How market diversification (place strategy) made Tesco online grocery king
This month we’re doing a series on Differentiation through the Marketing Mix. Mix 3 – How can you truly differentiate your organisation through Place Strategy?
What is the marketing mix?
Before that, a recap: The Marketing Mix consists of 7 elements Product, Price, Place, Promotion, Physical Evidence, Process, People. All these elements provide customer touch points that deliver a customer experience. They are all powerful ways to differentiate and position your organisation from the competition. Whichever way you decide to differentiate, it is critical that all the other marketing mix elements exude the same customer experience (CX)/positioning.
Place strategy establishes how and where a company will place its products and services. Often referred to as a distribution strategy and includes stores, both physical and online, wholesale using third party vendors, direct sales, sales representatives, and any other means by which the company can reach customers.
A company must understand the needs of its target audience and market trends to determine which distribution channels creates the best chance to get your product or service in front of the potential buyer.
Example of a place strategy
In the mid 90’s, Tesco’s created an online shopping business model that leveraged the core assets of the business, the superstores. They were heavily criticised… skip a couple of years on to Asda and Sainsbury’s spotting the trend and jumping online. They adopted warehouse-based models which eventually vanished with the dot.com bubble and they froze online channel development.
Conversely, Tesco expanded their service, but did this incrementally over time, and eventually it switched to its first warehouse for the online channel. Tesco’s patient and active approach enabled them to build a sound long-term online vision and determine the required actions to achieve this vision. As a result of the early launch Tesco had already been developing the online service for a couple of years, when the expectations towards the Internet based businesses started to grow.
As an analyst, I don’t feel it’s a true representation to use 2020/21 online figures due to the overinflated online rise in Covid Retail demand. So, lets take pre-pandemic 2019 figures as more relevant figures. Tesco is today, and pre-pandemic, the UK F&B ecommerce leader at $3.6billion sales in 2019 with Ocada in 2nd sitting at half that $ value.
Covid has accelerated e-commerce growth in groceries and predict an online penetration rising from 8.2% to 10.9% by 2025.
Tesco developed the world’s biggest online grocery service with comparatively small investments compared to the companies who invested in big warehouses which were eventually abandoned.
Recently Tesco celebrated the 17th birthday of the launch of its online service. Since then, much has happened. Tesco has become the undisputed king of online grocery retailing with revenues of more than £2.5 billion, more than twice the sales of the closest competitor.
The lesson here is that Tesco recognised the market trend, and its target audience needs, but they performed a strategic exploration that identified how to leverage their own assets to take the first step into online and then, later, develop the fully fleshed out model once they had acquired learnings.
Each part of your marketing mix tells a story, and you need to ensure that story is consistent in every part of the mix.
Let’s chat
Your organisation could be sitting on untapped value to increase that customer experience in other parts of your channels which could be identified in a CX review. If you’d like to discuss how a CX review works, drop me a message or book a complimentary no-obligation meeting and find out how I can help your business.
