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    Introduction

    Bill Gate once said “The internet is becoming the town square for the global village of tomorrow” which simply means it is paving way for future opportunities and development in every area of life from its ability to enable communication between loved ones or business associates to its ability to facilitate instant online transactions. Indeed, the internet revolution has opened doors for innovation especially in the business community. New businesses have emerged through it and existing ones have used it to their advantage to expand, drive sales, reinforce and reposition their brands (Willcocks and Plant, 2001). According to Pearlson and Saunders (2006, p.162), the internet supports e-business which is any kind of business activity performed electronically and almost all businesses are incorporating it into their operations to attain competitive advantage and improve effectiveness.

    A particular aspect of business which has evolved tremendously through the advent of internet is marketing. According to Olson (2008), the wide use of the internet for transactions has caused it to become a valuable tool for marketing and should be integrated into a company’s strategy. On a similar not, Varadarajan and Yadav (2009) and Porter (2001) are of the opinion that the advent of the internet technology has forced many businesses to re-consider the tactic they use in marketing products and services to customers in order to gain an edge against competitors as it is the new phenomenon making waves in the business community.

    Based on this phenomenon termed “Internet Marketing” which is defined as a “Virtual storefront where products are sold directly to consumers” (Kiang et al, 2000), this essay will discuss the online marketing strategy of Tesco Plc.: Tesco.com and its evolution, analyse the online competitors in terms of the website design and effective use of promotional activities; and assess how the use of the internet for marketing is aligned with the overall business strategy of the organisation. One of the reasons for choosing Tesco.com as a case study for this essay is because it is an established Business-to-Consumer (B2C) company and one of the largest retailers in the world providing services in 14 countries, four of which operate online. It has expanded over the years into different markets building a large customer base along with its development (Tescoplc.com (a)). One of the main factors for Tesco’s shift to online sales was to cope with the pace of service delivery and effectiveness in the face of rapid expansion and development (MBS Lecture notes, Holland, (2011)).

    The organisation of the essay is as follows: Section 2 will discuss the Tesco online market. An analysis of online competitors will be made in section 3. Section 4 will discuss the how the internet marketing strategy of Tesco.com has been aligned with Tesco Plc. overall strategy and Section 5 will conclude the essay.

    The Online Market: Case Study of Tesco.com

    Tesco.com is the official online market for Tesco Plc. Upon launch in 2000, it had approximately 300,000 registered customers (Hays et al, 2005) and sells a wide range of food and non-food (clothings, software, furniture, toys, telecoms, internet services, financial services, etc.) products. It operates in over 270 stores in the UK and has 96% of the UK market (Datamonitor, 2004). Adopting the hybrid model, a model where the offline operations (bricks-and-mortar) are extended online using the same brand name (Yousept and Li, 2004), its choice to go online was not to attract the large grocery market as the likes of Webvan but instead to create an automated “additional sales channel” which will overcome the manual ordering system that was in place. This manual system was error-prone, time-consuming and expensive therefore the need to go online (MBS Lecture note, Holland (2011)). The internet increased efficiency in retailing compared to bricks-and-mortar (Latocovich and Smith, 2001) and provided a cheaper means of fulfilling orders and also a convenient and comfortable shopping experience whilst meeting the demands of its large and growing customers (Delaney-Klinger, 2003) in the UK. Since it was established, it has maintained its position as one of the world’s leader in online shopping, expanding to international markets: Ireland, South Korea, United States (Coriolis research, 2004) and Czech Republic with a future plan of breaking into Warsaw, Poland (Tescoplc.com (b)).

    Operation of Tesco.com

    Tesco’s online marketing started from humble beginnings using existing facilities (stores) as warehouses for picking orders instead of investing in sophisticated warehouses and other assets (Delaney-Klinger, 2003). Tesco utilized its existing employees to hand-pick on-line orders from Tesco superstores, which at that time were over 200 spread densely all over the UK, then delivered to customers within a two hour delivery slot with a van. This method posed some problems such as store congestion which sometimes annoyed customers doing their regular shopping at the Tesco brick-and-mortar store. A higher customer demand and need for improvement resulted in the introduction of Hubs which were carved out from the large space of Tesco Extra stores consequently requiring Tesco to increase the number of employees for online order fulfillment and vans used for delivery. In 2006, Tesco took a bold step by creating the “Dot.com only store” which is a large Tesco store with size ranging from 20,000-50,000 square feet and operated “without customers, cash registers and checkout staff” (MBS Lecture notes, Holland, 2011).

