Tesco returned to profit of £162m for the year to February 27 on sales of £48.4bn. It grew like-for-like sales for the first time in three years – up 0.9% in the fourth quarter.
Tesco boss Dave Lewis puts this dramatic turnaround down to one thing, an unerring focus on customers. It has cut prices, improved availability and customer service. This, he explained, is Tesco “living its purpose” of serving the customer and being as helpful as it can.
“The customer is our number one priority,” he said, speaking at a press event last week. “We have to remove any reasons for them to shop elsewhere. We have lots of people that shop with us but they don’t do all their shopping with us. We need to give them all they want on one occasion and we do that by doing more of what makes Tesco unique.”
What makes Tesco unique
Lewis told Marketing Week there are two parts of a “value equation” that make Tesco unique. The first part aims to make the supermarket competitive on products that can be found at rival supermarkets. Lewis said the average basket price decreased by 4% between August 2014 and February 2016 while couponing was down 37%, meaning it can offer “lower more stable pricing”. Its ‘Brand Guarantee’ price-matching scheme ensures customers never lose out on branded shops either.
READ MORE: Tesco swoops for Sainsbury’s customers following Brand Match closure
Tesco’s new ‘farm brands’ are also key. Lewis said that on the 51 meat, fish and fruit and vegetable common across grocers, Tesco used to charge a total of £103.11, compared to £89.06 at the cheapest competitor. The introduction of farm brands cut that to £86.39, a 15% drop.
“Shoppers had taken that shopping mission elsewhere. It was a reason not to shop with Tesco,” he explained.
The second part of the strategy is to invest in what differentiates Tesco. As Lewis told Marketing Week: “That is the Tesco brand itself and what we do with our own-label, the proposition we put in stores in terms of service, range, availability and price. But it also means the brands only we have – F&F, Clubcard.
“It’s that combination of things that make shopping in Tesco a unique experience, they will be the things that ultimately differentiate us and ladder up to helping serve Britain’s shoppers a little better every day.”
Dave Lewis, CEO, Tesco
That is not to say Lewis has found all the answers yet. More investment will be needed, particularly on price. And conditions across the industry remain challenging, not only due to the discounters but also the rise of convenience and online grocery shopping.
“We were in crisis but now we have stabilised the business. Customers are happier, most satisfied and shopping with us more. But there is more we need to do, want to do and can do,” he said.
Differentiating its marketing
Tesco has also been keen to stand out when it comes to its marketing. At Christmas, the supermarket eschewed an emotional campaign for humour using the family of characters, played by Ruth Jones and Ben Miller, it had introduced earlier in the year.
Tesco’s marketing boss Robin Terrell told Marketing Week: “We are trying to approach things in a very different way. If you look at the market generally there’s a lot of sameness out there. Even in terms of media mix, execution, style, tone, it’s all the same.”
He admitted that while adopting humour was risky, it was a risk the supermarket was willing to take to ensure cut-through.
He added: Humour is an interesting medium because it doesn’t work for everyone. Not everyone finds the same things funny so we learnt some things around that. It does polarise some opinion but what it also showed is it really cut-through and we had some executions that worked really well in terms of intention to shop at Tesco, but also driving the brand in the way we wanted it to do around helpfulness. We feel we’ve got a good platform and we’ll continue to build on it.”
The drive to digital
Another big difference in Tesco’s marketing strategy was its above-the-line ad spend. Figures from Nielsen show that Tesco’s spend has dropped from £110.6m in 2013 to £77.7m last year, a decline of almost a third.
Terrell said those figures, while “not precise”, reflect the changes at Tesco as it shifts more money into digital channels, as well as its own media.
“Our media mix has changed quite dramatically. We were very TV focused. We are now putting a lot into digital and making the most of our own media. Even things like trucks. We have thousands of trucks and we’ve installed panels in the trucks so we can change the media very easily and inexpensively.
“We won’t talk specifics but the mix has changed significantly. We are spending less and as we spend less overall we are moving money around.”
Perhaps a further sign of the changing role of marketing at Tesco is Terrell’s expanded role. He is charge of new business development as well as its loyalty programme Clubcard.
READ MORE: Robin Terrell’s ascension to the top marketing job signals new priorities for Tesco
Terrell said he works “very closely” with the Digital Labs team to help roll out services such as mobile payments but said technology, like the rest of the business, is focused on “actually helping customers”.
“There are two things [that help boost how helpful people think the Tesco brand is]. One is around what we do, the other what we say. Disproportionately what is important to customers is what we do and that’s where we are most focused,” he explained.
A case study showing how marketing helped this global retail brand move from struggling to surviving and prospering
Even the most successful brands occasionally face choppy waters. One wrong move, or more likely, a succession of poor moves as competitors 'up their game' can lead to decline. When this happens, not only is the brand's reputation threatened, but its bottom line as well.
The Tesco brand is synonymous with shopping in the UK. After questionable investment decisions and multiple scandals rocked the business in 2013 and 2014, the company began facing unprecedented quarterly losses. Consumer confidence in the brand plummeted and sales began to reflect that new reality.
