Stick to running your supermarkets Tesco

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Twenty-one years ago your humble marketing columnist was a not so humble marketing student. Back then I was in love with complexity. The more difficult the marketing theory, the more important and useful I felt it had to be to marketing practice.

So you can imagine my disdain when I came across The Core Competence of the Corporation in the Harvard Business Review in my University library in 1990. It was a ridiculously simple paper written by famed strategy professors Gary Hamel and CK Prahalad. The paper claimed that companies were good at certain things and that these ’competences’ enabled organisations to produce products and services that were better than their competitors.

Core competence, however, is a double-edged sword because while it enables companies to succeed in certain ways it also prevents them from triumphing in other areas. When a luxury brand tries to create a more accessible line, for example, it usually fails because its abilities to operate in the luxury sphere with certain competences prevent it from succeeding in a different tier of the market.

Pah! I thought at the time. What oversimplistic toss! But as I grow older, fatter and more experienced the simple observations of core competence emerged again and again. Companies in my experience usually succeed or fail not because of some complex set of strategic drivers but because they are either able or unable to deliver based on their innate core competences.

Tesco

Which brings me to Tesco and its latest marketing strategy venture brands. The British supermarket giant is about to launch a series of standalone brands starting with Chokablok ice cream. According to new Tesco CEO Philip Clarke these venture brands are an essential part of his growth strategy for the UK.

Does Tesco have the core competence to actually launch Chokablok and the other venture brands that will follow it? It might seem like an odd question to ask of Britain’s most successful supermarket but when you examine Tesco’s core competences and set them against those required to launch a series of FMCG brands from scratch, I am not so sure.

For starters, Tesco has no core competence in branding at least not the kind of branding that Chokablok’s success is dependent upon. While Tesco has successfully launched billion-pound brands like Tesco Finest and Tesco Value, they have all been derivations of the branded house approach. Venturing from this format to the alternative approach that is the house of brands strategy is just about the hardest migration a company can make.

Everything Tesco has done well in the past decade from telecoms to travel insurance has been achieved within the explicit proximity of the corporate brand. To suddenly opt for silent standalone brands that offer no link to the supermarket is a challenging and unlikely premise. Tesco’s last deviation into a range of discount brands in 2008 that carried no direct link to the master brand and were designed to combat the growth of Aldi in the UK only succeeded in confusing shoppers, hurting profits while ultimately failing to slow the growth of its German rival. It was only when Tesco turned to a true core competence its loyalty card and offered double Clubcard points, that the supermarket was able to restore its fortunes.

And while there is arguably no more customercentric company than Tesco, once again, the competences associated with retail knowledge are very different from those exhibited by the likes of P&G and Unilever in launching successful manufacturer brands.

TescoClubcard

Tesco has built its success from using its own stores as a live laboratory. Each week different displays, different assortments and different prices are trialled and their impact measured at the cash register. The combination of unlimited control of its own stores and masses of Club Card data mean Tesco knows what, when, where, how much and who. But what is missing from this immense knowledge base is the most important insight of all why?

The one chink in a retailer’s customer knowledge is an understanding of the driving motivations behind why consumers behave the way they do. It’s missing because it is unnecessary in running a successful, established supermarket chain. But as Tesco is ably demonstrating with its forlorn attempt to succeed with its Fresh and Easy chain in the US, when it comes to conceiving and positioning a new brand for success in a market Tesco is the proverbial fish out of water.

I wish Tesco well. And I am fully aware of the foolhardy nature of betting against Britain’s most successful brand. But my money says its venture brands will fail. They will fail for the same reason that a supermarket launched by Haagen Dazs would fail. Not because of a lack of commitment, or drive or investment but something much more simple. I just don’t think they can.

Mark Ritson is an associate professor of marketing, an award winning columnist, and a consultant to some of the world’s biggest brands

Readers' comments (11)

  • Good article. I'm not sure what kind of FMCG-esque brands Tesco has in mind, but I sure hope they're not thinking about "Premium" standalone brands.

    As far as the ice-cream category goes, the name "Chokablok" certainly doesn't suggest it will be at the "super premium" end of the gelato spectrum ...

    I think if they avoid Premium territory they could make it work. They will after all have control over all 4Ps of the mix, especially Place ... i.e. "up yours Ben & Jerry's!"

