I’ve mentioned before my somewhat unfashionable admiration for the supermarket giant Tesco…
…and lately they do seem to have slipped a little.
From the US debacle of “Fresh and Easy”…
…to lagging sales and profits.
There are some serious concerns that they have ended up in the worst of all business positions…”stuck in the middle”. In early December, analysts at the broker Bernstein expressed concern that Tesco has raised its prices faster than rivals in the last few years and has lost its differentiation. They said:
” Tesco is not value, not quality, just everywhere. Tesco is now in an impossible position: it is neither value nor quality and can’t compete with either the quality or value retailers.
From being within 1% of Asda’s prices, the gap is now 5% to 9%.”
Against this background, I have been following the relaunch of their own-label “Tesco Finest” range (announced at the beginning of October).
At first glance there might seem to be a mismatch between the main Tesco brand and positioning (very much middle, perhaps even slightly “down” market) and a range that is very definitely pitched as premium and upmarket. Tesco even sponsored the TV show “Downton Abbey” as part of the launch campaign.
Tesco management strongly denied that they were attempting to muscle in on the “premium” sector and take sales away from the decidedly up-market supermarket Waitrose. But one interview I read at the time of launch did cause a few raised eyebrows when the Tesco senior manager seemed to suggest that Tesco could serve all market segments, indeed it was their strategy to do so.
Now, as a big fan of the work of Al Ries and Jack Trout and their concept of “Positioning” I am always somewhat sceptical of claims from companies that they can successfully serve a broad market.
But…take a close look and the picture is a little more complex.
One of the great benefits of attending first-class events such as Drayton Bird’s EADIM 2013 is that you get the opportunity to hear from a range of people who provide interesting marketing information and insights that you might otherwise miss.
One of the presentations at EADIM 2013 was from Martin Chillcott. Almost in passing, he mentioned that Tesco viewed their customers as falling broadly into these 6 groups. Starting with the most “upmarket”…
1. Healthy (green cuisine, fruit and fibre, counting the calories)
2. Gourmet (adventurous foodies, time poor, food rich, everday luxury)
3. Convenience (can’t cook, won’t cook, fragmented meal times)
4. Family Living (contemporary, mainstream, kids’ stuff)
5. Traditional (farmhouse cooking, old-fashioned ways)
6. Price Sensitive
(Source: Dunn Humby)
In other words, Tesco actually serve a range of customers across the social spectrum. When you think about it, that makes sense, especially when you think about how people actually choose where they are going to shop.
In a lot of cases, CONVENIENCE is going to play a large role. It doesn’t matter how much of a foodie someone might be, if the nearest Waitrose or M&S is an hour’s drive away, then the local Tesco is probably going to be the place for the regular shop.
And other factors might be in play. Another interesting snippet gleaned from Martin Chillcott at EADIM 2013 concerned what happened when Sainsbury’s decided to drop air miles from their customer rewards program (this was back in the 1990s, I believe). They thought that this wasn’t a major attraction for their upmarket clientele. However, when Tesco promptly added air miles to their Clubcard, they promptly picked up a large number of new customers…from Sainsbury’s!
Back to the main theme and Tesco’s Finest Range. Given their range of customers, it makes perfect sense to SEGMENT their product offering. The Finest range is clearly aimed very squarely at their customers in the more upmarket segments.
So Tesco know who the Finest range is aimed at…because despite their recent troubles they are still pretty good at the business of customer intelligence. Tesco Clubcard is the largest of the “Big 3” loyalty programs (Tesco, Nectar and Boots).
Now, you might easily make the case that Tesco would be more successful if they were more focused. As something of a positioning “purist” I can sympathise with that point of view. However, keep in mind that Tesco still have a market share of supermarket spend of 29.8% (at the end of 2013). That’s down from 31.6% in 2007, a significant but hardly catastrophic drop. Tesco got to be #1 because they did better than the competition over the last 20 years or so. The competition have raised their game and changes in market conditions have created opportunities for new players. That means Tesco have to adapt. Free market competition in action!
There’s no doubt the “middle” ground can be a brutally competitive place, especially if you have no sustainable edge. BUT it’s a big place and a big market. In the supermarket world factors such as store location and coverage play a role (although online shopping could well change all that). So, it’s too early to suggest Tesco is in crisis. They DO face significant challenges, however, and they need to deal with those.
Couple of other quick points…
1. At the initial relaunch of the “Finest” range, a lot of emphasis was placed on telling the “story” behind the particular product. For example, the smoked haddock is from Russell’s Smokery in Grimsby, made by generations of the Tummey family (and very tasty it is too, I would add). Direct response practitioners will recognise this strategy originally given prominence by the great Claude Hopkins with his campaign for Schlitz Beer.
2. However…since the relaunch, I haven’t seen too much consistent follow through and promotion for the “Finest” range. No great surprise that I’ve been an enthusiastic sampler of the new range and there are some excellent products. But, at least in my local Tesco’s, you often have to look for the range…among the offerings squarely pitched at the mainstream market and the “value” end.
I’ve covered a range of points in this post but for the direct response marketer the key points are…
1. Understand who your customers are and if there are distinct segments within the overall group
2. Look for opportunities to tailor your product or service to better suit distinct segments
This doesn’t mean that you should lose focus, rather look for opportunities to sharpen that focus, when you have a profitable opportunity to do so.