Context

Tesco is a leading global retail operation and is Britain’s leading food retail group. Tesco has
a substantial European and international network of retailer operations and has recently begun
selling non-food goods – e.g. clothing – in over 20 countries. In recent years Tesco’s online
operation has enjoyed significant growth in online sales; its non-food operation, Tesco Direct,
saw sales rise by 30 per cent. International sales are a fundamental part of Tesco’s growth
strategy and in Korea, for example, sales grew by 15 per cent. Tesco states that its vision for
online retailing takes account of customer needs (Tesco 2014 annual report): Well, our
multichannel approach is already helping customers shop wherever, however and whenever
they need to. In the future, the shopping experience will become even more seamless,
convenient and effortless. Tesco Labs are already working on turning that vision into a reality
for millions of our customers. (McNamara, 2014)
Currently, Tesco Plc is one of the world’s top three retailers, competing with WalMart and
Carrefour for the leading position. Tesco’s 2014 report described how international markets
beyond the UK were grouped into three ‘cohorts’ depending on their current performance and
potential: ● South Korea, Malaysia and Thailand – markets with significant future potential;
● Ireland, Czech Republic, Hungary, Poland and Slovakia – markets where we are focussed
on holding our position and improving returns; ● China, India and Turkey – markets where
we know we must refocus on a more profitable approach to growth. Founded in 1919 by Jack
Cohen, the company grew rapidly and has a history of delivering innovations to the UK retail
sector, so it is no surprise that once it became feasible to offer online shopping Tesco was
quick to determine how it might trade online. By the early 1990s, Tesco was one of the few
UK retailers that had invested in a specialist e-commerce department to spearhead its online
developments. In 1994 Tesco started offering online shopping to its customers but
strategically the organisation had big plans for online shopping. Tesco’s former chief
executive, Terry Leahy, was quoted in the Sunday Times as saying: ‘We will be the world’s
biggest online grocery retailer and we intend to become the UK’s No. 1 e-commerce
business’. This goal was quickly achieved; by December 2000, Tesco offered a wide range of
products to 90 per cent of the UK population. The online shopping service, Tesco. com, was
established soon afterwards and operated as an independent subsidiary to Tesco. Tesco then
started to diversify its online product range, offering many non-food products ranges, and the
result was a significant increase in sales. To support logistical operations, Tesco developed a
sophisticated semi-automated in-store picking service, supported by local refrigerated
delivery vans using existing facilities rather than building high-tech dedicated warehouses
and, according to Ellis-Chadwick et al. (2007), this created a strategic advantage that enabled
faster geographical expansion of the online shopping services and a distinct advantage of
extended national coverage of Tesco’s online shopping service provision. By 2003, 96 per
cent of the UK population could shop online with Tesco.com, giving the company 65 per cent
of the UK online grocery shopping market and further diversification of product ranges, e.g.
financial services and telecoms. It started to expand and offered its online services
internationally, for example, in South Korea through Homeplus.co.kr. Previously, Tesco has
constantly focused on technology innovation in order to streamline services, provide new
features and extend the range of points at which customers can access (Ellis-Chadwick et al.,
2007). Diversification and expansion of the online product portfolio and customer services
continues with the addition of a series of innovations such as: DVDs to your door (a rental
service), energy utilities (thousands of customers save money on their gas and electricity
bills), getting healthy online by using the e-diets service (which helps customers tailor their
eating plans to what’s right for them, taking into account lifestyles, food preferences and
health recommendations) and Internet telephony. However, in 2015 Tesco’s new chief
executive, Dave Lewis, has begun to restructure Tesco’ in response to poor performance,
previous diversification (e.g. broadband services, Blinkbox) and aggressive market entrants
(e.g. discounters Aldi and Lidl).’ (Wood 2015).
The online grocery market and competitors
While Tesco remains the second largest online retailer after Amazon in Europe, there are
legacy issues, which Dave Lewis has to deal with if the company is to continue to hold its
own online (Warner, 2014)(Warner, 2014). Tesco currently leads the UK’s other top grocery
retailers in terms of offline and online market share but, according to Wood (2011), Clarke
(former CEO of Tesco): has promised to nurture its domestic business, which despite ringing
up almost one pound in every seven spent on the UK high street has lagged behind rivals
such as Sainsbury’s and Morrisons in sales growth. Despite its recent underperformance,
Tesco remains the dominant force in UK retail, with a market share of more than 30 per cent.
