the Nectar group and Nectar is struggling to catch up with the Clubcard phenomenon
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Tesco has been able to outwit and outlast most competitors
After lagging Sainsbury for many years, Tesco’s newly launched Clubcard programme allowed it to leapfrog the leader in just 6 months in 1995:
Supermarket UK market share (%) (Source: Taylor Nelson Sofres)
1995 Jan Feb Mar Apr May
Sainsbury 19.4 19.0 19.1 18.7 18.8
Tesco 18.1 18.5 19.3 19.9 19.4
The launch of Clubcard increased Tesco’s sales by 28% and reduced Sainsbury’s sales by 16% in 1995 alone
By 2005, Tesco's Clubcard has more than 10 million members who collectively make up 75 per cent of the company's UK transactions and 82 per cent of its UK turnover.
What is so unique about the Clubcard that has allowed Tesco to achieve such overwhelming success?
Clubcard
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
To underpin the success factors, we conducted some research …
Clubcard
Based on a questionnaire with a sample size of 100, we identify key areas in which Clubcard has performed significantly better than other loyalty cards
Customers like the Clubcard programme mainly due to the personalised treatment they receive and the relevance of rewards
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Data insights are the foundations of Relevance
Clubcard
(1) Tesco does data mining
(2) Identifies customer profiles/ lifestyles
(3) Responds to different segments’ needs with tailored rewards
(4) Improving product linesbased on Clubcard data
You are What you Buy – Innovative Customer Segmentation
It is Tesco’s creative approach to customer segmentation that has allowed it to offer more personalised treatment and relevant rewards than competitors
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
(1) Data mining Key advantage of the Clubcard scheme is the ability to gain data insights from customer behaviour:
Now possible to infer why customers make certain decisions, not just who, what, when, and how much … …
Clubcard
Customers must provide basic geo-demographic details when registering
Time series of transactions can be formed to provide a chronicle of every customer’s individual buying habits
Tesco is able to use the card to link the customer with their transaction
Lifestyle segments are created based on an analysis of both geo-demographic and actual behavioral transaction data
You are What you Buy – Innovative Customer Segmentation
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Finest pre-packaged Chicken Tikka Rice:
Someone who values quality and lacks time to prepare food
Tropicana orange juice:
Someone who is not very price sensitive and values quality
Expensive pre-cut, prepared fruit:
Someone who is not price sensitive and values convenience
Clubcard
An example:
Mr. X’s typical receiptAddress: 66 xx Kensington, London, SW1
Contact no: 07339 884893
Age: 53
Number of people in household: 1
Special dietary requirements: no red meats Mr. X
You are What you Buy – Innovative Customer Segmentation
Can be profiled as non-budget, convenience-driven customer
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
Easy to consume
High quality
Healthy
Innovativeness
Cookingfrom scratch
Product Attributes
(2) Customer profiles/ lifestyles
AverageScore
Classified asnon-budget/ convenience
lifestyle
85 90 80 85
90 90 90 90
85 60 50 65
70 60 80 70
0 0 0 0
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
Clubcard
Customer segmentationBrands launched to target
segments
Source: Coriolis, 2004 Source: Coriolis, 2004
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
(3) Tailoring rewards to various customer segments
This is because Tesco tailors its rewards – Tesco has 8 million variations of its quarterly mailings sent out to 10 million Clubcard members,
with targeted vouchers and advertisements catering to their differing lifestyles and geo-demographic circumstances
For instance, Tesco ensures that it does not send meat vouchers to health conscious vegetarians, and focuses on issuing vouchers for low-calorie products and articles on keeping fit