    However, if they go down the Premium path, I reckon their brand(s) will need some association with "exclusivity". And being plonked in all/most Tesco aisles will fully undermine this.

    But does Tesco have the capability to build new brands not tied to the corporate name?

    Maybe ... depends on who is running the division; who that person reports to; how much budget they have and how well they use it; good brand management; a long-term plan and clear objectives. Child's play, eh?

    New fmcg brands hit the aisles all the time, and many of them fail. Supermarket critics accuse retailers of sometimes helping fuel that demise (e.g. de-listing) but Tesco is unlikely to do this to its own offspring.

    When it comes to managing Place in the marketing mix, Every Little Helps.

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  • With the various brands of supermarkets becoming more and more similar, so are key 'core competencies' like price and range, I applaud Tesco for finding a way to differentiate itself from the pack. These exclusive Venture Brands will be a key way of Tesco having a range that no one else has, driving footfall into Tesco stores. The learnings they have taken from Tesco brand and the other Brands that they stock will be the foundation of the creation of these brands, providing a solid base for what customers want to buy

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  • This is a great article, well-observed. In defence of Tesco though, I wonder if the opportunity lies in providing greater opportunity for deals, bundles and carefully positioned niche offers at target customer sub-segments.... An extension of Tesco's "promotion-loyalty" toolkit, rather than a diversification strategy per se ..... A 50p Brandy & Coconut Lolly anyone?

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  • Tesco has a shopper panel that it asks questions of on an ongoing basis, which has the primary objective of providing it with the answer to the 'Why?' question that you say is lacking.

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  • It will be interesting to see how much shelf space these brands get Vs the brand leaders. Loss of space = loss of sales. Will the brand owners divert monies to other supermarkets as a result? Mark Web Design Milton Keynes

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  • Good and clear article.
    Not sure I agree this time.

    In terms of branding capabilities, don't you think they are looking at "why" as well when working on the Tesco brand?

    They are big, but they fight against other big retail brands every day and clearly WHY their consumers shop there must be within their marketing strategy.

    A

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  • I agree with the analysis: with venture brands, Tesco are stepping away from their core competence of understanding and serving customers.

    Venture brands may prove to be more than a deviation from their core competence, though. There is a danger that venture brands will damage Tesco's ability to serve and wow the customer.

    1. By flattening the customer experience.
    At their best, brands are obsessed with a narrow set of customer needs (sports hydration, magical family time, etc). This single-mindedness leads to a depth of customer insight, expertise, creativity, innovation... and authenticity. This authenticity delivers spikes in customer experience. Venture brands will contribute to margin growth on paper, but will they enhance customer experience in practice?

    2. By discouraging brand support and investment.
    In the mid-90's, Sainsbury's effectively pushed brands that had the brightest ideas into the arms of Tesco. Sainsbury's was pursuing an own label strategy (with the likes of Classic Cola) that was perceived as anti-brand. There were clearly a number of factors that drove Tesco's rise above Sainsbury's at that time, but I'm sure that the support of brands was important to delivering the best customer offer. P&G have been reported as not feeling threatened by venture brands, but which retailer will they go to first with breakthrough insight, innovation and investment?

    Sticking to core competence is the thing here. Customer service is what Tesco is all about. Venture brands look like a threat to that core competence.

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  • I wonder how Tesco are looking to distribute Chokablok? Will it be only in their own stores, or are they looking to test developing non-Tesco branded lines that can be sold to independent retailers at a price that undercuts rival products from the big FMCG players - thereby broadening Tesco's distribution and reducing the negotiating power of the likes of Unilever at the same time?

    That doesn't mean Tesco are best equipped to execute the strategy, but there may be more to this than meets the eye.

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  • I fell only briefly for the seductions of complexity in strategy. It has to be simple, or it's not a strategy. Invariably, strategies have to be communicated to others; they have to be interpreted and acted upon. If strategies are complex they lose people - most strategies that fail do so by fizzling out, not in spectacular destruction.

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  • I'll take the simple route Mark offers up... If Tesco appoint BBH, Saatchi, Imagination or Story with the task of branding and advertising, it'll succeed. If they go it alone in-house, it'll fold faster than a pack of cards in an amateurs' hands. Why? Tesco's branding is horrific, they succeed through what I term, 'parking the bus', in other words, great locational strategies that are at the right price.

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