It is estimated that 13 per cent of all the MasterCard and Visa credit card transactions in the
UK are made on a Tesco credit card. Tesco has been at the forefront of the development of
online shopping and while it has been making a significant contribution to the growth in
online retail, it has also enabled more retailers and consumers to feel that they can shop and
trade online. Tesco is likely to face challenges from different sources of competition as the
online shopping market grows and matures. Staying ahead: how does Tesco promote its
online offer? As with other online retailers, Tesco.online operations rely to a certain extent on
instore advertising and marketing to the supermarket’s Clubcard loyalty scheme’s customer
base. The linkages between Clubcard mailings (off- and online) act as a trigger for shoppers
to engage with both channels. Email marketing is an important part of Tesco’s promotions
and, according to Doherty and Ellis-Chadwick (2010), using email marketing is a complex
activity, which is largely focussed on ‘grabbing customer attention’ but it can be used to
achieve a number of communication and sales objectives. Humby and Hunt (2003) describe
how Tesco.com uses ‘commitment-based segmentation’ or ‘loyalty ladder’ based on recency
of purchase, frequency of purchase and value to drive Tesco’s communication campaigns.
They identified six lifecycle categories which are then further divided to target
communications: ● ‘Logged-on’
● ‘Cautionary’
● ‘Developing’
● ‘Established’
● ‘Dedicated’
● ‘Logged-off’ (the aim here is to win back).
Tesco then uses automated event-triggered messaging which can be created to encourage
continued purchase –
 e.g. Tesco.com has a touch strategy which includes a sequence of follow-up communications
triggered after different events in the customer lifecycle In the example given below,
communications after event 1
are intended to achieve the objective of converting a website visitor to action;
communications after event 2
are intended to move the customer from a first-time purchaser to a regular purchaser, and for
event 3 to reactivate lapsed purchasers. Trigger event 1: Customer first registers on site (but
does not buy)
Auto-response (AR) 1: Two days after registration email sent offering assistance and
discounts to encourage the first purchase.
Trigger event 2: Customer first purchases online AR1: Immediate order confirmation.
AR2: Five days after purchase email sent with link to online customer satisfaction survey
asking about quality of service from driver and picker (e.g. item quality and substitutions).
AR3: Two weeks after first purchase – direct mail offering tips on how to use service and £5
discount on next purchases, intended to encourage re-use of online services.
AR4: Generic monthly e-newsletter with online exclusive offers encouraging cross-selling.
AR5: Bi-weekly alert with personalised offers for customer.
AR6: After two months – financial discount to encourage the next shop.
AR7: Quarterly mailing of coupons encouraging repeat sales and cross-sales.
Trigger event 3: Customer does not purchase for an extended period
AR1: Dormancy detected – reactivation email with survey of how the customer is finding the
service (to identify any problems) and a £5 incentive.
AR2: A further discount incentive is used in order to encourage continued usage to shop after
the first shop after a break.
By using this stages approach to keeping track of its customers online Tesco has established a
robust strategy for attracting attention and retaining customers using email marketing.
According to Doherty and EllisChadwick (2010), this form of digital communication is
increasingly important as a mechanism for developing and maintaining mutually beneficial
relationships with customers. Furthermore, advertising research discovered a large proportion
of the message recipient’s attention is determined by the structural, executional elements of a
message rather than its content – e.g. length, size, layout (Rossiter and Bellman, 2005) –
which has implications for developing effective email marketing messages.
One of the marketing challenges for international campaigns is that Tesco, although a
household name in the UK, is entering new markets with its online grocery delivery service
without a good level of awareness. It is looking to raise awareness among a younger
generation who are using TV less than traditionally. Part of the solution is to use the ‘viral
marketing’ available through social media to share humorous videos. This example
(www.youtube.com/watch?v=BX5EXJwlSpQ) shows how these videos ‘went viral’ in
Poland. It’s a great example of a campaign to show how entertaining and tongue-in-cheek
content can appeal to different cultures. It started off as a low-budget trial in Poland, and the
videos reached over 740,000 views in a couple of months, peaking to 1.5 million views, at a
cost of a few thousand euros for each video. Speaking at the 2014 Smart Insights Digital
Impact conference, Niall Walsh, Head of Group Digital and Ecommerce, admitted that it
‘exceeded even their own expectations, and have replicated this across other markets. We
needed to wean our market away from price and promotion driven videos, and certainly
achieved this through more entertaining videos