Clubcard
People who join loyalty programmes expect relevant rewards
Each member of the Clubcard scheme receives a personalised pack containing a mailing, product-specific advertisements, and vouchers
Our research indicated that many people ranked Clubcard’s rewards as more relevant than those of competitors
Tesco also has dedicated clubs (eg. Baby club) that cater to different customers in various lifestages
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
(4) Improving product lines based on Clubcard data
If Tesco identifies that Special Dietary Spreads are doing poorly in growth, they can use Clubcard data to identify the problems
‘Healthy’ consumers are skewed towards Special Dietary Spreads
Clubcard
Source: Dunnhumby website
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
Tesco can examine which customer groups are driving category performance – since ‘healthy’ consumers were shown to be extremely loyal towards Special Dietary Spreads (SDS), we would predict the highest growth in spend on SDS to come from the ‘healthy’ group if the SDS product line is relevant to them
BUT actual results show that growth of SDS is one of the lowest in the ‘healthy’ segment – this implies that Tesco may be selling the wrong SDS products in its stores, and thus it has to improve its SDS selection to improve growth
Clubcard
Source: Dunnhumby website
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
You are what you buy – innovative customer segmentation
Identifying new opportunities in SDS:
Healthy customers are increasing their spend mainly on 2 products within SDS (Benecol and Pro-Activ) – Tesco can lock in healthy shoppers
by launching new Benecol and Pro-Activ products (eg. 1Kg versions)
Clubcard
Source: Dunnhumby website
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Loyalty programmes are costly
Clubcard
Loyalty programmes are extremely expensive.
Even if a loyalty scheme can increase sales revenues, it can lead to reduced profits if the
costs are not minimised.
But Tesco has been successful in minimising costs as well!
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Tesco’s advertising costs are not significantly higher than those of other big retailers, and still its sales growth and market share are above industry average
1) More value from marketing expenses
Clubcard
Why Clubcard is more cost - efficient than others
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Clubcard’s cost effectiveness (1/3)Making mass marketing very niche
Direct communication with customers
Clubcard
Magazine segmentation based on lifestyle segments
64% of customers claimed they are likely to buy products because of the articles they read in the magazine
Able to charge 6 times higher prices for the space in the media
All market research is carried out with the use of Clubcard data and focusing on individual customers.
Tesco sells data to other retailers and suppliers
8 million variations of quarterly mailings
Highly personalised vouchers and rewards
Tesco Magazine Market research “in house” Targeted Promotion
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
According to the Competition Commision Report: “Tesco engages in the practice of requiring or requesting suppliers permanently to reduce the previously agreed wholesale price of products in support of the marketing initiatives with which the price initially was associated”
This approach generated demand and preserved margins for Tesco
Clubcard
Why Clubcard is more cost - efficient than others
2) Discounts are mainly supplier funded
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Look for price-sensitive consumers
Identify the products they buy and others don’t
By not knowing their customers, many retailers are effectively wasting their money on price cuts that could be targeted to people who want them because they need them.
The targeted price cuts enabled Tesco to attract more shoppers from competitors and capture the volume that supported the lower prices.
