E-business

Md. Rashidul Hasan

Associate Professor
Department of Agribusiness and Marketing
Sher-e-Bangla Agricultural University
Dhaka
 Case Study

Tesco.com
 Introduction

Supermarket giant Tesco was founded in the aftermath of the First

World War in 1918. Jack Cohen used his army discharge money to set
up a grocery stall in the East End of London. The first Tesco store
opened in 1929 and a UK retailing institution was born. Throughout the
rest of the twentieth century Tesco continued to grow, with the
number of stores opening increasing year on year.
 Introduction

The philosophy of Tesco was to sell a wide range of quality products at

reasonable prices. There was an added convenience factor for
consumers by ensuring that a Tesco store was located within easy reach
of the majority of customers. Stores were opened in many urban and
suburban areas throughout the UK.
 Introduction

The company proved profitable because of the economies of scale

associated with buying in bulk and selling at high volume. This also
meant that costs were kept low. By the early 1970s Tesco was a major
presence on the UK retailing landscape and maintained the philosophy
of selling basic groceries at low prices.
 Introduction

The 1980s saw Tesco continue to grow and expand its products and
services. Greater emphasis was placed on the physical environment of
the stores and the management of Tesco sought out knowledge on the
psychology of shopping from experts around the globe. The nonfood
element of the business took on more importance as the company
sought to bolster the brand image and build on the already significant
brand loyalty it enjoyed.
 Introduction

The strategy of becoming as strong in the non-food sector as it was in

the food sector was one of the key aims of the company into the 1990s.
Alongside expansion internationally, the way Tesco sought to improve
services to customers was identified as providing financial services and
information and delivery services via the internet.
 Introduction

Tesco benefited from having a customer-focus to its operations. This

was evident in a number of different ways. The ‘One in Front’ initiative
was designed to ensure that queues of customers did not exceed two
at any checkout. Although it cost the company many millions of pounds
to implement, the plan worked since customers appreciated the quick
and efficient service provided.
 Introduction

Tesco was also a first-mover in providing loyalty cards in the UK.

Launched in 1995, the loyalty cards rewarded customers for shopping
with Tesco. By 2000 there were nearly ten million Tesco Clubcard
members throughout the UK. The company has built on its success and
has been Britain’s biggest retailer since the mid 1990s.
 Introduction

In 2005 Tesco broke through the 30% market share in the grocery
market for the first time. The company was also the first UK retailer to
register profits of more than £2 billion. This is hardly surprising given
that for every £8 spent by UK consumers, £1 will be spent in Tesco.
 Introduction

Part of the reason for the success of Tesco has been the ability of the
managers at the company to determine exactly what their customers
want and provide it quickly, efficiently, conveniently and at low cost.
The company has been able to draw customers away from rivals whilst
consolidating their grip on the loyalty of their existing customers.
 Introduction

Tesco has been able to use the value of the brand to enter the financial
services market successfully. Where rivals have struggled to make much
impression against traditional financial services retailers, Tesco has
used the brand effectively to offer a range of services such as savings
accounts, travel and motor insurance, and loan facilities. There has also
been an internet mortgage-finder service.
 Introduction

A partnership agreement with the Royal Bank of Scotland ensured that

customers received a quality service that they could trust. However,
one of the most risk-bearing and adventurous initiatives adopted by
Tesco was to be first-movers in the online grocery delivery sector in the
UK.
 Tesco online services

In 1995 Tesco began offering online services based on customers

making orders from their local Tesco store using the internet. The
company also launched their own Internet Service Provider (ISP),
Tesco.net, as a means of linking the online delivery service with
internet access facilities. This provided customers with a greater choice
of ISP.
 Tesco online services

Since the existing stores, warehouses and distribution networks were

already in place, the initial investment for the online service was
relatively small. The company spent around £25 million getting the
online service up and running throughout the UK.
 Tesco online services