    The development and improvement of the order fulfilment model (see Fig. 1) only showed that Tesco was growing in sales and customer-base of its online market.

    Tesco.com has made ordering products (groceries and non-groceries) stress-free for users. Its new “Click & Collect” and “Refund the difference” strategy are in place to provide shopping convenience for customers. Additionally, it even integrated the Loyalty Clubcard scheme so that users who decide to shop on Tesco.com will enjoy the same benefit the card offers for offline purchases. Tesco Loyalty Clubcard is a free product that adds points for every £1 spent on a purchase (MBS Lecture notes, Holland, 2011). It saves the personal details and shopping list of the customer which it uses to develop market segments and understand various store locations (Perkins, 2001) thereby serving customers better.

    Tesco.com: Size and Growth

    Tesco.com considered online marketing as another means for driving sales and has seen profitable growth (Hall, 2001) even though sales from the internet is believed to contribute a small amount of profit to the total company’s overall sale (Delaney-Klinger, 2003). Nevertheless, Tesco has proven to be a leader in the online market amidst competitors gathering sales of £237 million in 2001 (see Fig.2), a year after tesco.com began operation.
    Subsequent years have also shown significant rise in internet sales stirred by increased number of online orders (Fig.3 & Fig.4) (Coriolis Research, 2004) with a 15% increase in 2011 clinching a total of £2.5bn (Tesco Annual Report, 2010/2011, p.32).

    Tesco has enjoyed high profit through its internet channel due to its strategy of achieving economies of scale through expansion of products, services and International market.

    Products:
    Tesco.com expanded its product range online from food items to non-food items in 1998 with the launch of Tesco Direct. These products were grouped into four categories: Entertainment, Health&Beauty, Household and Clothing (Colioris research, 2004). By expanding its product range, Tesco joined the likes of Amazon which also expanded its book-only products into a range of other products including grocery. This bold step by Tesco was to simultaneously improve revenue and offer more product range and choice to customers (Hays et al, p.14).

    Services:

    Another area of growth for Tesco.com was the launch of online services. For example, the Tesco financial service in partnership with the Royal Bank of Scotland which is a 50-50 joint venture, offers products ranging from savings accounts to insurance (Coriolis research, 2004). In 2004, the financial service made a profit of £160m and as shown a steady growth both in pre-tax profit and customer accounts (Fig.5). Tesco’s Interim Management statement for 2011/2012 reports 8|Page

    progress and growth for the financial service earning total revenue of £522m (Tesco Interim Results, 2011/2012). Other online services include Travel services, Telecoms etc.

    International Market:

    Tesco.com gained more growth and increased in size through its penetration into the international market. It also established online stores in the US, in partnership with Safeway USA, Ireland, South Korea (Coriolis research, 2004; Jones, 2001) and recently (2012) in Prague, Czech Republic (tescoplc.com (b)).

    Tesco is growing at remarkable speed through expansion of its products, service and market, resulting in a higher volume of production to meet its large customer base and demands. This also means that the average cost of production will reduce, giving Tesco.com a higher advantage over rival companies. Achieving economies of scale is a strategy that has facilitated Tesco to attain cost advantage and steadily increase its market share (Fig. 6; Fig.7) compared to competitors.

    Use of Tesco.com for Research

    Tesco.com offers more than products and e-service to customers, it also offers a compare site named Tescocompare.com which is a search and compare engine that provides a platform for research where customers can compare deals from different companies ranging from Insurance to Gas and electricity. A look at Online Consumer behaviour shows that research is the significant use of the internet when compared to buying (Olson, 2008) and Tesco is using this to its advantage through the creation of the compare site. Additionally, it has also integrated the use of the Loyalty club card when making purchases through the compare site. “It is the only comparison site to offer its customers loyalty points, giving them that little bit extra when buying a car or home policy through Tesco Compare” (PRWeb UK, 2011).

    Future Forecast of Tesco online market

    Tesco.com has shown a consistent growth rate (Fig.2; Fig.3 and Fig.4) in its online sales channel. It has enjoyed sales boost from the international market and also through the expansion of products and services which can only improve its market value. Upcoming years look promising for Tesco.com. Its launch of iPhone grocery application in 2011 has already attracted a 12% increase in customer traffic on the site (Tesco Annual Report, 2010/2011, p.32) and it is believed that traffic from site should convert to sale which will have an effect on sales in subsequent years.