…which resulted in over 60% fewer promotions, reduced management cost, further contributing to price reduction, and more tailored, effective promotions.Lowering the prices of those
products
Clubcard
Why Clubcard is more cost - efficient than others
3) Clubcard data facilitates targeted pricing strategies
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
UK Online Retail Grocery Market, 2005
Tesco, 65%
ASDA, 15.5%
Sainsbury's, 15.9%
Waitrose & Ocado, 5.5%
Source: Verdict, Keynote, Hitwise
Tesco.com
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Tesco.com VS Sainsburystoyou.com
Link with loyalty card yes (Clubcard) yes (Nectar)Delivery coverage 98% 74%
Link to services (e.g. finance) yesfragmented(microsites)
Delivery charge £3.99-5.99 £5Assortment offered in non-food wide narrowMinimum order none £25Order tracking, cancelling yes noShopping guide for new users yes noProduct search yes yesOnline virtual shopping list yes no
Shopping idea lists yesyes, but
very limited
Popular item lists yes noPrice comparison yes noRecipe ideas yes yes
extra featurestravel booking,
energy providerschoice of
ripeness of fruits
Feature
Tesco.com
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Tesco.com
Tesco.com
ž First mover advantage
ž Switching costŸ Shopping basket (used by 92% of shoppers)Ÿ Customer management (touch strategy)Ÿ Convenient and efficient site design
ž Offline advertising in store for Online offer
ž Clubcard: low cost of winning new customers
ž Integrated offer of non-foods goods, partnering
ž Ebay way of introducing new categories
ž Industrialisation of the picking processŸ Picking trolley, shelf identifier, lean supply chain management
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
In-house Outsource In-house OutsourceGross margin 23.00% 23.00% 23.00% 23.00% 23.00% 23.00%Labour cost 3.33% 3.33% 3.33% 5.00% 5.00% 9.50%Adminstration cost 1.50% 1.50% 1.50% 1.50% 1.50% 2.00%Advertising cost 10.00% 2.50% 2.50% 2.50% 2.50% 1.50%Depreciation cost 0.75% 1.01% 0.75% 0.40% 0.14% 1.40%Other expenses 1.00% 1.00% 1.00% 1.70% 1.70% 7.00%Delivery cost 10.80% 5.40% 6.50% 5.40% 6.50% 0.00%Total operating expenses 27.38% 14.74% 15.58% 16.50% 17.34% 21.40%Net margin -4.38% 8.26% 7.42% 6.50% 5.66% 1.60%
Capital expenditure (£ million) 113 113 84 44 16 157
Source:Lehman Brothers. Interviews with relevant Companies' Investor Relations departments
Bricks&mortarCost elementBrick&click warehouse
Brick&click in-store picking
Internetonly
Break-even analysis
In-house Outsource In-house OutsourceNet margin -4.38% 8.26% 7.42% 6.50% 5.66% 1.60%Average order size £85 £85 £85 £85 £85 £85Investment required 113 113 84 44 16 157Orders needed to payback (million) - 16 13 8 3 115
Bricks&mortarCost elementInternet
onlyBrick&click warehouse
Brick&click in-store picking
Comparison of alternative grocery models
Tesco.com
No player chose outsourcing. Why?
Outsourcing has operational advantageover its counterpart
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
In-house cost > market cost
In-house cost < market cost
Asset specificity
Cost associated with hold-up, negotiation,and writing contract
A
T
Outside supplier cannot easily aggregate demand with other clients
Shared system in material handling,order processing, transportation,& inventory management
Labour specialisation
System covers the entire country
ProduceIn-house
T = Min in-house production cost –
Min arm’s length market production cost
Supplier
Why didn’t Tesco outsource e-grocery logistics?Asset specificity - high
Economies of scale - moderate
Scale of transaction - large
Tesco.com
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Which e-grocery mode is better? (1/2)
Generally, the decision whether to adopt warehouse depends largely on the estimates of:
Market size
Market growth
Percentage of market captured
Tesco.com
Aspect In-house picking Dedicated warehouse
Investment required minimal largeTechnical efficiency lower higherExpansion fast slowCapacity small largeProximity to buyers near far
In-store picking
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Which e-grocery mode is better? (2/2)
Go online
Brick & mortar only
0
0
In-storepicking
Dedicatedwarehouse
-44
-113
High growth (p = .5)
Low growth (1-p = .5)
282
181
High growth (p = .5)