Yet the commerce giant managed to turn things around and has been posting financial gains over the past year. How did it manage to do this? As it turns out, a lot of it had to do with improved marketing. Let's review one of the best case studies out there for salvaging brand reputation.
Tapping into relevant humour
The Tesco brand has historically had a very stable, recognizable, but corporate marketing strategy known by it's 'every little helps' strapline. It's success meant stagnation in engagement and lack of agility to deviate from the formula in previous years. This fear – due to the fact that Tesco's super-power status didn't really justify any changes – became quite obsolete.
In the wake of the horse meat and accounting scandals that plagued Tesco's reputation in 2013-14, changes had to occur. The company then began to try out a new form of marketing – humour – in its Christmas commercial campaigns. By using previous commercial actors in a new setting, the business was able to keep a familiar spirit around a new concept.
The head of marketing at Tesco, Robin Terrell, noted that many lessons in humour were learned from the campaign. The biggest of all – that humour is a medium not everybody appreciates – helped the business adapt its future plans. Many companies prefer to avoid humour in profitable times, due to it being a risky gambit that doesn't resonate with everybody.
"We are trying to approach things in a very different way. If you look at the market generally there’s a lot of sameness out there. Even in terms of media mix, execution, style, tone, it’s all the same."
Tesco's marketing gamble helped pay off in the end, by and large.
Creating new product lines
Reviewing the marketing mix was also required and one of the steps Tesco took was to launch a new line of new farm brand products. This dramatic rebranding of products such as beef, fish, pork and fruit allowed the company to appeal to cost-conscious consumers who didn't previously value Tesco's offerings. Prior to the rebranding, Tesco's basket of farm-style products was about 15% more expensive.
The brand understood the need to compete in this category and prices were reduced. The result was a dramatic increase in farm and fish sales at the new price point.
Shifting toward digital marketing
A tried and true mega-business in any market would be expected to invest billions in marketing. Many businesses that enjoy the market share that Tesco has, invest heavily in TV, press, radio and cinema. Tesco realized, however, that changes in this particular marketing strategy had to occur.
In 2013, Tesco spent approximately £110 million on marketing efforts in traditional outlets. By 2014, that number had declined by about 10 percent. In 2015, Tesco's ad spend declined sharply to less than £80 million, marking a huge shift compared to just two years prior.
While specific figures are not available, it is reported that a 1:1 shift in ad spend from traditional marketing tactics to digital marketing efforts has occurred. This means that the company is now spending at least 30% of its marketing revenue on digital marketing. This allows the business to reach highly-targeted individuals in methods that traditional marketing simply cannot provide.
Overhauling product packaging
Another huge shift at the grocery giant involved repackaging many of its high-quality offerings in higher-quality packaging. Much like what the brand did with its farm and fish products, the company took a good look at its sales and preferred items. From there, it determined which items were suffering the most from consumer drop-offs in demand and which were performing just fine.
With this information, Tesco was able to devise new packaging designs and branding campaigns for items in need of assistance. Many of these new rebranding efforts revolve around connections to farms, ranches and other elements that elicit imagery of home-grown atmospheres. Because of the challenges the brand faced, giving shoppers a more organic and locally-sourced feel in products was a smart move.
Competing with smaller chains
In years past, Tesco didn't have to worry much about competing with smaller chains. Today, however, those worries are a necessity. With chains such as Aldi now encroaching more and more on market share, Tesco has been left with no other choice than to fight back.
One of the biggest challenges of the past few years has been to stabilize market share. Fortunately for Tesco, its market share stabilised in 2016 – the first time following the scandals of 2013-14. The company's shift from traditional marketing to a digital marketing effort across all channels has made this possible.
Chains such as Aldi continue to compete on social media and beyond, Tesco has found a way to promote and attract customers from outside its realm. With new value items and advertisements featuring substantial deals, the giant is once again luring shoppers back into its stores.
The brand sees a huge need for focusing on “the individual experience” in its resurgence. Tesco's marketing team has come up with a variety of great marketing ideas for this approach. From deep discounts delivered by email on birthdays to print campaigns delivered directly to the door, customization is key in the new world of marketing.
Marketers with the company report that instead of maintaining a big, generic image, its goal is to hyper-target specific shoppers and earn their trust. Much of this will be done through direct customised marketing approaches that appeal to specific shoppers' desires.
The reinvigoration of Tesco's strategies – and subsequent financial rebound – is a testament to the power of marketing. As businesses continue to feel the strain of competition both domestically and internationally, these entities will need a response plan.
In the wake of multiple scandals and plenty of competition, Tesco has managed to deliver both to its shareholders and shoppers. This truly successful and innovative resurgence is a far cry from such a horrible slump that haunted the company just a few years prior.
Thanks to Boris Dzhingarov for sharing their advice and opinion in this post. Boris is an internet marketer. He spends a lot of time checking out the marketing campaigns of the top companies in the UK and analyzing their results.
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