     Tesco Online Market Segmentation

    According to Vellido et al (1999), the segmentation of the online market of a company is necessary in order to achieve growth. Tesco categorised (Fig.8) its customers based on data analysed and captured from its 10 million Clubcard holders and divided them into six segments. Through segmentation, Tesco was able to target its customers successfully and launch private label brands to suit their needs and pocket (Coriolis Research, 2004). Tesco grouped its market into three segments: Upper-market, Mid-market and Less affluent and targeted brand types (Finer Foods, Health, Traditional, Convenience, Mainstream, and Price Sensitive) to each market.

    Analysis of Online Competitors

    Competition in the online market is aggressive. Tesco, considered one of the big 4 supermarkets in the UK alongside Asda, Sainsbury and Morrison (Evolution Insights, 2010) competes for market share with these retailers on the online platform. A key advantage in gaining an edge over competitors is the display and management of the website interface (Rayport et al, p 67, 2005) as well as promotional offers that are aimed at keeping customers loyal. Tesco has enjoyed customer loyalty compared to its competitors (Fig.9) with 86% of its customers actually shopping on its website in comparison to 72% received by Asda and 52% received by Sainsbury. Furthermore, it can be seen that a higher percentage of competitors’ customers shop at Tesco.com with 16% in Asda and 28% in Sainsbury’s (Evolution Insights, 2010). In addition to special offers received from Tesco.com, the design and usability of the website plays a key role in boosting sales and enhancing a customer’s online shopping experience.

    Tesco.com Design and Usability

    The Tesco website has been strategically designed with appropriate layout and item placement (Olson, 2008) with the intention of grabbing a first-timer or regular customer’s attention upon access and to turn most visits into a purchase.

     Tesco.com Layout:

    According to a study carried out by Wichita state University (2007), it was discovered that people scan a website page from the left top corner all the way down to the bottom, forming an ‘F’ pattern. Thus, a website should be designed in such a way that all the important bits should be placed following that pattern (Olson, 2008). The Tesco.com homepage has a similarity to the ‘F’ pattern with the main menu bar stretching all the way from the top left corner to the right, a sub-menu bar (directory/department) placed vertically downwards and a huge banner just underneath the top menu bar.

    Item placement:

    Tesco has been very strategic with the placement of items on the website. The big banner, which takes up a good percentage of the homepage, advertises on-going promotions. Its size immediately captures the attention of the user and can stimulate impulse purchase. 14 | P a g e

    Colour Scheme and Font:

    The website is designed with the signature red and blue colour scheme conveying branding to customers.
    In a study carried out by Evolution-Insights (Fig.11), 25% of the participants against 22% average attribute the websites ease of use to the reason why they keep shopping on Tesco.com. The accessibility and usability of the website has been facilitated with several functions which assist users during the shopping process.

    Store Guide:

    This function serves as a guide to enable customers find their way around the website providing user-friendliness.

    Favourites:

    The Favourites page (Fig.12) offers a form of personalization to customers. It is the page that stores and keeps track of a customer’s previous shopping lists so that when a customer is shopping again in the future, reference can be made to the list. This function has received a higher percentage of interaction when compared to competitors: Asda.co.uk and Sainsburys.co.uk.

     Keyword Search:

    The presence of the keyword search on the homepage enables users to easily navigate the website searching for specific products. It also serves as a quicker alternative to the directory search (Evolution-Insight, 2010). With this function, customers can just type in the specific item needed leading to a direct transfer to the online shelf where the product is situated. The Keyword search is not as popular with customers on the Tesco.com website when compared to rivals Sainsbury.co.uk and Ocado.com.

    Express Shopper:

    Customers can use this function to prepare a shopping list which will then be searched for automatically.

    Tesco Access:

    Customers can now decide to shop on their hand held devices using the Tesco Access application. This function provides convenience as shopping can take place at any time of the day and in any place.nFurthermore, the design and usability of the website has been aligned in such a way that it expresses similarity to the traditional Tesco store and is also integrated with it allowing customers to enjoy the same shopping experience as they would if they were shopping in an actual store (Rowley, 2003; Muller-Lankenau, 2004). However, the design and usability is only the first step towards achieving website hits, advertisements and promotional activities are factors to also be considered.