Low growth (1-p = .5)
291
145.5
238
97
178
32.5
0
238
97
178
32.5
167.5
105.25
167.5
0
167.5
Tesco.com
Calculating Free Cash FlowGrowth rate: 20.0% RRR: 5.0%
I. Instore picking- high growth 1997 1998 1999 2000 2001sales 112.0 134.4 161.3 193.5 232.2Less: Total operating expenses 18.5 22.2 26.6 31.9 38.3EBIT 93.5 112.2 134.7 161.6 193.9Less: Income taxes (40%) 37.4 44.9 53.9 64.6 77.6EBIAT 56.1 67.3 80.8 97.0 116.4Add: Depreciation expenses 0.4 0.5 0.6 0.8 0.9Less: Change in Net working Capital 0.0 0.5 0.3 0.6 2.7Free Cash Flow 56.6 67.4 81.1 97.1 114.6
Present Value 354.8
In-house Outsource In-house OutsourceGross margin 23.00% 23.00% 23.00% 23.00% 23.00% 23.00%Labour cost 3.33% 3.33% 3.33% 5.00% 5.00% 9.50%Adminstration cost 1.50% 1.50% 1.50% 1.50% 1.50% 2.00%Advertising cost 10.00% 2.50% 2.50% 2.50% 2.50% 1.50%Depreciation cost 0.75% 1.01% 0.75% 0.40% 0.14% 1.40%Other expenses 1.00% 1.00% 1.00% 1.70% 1.70% 7.00%Delivery cost 10.80% 5.40% 6.50% 5.40% 6.50% 0.00%Total operating expenses 27.38% 14.74% 15.58% 16.50% 17.34% 21.40%Net margin -4.38% 8.26% 7.42% 6.50% 5.66% 1.60%
Capital expenditure (£ million) 113 113 84 44 16 157
Source:Lehman Brothers. Interviews with relevant Companies' Investor Relations departments
Bricks&mortarCost elementBrick&click warehouse
Brick&click in-store picking
Internetonly
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
UK Retailers’ Online Delivery Strategies
sell online
Brick & mortar only
In-storepicking
Dedicatedwarehouse
pureplay:
Tesco.com
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
The predicted value of UK E-Commerce (1997)
quoted in Foresigth, 2000, Retail E-Commerce
Tesco.com
0
2,000
4,000
6,000
8,000
10,000m
illio
n p
ou
nd
s
Datamonitor 37 118 280 490 1,207
Optimedia 400 1,200 2,500 4,700 6,300 7,200
NOP 3,000 9,500
IDC 2,730
Jupiter 101 189 384 730 1,404 2,580
MSDW 118 279 490 1,204
DTI 390
Fletcher 230 3,000
Real 424 1,056 2,277 3,487 5,062
1998 1999 2000 2001 2002 2003
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Total sales Online sales
Tesco’s sales VS online sales
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Tesco.com as a niche market
Tesco.com
0
100
200
300
400
500
600
700
800
1 2 3 4 5 6 7 8 997 98 99 00 01 02 03 04 05
Tesco’s online sales Sales (£M)
Despite Tesco.com’s success, its e-grocery unit remains as asmall part
Additional investments for e-grocery have to be weighted against ROI of other projects
Analysis of market demand
Planning for e-grocery
Consumer research
Is demand potential sufficient in the region?
Does return on warehousejustify its additional investment?
Adopt in-storepicking approach
Adopt warehouseapproach
End
yes
no
yes
no
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
UK Grocery Market Saturation
Diversification into Alternative Non-Food Markets
Non-Food
ServicesN-F Consumer Products
Expansion into Non-Food
Apparel
Electronics
Household
Health & Beauty
Entertainment
Personal
Finance (TPF)
Telecoms / Mobiles
Travel
DVD Rental
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Why Tesco has Targeted Non-Food
Core Grocery Market Saturation:Stagnation, intense competition & price deflation: seek alternatives.
Diversification Opportunities:Potential to exploit weaker competition and higher margins (cross-subsidize core groceries).
Threat of Competition:Industry trend: Asda already established, others to follow. Early-mover advantages.
Synergies:Benefit from existing resources and competencies inc: store networks, distribution & logistics infrastructure, management experience.
Competitive Advantage:Key competitive differentiator. Offer attractive diversified product lines: set goal of “being as strong in non-food as we are in food.”
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Shares of Non-Food Market
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Tesco Asda Sainsbury's Morrison's
% 1999
2004
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Growth / expansion
Scale economies
Control ofSupply chain
Lower prices &higher margins
Virtuous Cycle
Tesco’s Virtuous Cycle of Non-Food Expansion
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Clothing is the most important market for Tesco within non-foods, with sales accounting for 40% of the total non-food portfolio.