The Tesco.com online service is simple and convenient for consumers

who are willing to pay extra for having their groceries collected and
delivered to their door. Orders are taken and processed online and the
information sent to the nearest store to the consumer. Tesco stores
have a number of staff known as ‘pickers’ who gather together the
items on each list sent online. The groceries are then assembled at a
delivery point and distributed to households within a given area during
a given time slot.
 Tesco online services

Tesco gives approximate times within the timeframe for delivery so that
consumers can ensure that someone is home to collect the goods
when they arrive. Most payments are undertaken online too. Crucially,
each Tesco store could update information on prices, what items were
available and their sell-by date. Where items are unavailable the
‘pickers’ will include a close substitute.
 Tesco online services

Everyday grocery items such as bread, fruit, vegetables and milk are the
most popular items bought online, but Tesco.com also report a healthy
online demand for non-food items such as CDs, videos, electrical goods
and books. The convenience factor is the biggest driving force behind
the demand for online delivery. The company has developed
sophisticated software to help manage the collection and delivery of
the goods to customers.
 Tesco online services
There are also a number of marketing benefits associated with
developing the online service. The information derived from the
database of customers helps Tesco determine what products are in
high demand; what products require specific types of marketing and
promotion; and when, and for how long, customers interact online and
what they want. The information derived from this database also
provides Tesco with feedback on satisfaction rates and responses of
customers to new offers or products. The bank of information helps
Tesco to hone their online strategy and deliver an added-value service
to customers by responding to what they want.
 Tesco online services
The online service helps the company to form more intense
relationships with customers through offering a more personalized
service. For example, the company has collaborated with software
developers to tailor web promotions of products that individual
customers habitually buy. It also advertises complementary products or
related products to those habitually bought by individual customers.
Customers perceive an added value to the personalized characteristics
of the advertising campaign. This is much more effective than generic
advertising because customers are more responsive to promotions that
interest them.
 Tesco online services

The online service helped to broaden the appeal of the brand to new
customers, especially younger customers. The first-mover advantages
meant that Tesco had a head start in the learning process of operating
an online service compared to its rivals. There were links between the
online and offline service provided by the company, such as the
extension of the Clubcard loyalty scheme and access to discounts.
 Tesco online services

The Clubcard loyalty scheme was relaunched to reflect different levels

of spending by customers. Customers were allocated either gold, silver
or bronze status according to their spending habits. This is available to
online as well as offline shoppers.
 Competition

Tesco were the first-movers into the online grocery services in the UK.
The company has built up a significant lead over other supermarkets
and retailers and used the brand effectively to attract new customers.
The company claim that around a third of their online customers have
never shopped at Tesco before (MyWebGrocer.com). If this is the case,
then the online service has been able to attract a new kind of shopper
– one that is more likely to use the internet for many of life’s
transactions and services.
 Competition

Among the closest rivals to Tesco, both ASDA and Sainsbury’s have
online services.
 Pricing policy of Tesco.com

The pricing policies of firms selling products and services via the
internet has attracted the interest of various bodies including, in the
UK, the Office of Fair Trading (OFT) and, in the EU, the European
Commission.
 Pricing policy of Tesco.com

Many of the problems stem from the website content of supermarkets.

Consumers believe that the information on websites relating to prices
and availability of goods is a definitive account. Although Tesco could
benefit from introducing dynamic pricing for its products sold online
the company has yet to adopt this strategy.
 Pricing policy of Tesco.com

The websites offer only a ‘guide’ to prices and availability. The websites
are not ‘real-time’ and very often do not provide up-to-date
information on prices and availability. Where ordered products are
unavailable, the supermarkets will deliver ‘an appropriate substitute’.
Just how ‘appropriate’ is often a bone of contention between
supermarkets and customers.
 Pricing policy of Tesco.com
Tesco has to weigh up the difference between investment in more vans
and distribution costs with the prices charged and the level of demand.
Nevertheless, if customers are unable to gain deliveries of their
groceries when they want then, from their perspective, the
convenience and speed of the online service has failed. This may have a
detrimental effect on customer loyalty, although Tesco reports high
levels of customer satisfaction overall. Online shopping is becoming an
increasingly important aspect of the company’s activities. However,
there is a gap between consumers’ expectations and fulfilment that
needs to be addressed.
 Effective use of the internet by Tesco