    Evaluation of Online Promotional

    ActivitiesPromotional activities are those activities that drive traffic to a site through the use of various techniques such as search engine, banner advertisements, emails, affiliate marketing etc. Known as the ‘Traffic Building Campaign’ (Chaffey et al, 2006, p.373), Tesco.com utilizes the various platforms and techniques available to increase the number of viewers to its site, and possibly ‘up’ the visitor-to-customer conversion rate (Hudgins, 2000). The popular techniques used by Tesco.com are:

    • Search-Engine marketing
    • On-site promotion

    Search-Engine marketing:

    According to Olson (2008), search marketing via search engines (Fig.13) is very effective and makes up 71% of the total population who search for information of products and services online (Chaffey et al, 2006, p374). The most popular search engine is Google which takes up more than half of the market with 57% compared to Yahoo owning 23.7% and MSN jus trailing behind (Powers, 2007).

    Tesco.com is visible on the three most searched search engines: Google, Yahoo and MSN using “Keyword target ads” (Chaffey, 2008). This is enabled via Search Engine Optimization (SEO) which is defined as a “structured approach used to increase the position or ranking of a company or its products in search engine natural or organic results listings for selected keywords or phrases” (Chaffey, 2006, p.376). The Search Traffic (Fig.14) from search engines received by Tesco measured against its competitors is higher but with a closer margin with Sainsbury’s

    On-site promotion:

    Tesco uses its website for promotional activities through the display of banner ads which according to Olson (2008) and Chaffey (2006, p.406) can improve the “stickiness” of the website. The stickiness of the website refers to how long visitors stay on the site (Chaffey, 2006, p.406) (Fig. 15). This will depend on the number of on-site promotions on the site which Tesco has strategically placed on every category on the homepage. Once the mouse is placed on the category, a big banner of on-going deal is displayed immediately catching the attention of the visitor. This technique is targeted at both customers and first-timers enticing them to stay longer on the site with the hope of converting a visit to a purchase.

    In addition, Tesco also uses email as a promotional technique to keep customers purchasing online. Using a ‘Commitment-based segmentation’ which monitors the activity of the customer on the website in terms of how frequent or recent a customer makes purchases, Tesco then develops life-cycle categories of the shopper: ‘Logged-on’, ‘Cautionary’, ‘Developing’, ‘Established’, ‘Dedicated’, ‘Logged-off’ and uses the information based on the category a shopper falls into to send emails to them. These emails usually include offers, discounts, newsletters etc. attracting customers to visit the website again and make a purchase (Humby and Hunt, 2003).

    Use of Social Media for marketing purpose

    Tesco.com uses Social Media like Facebook and Twitter for marketing new products, customer feedback and interacting with customers. However, a study on the Impact of Social Media on Online Retail Purchase by Forrester Research and GCI Commerce shows that less than 2% of online purchases are directed from Social networks (USA Today, 2011). This indicates that Online Retailers need to focus more on other means of marketing in order to drive sales. Regardless, Tesco enjoys a large customer audience from Facebook compared to Asda and Sainsbury’s with a higher number of ‘Likes’.

    Integration of the Internet With the Overall Marketing Strategy of Tesco Plc.

    According to Chaffey (2006) and Porter (2001) the marketing strategy of the online channel must be aligned to that of the organisations marketing strategy to provide “consistent direction”. Tesco Plc. has seven strategies in place to keep it dominant in the industry. These are: •

    “To grow the UK core”.

    • “To be an outstanding international retailer in stores and online”.
    • “To be as strong in everything we sell as we are in food”.
    • “To grow retail services in all our market”.
    • “To put our responsibilities to the communities we serve at the heart of what we do”.
    • “To be a creator of highly valued brands”.
    • “To build our team so that we create more value”. (Tesco Annual report, 2010/2011, p.15)

    Channel Strategy

    Tesco’s online marketing strategy has been significant in its leadership attainment in the online market against competitors. Leveraging the internet has been beneficial to Tesco through its integration with the overall business marketing strategies which promote and support each other (Muller-Lankenau et al, 2004; Rowley, 2003). The strategies listed above have been infused in the online platform under the following categories:

    • Pricing strategy.
    • Product and service expansion.
    • International market.
    • Online community.

