Essay on Porters 5 Forces on Tesco

The Competition Act 1998 states that you must not agree to fix prices or terms of trade, or discriminate between customers. In the supermarket sector there are many types of business like Sainsbury’s including: Tesco, Morison’s, Aldi, Lidl, Asda and Marks & Spencer’s Food this shows that competition is strong in

An illustrating example of the big chains competing with each other is ‘Brand Match’. This idea, developed by Sainsbury’s in an effort to compete with Asda’s low and very competitive prices, was replicated in all the other major supermarkets after it was noticed and obvious that this was a successful way to attract customers. Morrison’s, taking the concept substantially further, launched a ‘Match and More’ card, offering to credit the difference in points if you would have paid less for your shopping at Aldi, Lidl, Tesco, Sainsbury 's or Asda.

3.3. Bargaining power of buyers As the customer has the freedom of choosing any supermarket company to buy from and the power of switching their loyalty to any supermarket company without costing them anything, thus the bargaining power of buyers is considerably strong (Porter, 1980). Also as the products in each of the supermarket companies are nearly the same because there is no supermarket brand that have a completely different segment of products then the other UK supermarket companies. This gives the consumers in a positive privilege in the purchasing process. On the other hand, as a result of the global depressive economy that forces each UK supermarket company to fight in order to maintain its market share.

The market in which Tesco operates is supermarkets. Although this is a highly competitive one Tesco holds a disproportionate amount of power. The figures below indicate that Tesco holds over a third of the market share, and even double the amount of Asda 's market share, the second leading supermarket. Market share is ‘the percentage or proportion of the total available market or market segment that is being serviced by a company ' (Wikipedia 2006).

The UK supermarket industry resembles an oligopolistic industry, with several characteristics. Oligopolistic markets tend to be characterised by high concentration ratios, barriers to entry and…Since the turn of the century, the industry has been scrutinised by both the Office of Fair Trading and has been referred to the Competition Commission on two occasions. (Seely, 2012)

Most businesses need a supplier of some sort, Tesco and Sainsbury’s are no different. Tesco Plc are an extremely large organisation, and therefore need to keep expenditure to a minimum, as if supplier costs get too high then profit margins will undoubtedly decrease, meaning prices will have to go up in order to retain a sustainable

Supply and Demand change frequently and Tesco 's is currently in a state of disequilibrium. There is an issue that relates to demand due to the desirability of a product, and is unlikely that income will increase enough to cause a change in the demand, therefore Tesco have to create product that are desirable.

Tesco use many strategies to adapt to the culture they are working in, which will encourage more customers to shop from their and beat their local competitors. However, Tesco in the UK provide many different products to appeal to different ethnicities and cultures including their own branded food.

tesco can take advantage of its successful international expansion. tesco is in a position to share their know-how and also is able to apply technologies and know-how which will create a competitive edge over its rivals and also step its learning curve.

Since acquiring number one ranking in 1996, Tesco has developed a successful multiformat strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsbury’s. Also the Competition Commission’s report makes it very difficult for a competitor to challenge its scale and has effectively scuppered Wal-Mart’s chances of stealing UK leadership. Therefore, Tesco is in an enormously strong position in its domestic market.

By doing so, they have placed more of an emphasis on non-food products – clothing, photolabs, televisions, flowers, pharmaceutical products, etc. – which have higher profit margins than Tesco’s traditional source of revenue, groceries. From here, Tesco differentiates its subsidiaries from its previous owners by aggressively negotiating with local suppliers, implementing its customer loyalty program, adding gas stations to the property, opening its stores for 24 hours and by offering discount brands to go along with its “good, better, best” value pricing strategy (Corporate Watch Site). Also, within the past two years Tesco has been outsmarted by Asda and Sainsbury in price-comparison initiatives and targeted marketing campaigns in UK. This has lead to trailing growth trends and stagnating market share for Tesco as displayed in Exhibit A (Tesco UK PDF). This is in turn, places more of an emphasis on the company’s growth and profitability in foreign markets.

There are three fundamental rivals of Tesco and the superstore sector including, Sainsbury’s, ASDA, and Morrison’s and they apply multiple tactics independently to attracting the customers. The strategy of Sainsbury’s for its customers is on delivering an effective service quality, whereas ASDA is engaged in procuring value for its customers and these competitive attempts employed by the Tesco’s rivals are creating the issue of managing price and quality of its commodities (Which, 2012). Moreover, the customers of Tesco independently have an insignificant amount of strength in terms of the entire corporate strategy of the company (Tesco, 2011a). Nevertheless, customers jointly exposed meaningful strength because of the little expenditure and convenience in transferring to another brand (Tesco, 2011a). The past records of Tesco showed that the vendors appeared reluctant to trade with Tesco, which ultimately influenced Tesco to reduce prices as the company deals with numerous agriculturists instead a sole broad supplier (Independent, 2011). Nowadays it is very complex for non-established retailers to ensure survival in the marketplace because of the significant control of Tesco on the marketplace which taught newly entrants to modify the behavior they execute trading involving the improved part of cooperatives and they reveal the risk of fresh companies and this will be a fundamental aspect for Tesco to determine its expected competitive strategy

These figures show that Tesco’s market leader position is being threatened and intensity of competitive rivalry is high. Also, on top of the main competitors, Aldi and Lidl have taken over the grocery market in times of recession. During 2008 they recorded a growth sales of over 25% (Keynote, 2010).

Threat of substitute products: We are a market or sector is not attractive when there are many

The core strategic advantage for Tesco is the brand value and reputation. The retailer has been able to establish a strong brand name that is famous throughout the world. The company invested in carefully branded packaging that has built it a strong brand image. The company also has a good brand image due to the high quality and trustworthy products and customer services that represent excellent value. According to Jenkins and Williamson (2016), the company has focused more efforts on re-engineering their services and products that have ensured a more efficient delivery of broad range of goods to customers and better management of product lifecycles. The company has been innovative enough to enhance the quality of products and improved the shopping experience