Tesco uses Information and Communications Technology (ICT) to help

manage its operations. In particular, its extranet has been an invaluable
tool in managing relationships and operations with its suppliers.
Traditionally, supermarkets have restricted the type of information they
give out to manufacturers and suppliers for operational reasons. Since
the development of the extranet, however, the benefits of sharing
knowledge have become apparent to companies such as Tesco.
Crucially, the extranet allows Tesco control over who has access to the
information.
 Effective use of the internet by Tesco

Efficient Consumer Response (ECR) is a technique that encourages

information exchange between retailers and manufacturers and is the
basis for co-operation between the two parties for mutual benefit. The
key areas of operations that ECR is designed to improve include store
assortment, re-stocking, marketing and promotion, and new product
introductions.
 Effective use of the internet by Tesco
In 1998, Tesco developed their own system called ‘Tesco Information
Exchange’ (TIE) and linked it with half a dozen of their suppliers. TIE
allows the sharing of information on Electronic Point of Sale (EPOS)
data, stock movements, the introduction of new products and the
latest marketing campaigns. The system also features directory services
of stores, key personnel and general in-house news. However, the
system for information sharing incurs a cost that has to be covered. The
system is run by a third-party company and suppliers have to pay a fee
for access to the information. The fee is dependent on the volume of
business the supplier has with Tesco.
 Effective use of the internet by Tesco

Tesco has built up a huge database of information on the

socioeconomic profile of customers and their spending habits. The
company employs data analysts to search for trends or pinpoint
opportunities that underpin supply chain management and the
marketing effort.
 Effective use of the internet by Tesco

Tesco has also been actively engaged in developing artificial neural

networks. This technology is designed to let computers solve problems
by recognizing trends in data. The technology takes over some of the
roles previously played by humans in identifying trends. Artificial neural
networks are programmed to recognize previously recognized trends
and to adapt responses according to those trends.
 Effective use of the internet by Tesco

The ‘learning’ from previous problems and solutions is an in-built

capability of the computer and allows it to offer new solutions to new
problems. The capability of the computers to detect trends from a vast
amount of data far outstrips human capability. This not only increases
the bank of relevant knowledge that the company has, but also
provides that knowledge much more quickly and efficiently.
 Effective use of the internet by Tesco

Information technology and the internet also help Tesco develop

pricing strategies. The data gathered on customers helps the company
to understand buying habits and tailor supply accordingly. The
information is crucial for linking pricing to particular target markets and
helps to underpin the competitive position the company seeks to adopt
in the marketplace.
 Effective use of the internet by Tesco
The internet has played a role in determining where Tesco locates its
stores. Geographic Information Systems (GIS) provide ‘intelligent maps’
of locations including information on road networks and the location of
rival stores (O’Connor and Galvin, 2001). From this information Tesco
has been able to make decisions on the precise location of their stores.
Factors that are taken into account include the drive time from the
main residential areas surrounding the proposed site, the population
density and the performance profile of the local economy.
 Effective use of the internet by Tesco

Technology has played a key role in helping Tesco become the UK’s
biggest and most successful supermarket. The company enjoys a
significant lead in market share and this is reflected in the year on year
increases in profits reported by the company. ICT and the internet have
enabled Tesco to:
 Effective use of the internet by Tesco
• Better understand its customers
• Manage demand and supply conditions effectively
• Save on costs
• Create better target marketing and promotion campaigns
• Deliver quality service
• Underpin overall strategy, including the location of stores throughout
the country.