    Pricing strategy:

    Tesco is committed to retaining its lead in terms of low price of products and even maintains the same price in the offline and the online channel. This places it in a position to compete with other retailers in the industry and serves well in achieving its strategy of being dominant in the UK amongst others. In comparison to Asda, prices are 80% similar or cheaper in Tesco (Tesco Annual report, 2010/2011, p.18).

    Product and service expansion:

    Tesco has used the internet to enter new markets, expanding its range of products and services to satisfy customers demand based on feedback on what the customers want (MBS Lecture Notes, Holland (2011)). According to Tesco Annual Report (2010/2011, p.28), Tesco introduced 23,000 new products into the market, including intangible products such as music downloads, and added more services to its online channel (Chaffey, 2006). This expansion of products and services online enables Tesco to achieve its strategy of growing retail services and be strong in all products introduced into the market.

    International market:

    Tesco’s goal is to be an “outstanding international retailer in stores and online” (Tesco Annual Report, 2010/2011, p.15) and has entered the online market outside of UK with its launch in Ireland and South Korea. It recently began operation in Prague and plans on entering the Polish market starting with Warsaw (Tescoplc.com (b)).

    Online Community:

    Tesco Online community provides support for various charities as well as other initiatives such as PACT, Race for life, etc. with the aim of helping people and bringing communities closer together.

    Market Focus

    People: According to the National statistics (UK) (2005), people within the age of 25-44 were most likely to shop online while those that are 65 downwards are least likely (Chaffey, 2006). Tesco has a wider audience within the 35-44 age brackets with a higher number of females (Fig. 16). This information can be strategic when developing new products to target the market. Additionally, the age bracket is also a clear indication of those that are in the employment workforce helping Tesco to strategically plan its delivery schedule towards work-closing hours. Place: Additionally, Tesco has spread its tentacles to the international market focusing on three continents: Europe, Asia and America with Asia leading in sales (Tesco Annual report, 2010/2011, p.22).The online market has focus in only Europe (Ireland) and Asia (South Korea).

    Cost Advantage

    Porter (1985) suggests that cost advantage is a strength that places an organisation ahead of its competitors in terms of product price and cost of production. As stated earlier in the Pricing strategy, Tesco is keen on maintaining lower-prices compared to competitors. Furthermore, Tesco achieves cost advantage through economies of scale as a result of its expansion in the market. A higher volume of production as a result of expansion means Tesco will save more on average cost of production therefore placing it in a position to offer lower prices.

    Differentiation

    The Loyalty Club card, which has 15 million customers registered on it (Tesco Annual report, 2010/2011, p.16) is the most significant tool that stands Tesco out from its rivals and keeps their customers loyal to them. It enjoys 29.7% (Fig.17) of customers who do more than half of their shopping with them. According to Rafiq and Fulford (2005) the success of online market to a retailer is the ability to retain the customers who have been loyal to them. The Loyalty scheme is the strategy that links both the offline and online channel of Tesco (Rowley, 2003; MullerLankenau et al, 2004). Customers can make purchases online and offline, earning points using the same Clubcard number. The information acquired from the Clubcard is used by Tesco to serve customer better. According to the Tesco Annual report (2010/2011, p.17), Clubcard is one of the reasons customers stay loyal to Tesco.

    Conclusion

    In conclusion, the internet facilitates growth and the way companies communicate with their customers. Business dynamics have resulted in companies adopting the internet to become agile in a highly competitive market. Nevertheless, companies who want to expand their business online need to be strategic when investing in the internet as another marketing channel. It is imperative to align the offline marketing channel with the online marketing channel so that they can support each other in achieving growth and improving sales and profit.

    Tesco has maintained its leadership position in the online market in terms of market shares, sales, customer loyalty, user traffic, website usability and has strategically integrated both online and offline sales channel enabling them to support and promote each other. Based on the trend lines and data provided, it is obvious that Tesco is well placed to maintain this lead. The expansion into international markets, constant introduction of new products and promotional activities has helped in boosting its unique visitors and sales.

    One of the key strategies that Tesco has applied in staying ahead is how it has utilized information about customers in serving them better. This is as a result of the Loyalty Club scheme which differentiates it from competitors and provides a platform for customer relationship building. Additionally, the card also provides insight to the next product or service that should be developed into the market for customers.

    Indeed, Tesco has mastered the use of the internet for its marketing purpose and is prepared for what the future may hold in terms of new internet technologies.

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