Following recent profit warnings (2014), Tesco veteran and CEO Philip Clark has fallen on his sword and given way to an outsider – Dave Lewis from Unilever.
In this article and short video, Tim Arnold and Guy Tomlinson discuss what’s gone wrong with Tesco marketing, and suggest some issues and opportunities for Tesco’s incoming CEO to explore.
The Tesco success story in brief
Founded in 1919 by Jack Cohen, Tesco is one of the world’s largest retailers. In 1993, facing more service-centric competition, under Lord MacLaurin, the original ‘pile it high, sell it cheap’ strategy was replaced by ‘every little helps’. This manifest in improved service as well as low prices. In recent years Tesco has been so successful that it garnered a 30% share of the grocery market.
Big is not necessarily beautiful
When you grow so big, growth in core markets becomes increasingly difficult. Tesco addressed this challenge by diversifying into new markets. These include new countries (such as the USA) and new sectors such as telecommunications and financial services. In the UK, Tesco expanded into new neighbourhoods by taking over small high street stores and pubs.
What’s gone wrong with Tesco marketing?
The recession years have seen the rise of lower cost grocery alternatives such as Aldi and Lidl and experiential or ‘quality’ alternatives such as Waitrose and Marks & Spencer. As customers migrated to these two ends of the grocery market the middle-ground has become an uncomfortable place to compete.
Tesco’s ‘every little helps’ proposition appears to have become increasingly insignificant and meaningless. The price proposition – just a little too uncompetitive and the store experience – just a little boring.
Customers have also become increasingly ‘savvy’. Purchasing influences have changed. There are a growing range of price, experience, personality-rich and digital shopping options and tools. Shopping behaviour is also changing. There is more shopping around. The price of loyalty appears to have exceeded a couple of Clubcard points. Where Tesco marketing once had an advantage with the Clubcard and the accompanying big data insights this provided, this now seems eroded. Tesco appears to have failed to understand and adapt to changing customer behaviour and desires.
In a video interview with Dave Lewis he also says that staff morale is low. It suggests that there are relationship issues between the management team and front-line staff. In turn this raises questions about the management ethos and culture.
The challenge for Dave Lewis is to trace and understand the reasons behind these issues.
Between the lines we suspect that Tesco has become a victim of its own success. It has lost its heart. The relentless pursuit of profit has hindered and not enhanced customer, employee, community and supplier relationships. Perhaps by unwittingly creating a cultural myopia. Compounded by an over-reliance on big data systems and analysis, and prioritising revenue growth and profit over the best interests of customers, employees, communities and suppliers. In turn this may explain the £250m profit black-hole linked to the accounting of supplier rebates.
- There will always be a limit how big a brand can grow before the benefit of big becomes a liability. Success is culturally reinforcing only to the point when something goes wrong. Then is the time to understand, challenge and redefine the cultural norms.
- Customers are not all the same. Thus one ‘size’ no longer fits all. But markets grow by adding new segments so by understanding and revealing new segments could reveal new growth opportunities. This will require creativity and research to understand and tap into customer needs, attitudes and motivations, not just big shopping and purchasing data analysis.
- Over-reliance on one form of intelligence gathering and managing a business risks myopia. Big data analysis is also limited in being just that – big data analysis. It risks ‘failing to see the wood for the trees’. It is also a rational activity, run by computers – with rational outcomes. Relying on rational analytic methods alone also ignores important emotional drivers.
- Customers are human. They have emotional needs as well as rational needs. When Tesco originally introduced the ‘every little helps’ strategy’ this added an extra ‘nice touch’ to their earlier wholly rational offer. A new way of connecting emotionally with customers now needs defining. The value proposition needs strengthening and sharpening. The brand needs to become more human, personality-rich and experiential. Humans and human common-sense should take back control from computers and data management systems – and deliver the brand.
- Can big be beautiful again? There are successful precedents such as Archie Norman’s revitalisation of Asda in the 1990s. Understanding customers and their needs and putting them first is a good place to start. The reward will be their loyalty. We wish Mr. Lewis every success.