IT-generated competitive advantage at Tesco

When launching Tesco.com, Tesco partnered with an IT solution provider with the technology and support services to meet a significant rate of growth in its business in order to maximize the uptime of its website. In addition, TESCO´s model to use in store staff to pick orders over the internet off the shelves seems to be a strategic decision. According to John Browett, Chief Executive of Tesco.com, “Running our home delivery service from the stores gives customers the best service and value.

Delivery times can be kept below 30 minutes from store to house, keeping costs down, and the range is huge because stores stock so many products”. Another competitive advantage is to target its service at customers willing to pay a 5euros delivery fee and to add online services, so that customers will receive an incentive for shifting from regular grocery shopping to e-shopping. If you want to change a consumer habit, the trade off needs to look convenient and valued by the customer in order to do that change. Finally, the Club Card, a loyalty card that -although it was created at the beginning as a means of giving something back to the customer- it allowed TESCO to collect customer data and send the customers targeted offers.

While facing a mature UK retail industry, TESCO wanted to maintain market share and increase profitability. On one hand, TESCO looked at China as the country with the biggest growth potential in the world. On the other hand, maximizing the use of Tesco Direct Model, already an Internet success would increase its participation on total TESCO´s turnover.

Definitely, when introducing in a different market, the best initial strategy seems to be the joint venture or any mean of controlling interests in local retailers in order to get its local knowledge and operating expertise. It was already a common practice in TESCO´s expansion strategy. China has been irresistible to foreign retailers even since the government started allowing them to set up there in 1995. When TESCO decided to enter the Chinese market, it was already late by world standards. Hence, the acquisition of a stake in a leading retail group seems to be a good idea. Chinese consumer habits are different, and Tesco shouldn’t try to change them. Instead, try to adapt to them, improve the shopping experience and see through cultures to supply what shoppers really want. Even though TESCO has the expertise, they lack local experience. The Club Card becomes a useful tool to identify the different patterns when shopping in order to bring new management expertise and technology know-how to help grow the business further. Moreover, TESCO.com becomes an important way to get in touch with customers and reaching new ones.

If e-grocery market is more profitable than the regular market and your main goal is to be profitable, you want to move your customer from one point to another. If this statement is true, then cannibalization through the retail channel shouldn´t worry TESCO. As a result, they might have the same volume of sales but with higher profits. But if online profit margins are smaller than that of the traditional business, then it becomes compulsory to impose a minimum order level to encourage larger orders to off-set the cost of delivery and make sure that with this service charge, the market will not stomach.