The UK Market is highly competitive with a range of traditional high street and discount retailers. Supermarket entrants have driven price deflation and captured market share
Consumer N-F Products: Apparel (Clothing)
Non-Food
0
2
4
6
8
10
12
Tesc
oAsd
a
Deben
ham
sNex
t
Arcad
iaM
&S
%
2003
2004
%
Tesco’s clothing sales grew 28% in 2004 to £700m, doubling its market share from 0.9% to 1.8%;
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Clothing: Brand Comparison
Average Good Poor Good Poor Medium
Average Good Average Good Average Medium
Poor Good Good Good Good Medium
Good Good Good Average Good Strong
Average Good Average Average Poor Weak
Average Good Poor Average Poor Weak
Good Average Average Average Average Medium
Weak Average Average Average Average Strong
Average Good Good Average Good Strong
M&S (3.4)
Next (1.8)
Arcadia (1.7)
Asda (1.3)
Matalan (1.0)
BHS (0.9)
Primark (0.6)
GAP (0.4)
H&M (0.4)
Pricing RangeFashion /
imageStore
network PromotionOverallrating
Firm(sales B£)
Source: Goldman Sachs Non-Food and Convenience Analysis (2005)
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Factors Driving Tesco’s Success in N-F: Apparel
I. Low prices
II. Low costs
IV. Format& convenience
III. Ranges of products
& promotions
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
I. Pricing Strategy
Consistent Strategy: Tesco has extended its low price positioning in core groceries across non-foods lines to undercut competition. Low price / high volume.
Price Key Competitive Advantage: Tesco is between 40-60% cheaper than the industry average. Market Research: low price factor highest correlation in choosing Tesco.
Competition: Intense price competition with discount retailers and closest rival, Asda: “George” brand (launched 1990) based on successful concept of “affordable fashion.”
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Average Pricing Competitiveness
-80 -60 -40 -20 0 20 40 60
%Primark
Asda
Tesco
Matalan
H&M
Average
BHS
Arcadia
M&S
Next
Debenhams
Zara
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
II. Purchasing: Costs and Logistics
Buying Power: bulk buying discounts; critical mass drives down costs.
Direct Sourcing: (65% UK clothing) eliminates intermediary agent mark-up: captures greater percentage of gross margins.
International Purchasing: low cost factors of textile production (labour, materials) in Asia (India, Sri Lanka, China, Indonesia).
Distribution: Initially utilized existing purchasing and distribution channels. Subsequent development of efficient dedicated N-F infrastructure: warehouses, logistics and specialized management systems.
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
In Contrast to Asda’s , Tesco has chosen a multi-brand differentiated format to appeal to a wider range of consumers and niche sub-markets, including:
Other niche lines include: Sixteen-Twenty-Six (plus size), Greenbaby (infant), children’s wear & branded sports apparel.
Exclusive license US casual wear brand, launched in 2002
Own-label school wear
More formal men and women’s wear, launched in 2000
Price-sensitive own-label basics
III. Product Range: Tesco’s Clothing Brands (1/2)
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Product Range & Promotion (2/2)
Most successful in niche categories of children’s wear and value lines: standardized products in most price sensitive categories.
Less successful in mainstream women and menswear. Suffers from relatively negative fashion / brand image status.
Tesco has attempted to incorporate fashionable trends, employing well known designers and rival firm management; emphasizing rapid product design and production.
Heavy in-store merchandizing & external promotion (inc TV advertising) to stimulate demand, build awareness & create brand name equity.
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Presentation (Format)
Expansion: New stores / adding space to existing locations. Trial of N-F only stores (Homeplus). 40% of new N-F floor space dedicated to apparel.
Convenience: High store footfall: “one stop shop” for all grocery and other N-F lines also attracts customers to apparel. Consistent with current UK retailing trends.
