Stick to running your supermarkets Tesco
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.
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.
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