Synergy in Demand: Apparel has become a key driver of customer traffic in its own right, spillover effects on demand for other product categories .
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Over-Diversification: management need to keep its “eye on the ball” and may lose focus on its core grocery business, over-stretched resources.
Competition: anticipated entry and imitation by other supermarket retailers (Sainsbury’s & Morrison's) will increase price deflation and reduce profit margins. Price retaliation.
Cyclicality: Non-Food expansion increases likely cyclicality of demand and exposure to economic downturns. However may be beneficial with value image.
Lack of Competencies: move in to unfamiliar products / markets may lack resources, proprietary skills and required knowledge: overcome by partner involvement.
Quality: may be sacrificed in pursuit of low costs.
Evaluation of Non-Food Strategy: Threats
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Why financial services?
Additional competitive advantage
Additional source of revenue
Meeting customers’ needs
Synergies with core business
Exploiting existing information about customers
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
TESCO Personal Finance
ž Established in 1997
ž 50-50 joint venture with the Royal Bank of Scotland
ž 5 mln customer accounts in 2005
ž 16 products, including credit cards, loans, saving accounts, loans and mortgagesŸ In-store staff support and cash machinesŸ The most simple and mass market products. Easy and quick
access to products: online, in store or by phone
Non-Food
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Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
TESCO Personal Finance
Source: Company data
Pretax profit and growth
-50
0
50
100
150
200
1998 1999 2000 2001 2002 2003 2004
pre
tax
pro
fit,
mn
GB
P
-150%
-50%
50%
150%
250%
350%
450%
550%
Y-O
-Y G
row
th, %
Non-Food
54
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Co-opetition
Brandenburger and Nalebuff, 1996
CompetitorsComple-mentors
Customers
Suppliers
Non-Food
55
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Co-operate or Compete?
D>C>A>B
Compete Co-operate
Compete A, A C, B
Co-operate B, C D, D
Non-Food
56
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Complementors: reasons for co-operation
ž TescoŸ Access to expertise and technologyŸ Risk management
ž Royal Bank of ScotlandŸ Access to an established consumer baseŸ New geographies Ÿ Opportunity for future growth of other products
Non-Food
57
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Non-Food
Clubcard
TESCO.com
Culture
Conclusion
58
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
59
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Back-up Slides
60
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Touch Strategy
Ÿ Logged-on¡ Offer of email and phone support, and £5 discount on first purchase
Ÿ Cautionary¡ 5 days pp: email with link to online satisfaction survey
Ÿ Developing¡ 2 week pp: Direct mail with tips on using the service.
Ÿ Established¡ Generic monthly e-newsletter, encouraging cross selling
Ÿ Dedicated¡ 2 months pp: £5 off for next shop
Ÿ Logged-Off¡ Customer does not buy for an extended period: reactivation email, survey, and
£5 incentive¡ Follow up incentive after first shop after a break
Tesco.com
61
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
TESCO Personal Finance
Source: Company data
Number of customer accounts (millions)
0
1
2
3
4
5
1998 1999 2000 2001 2002 2003 2004
Non-Food
62
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
Increased size of ‘pie’
•Outstanding household debt-income ratio 1.4 in 2004 vs. 1.05 in 1994
•8% average annual growth rate of personal deposits for the past 5 years
Total Household Deposits and Loans
0
200000
400000
600000
800000
1000000
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Dep
osi
ts/L
oan
s, m
n £
Deposits
Loans
Source: Bank of England.
Non-Food
63
Introduction Tesco.com Non-FoodClubcard
http://www.andidas.com/
TESCO as a competitor
Non-Food
Personal Loans
TESCO Sainsbury Natwest
Age limit 23 18 18
Amount, £ 3000-25000 1000 - 25000 1000 - 25000
Minimum income 10 000 - -
APR, % 6.3 6.1 7.4
Time period 1 - 10 years 1 - 8 years 1- 7 years