It has been a difficult year for Tesco. The retail giant has faced its first profit warning in 20 years, losing market share to bargain retailers Aldi and Lidl, as well as high-end supermarkets like Waitrose and Marks and Spencer.
In the aftermath of the horse meat scandal, earlier this year Tesco was also found to be making false claims about the true price of their “half-price” strawberries in summer 2011. In February 2013, over 11,000 Which? members labelled Tesco the “worst supermarket in the UK,” ranking the retailer ninth place out of nine stores for customer satisfaction.
These recent scandals and upsets have affected the global grocer’s bottom line, both in the UK and abroad. In August this year, Tesco entered talks with China’s largest supermarket, preparing to fold the 130 existing Chinese Tesco stores into a joint venture with China Resources Enterprise, Limited. In addition to this, Tesco have also been forced to pull out of markets in the US and Japan, and CEO Philip Clarke has since reported a decline in profits in almost every country in which Tesco operates.
How can Tesco fight back?
Market experts have recommended that the superstore regain its market share by lowering profit margins and slashing the prices of its core Tesco brand. Clarke has also made clear his intention to expand Tesco’s influence further in online markets, investing further in the popular Hudl and taking a less aggressive stance in the electronics market.
But in light of the array of service problems highlighted by customers, perhaps Tesco would also be able to improve its image and its bottom line by paying closer attention to customer service. Despite a commitment in 2012 to boost customer service with hiring initiatives, Tesco received negative press just last month (November 2013) when a disgruntled customer dubbed one of its stores “the worst place on earth” in his blog.
Goods dumped in busy aisles, staff members nowhere to be seen and beer sold among the meal deal range, this particular branch in east London did not reflect the chain’s usually high standards.
Bosses were quick to respond to evidence of empty shelves, out of date and unrecognisable foods and clogged up walk-ways. A spokesperson for the supermarket said, “We are aware of the blog and agree this store has not met our high standards. We are working with the store to make sure we offer the best possible service for our customers.”
Placing emphasis on the customer
Despite being voted the worst supermarket in the UK for pricing, customer service and product quality in the first quarter of this year, Tesco bounced back in the polls between April and July, when it was named one of the best UK companies for customer service on Twitter.
The Guardian has argued that the biggest challenge currently facing Tesco in the UK is managing a quick and effective turn-around of public opinion following the recent scandals regarding its food quality mentioned above. In order to regain the public’s trust, Tesco will need to refocus its energy on providing customers with the services and products they want and take more care over how it markets its products.
In order to do this, cutting prices is likely to encourage in the bargain hunters, but in order to engender a sense of loyalty to the brand giant, focusing on customer experience is more likely to keep them there. Past studies have shown that in all industries, customers of all ages are more likely to select customer service than low prices as the most important factor in choosing where to spend their money.
Can Tesco afford to compete on price?
In today’s market, brands are told to find their niche or risk failing as trying to appeal to everybody means you appeal to nobody. Supermarkets are no exception: with the likes of bargain stores Aldi and Lidl providing customers with cheaper ranges, Tesco cannot afford to focus its efforts to regain market share solely on price.
In addition to this, the success of high-end grocers such as Marks and Spencers and Waitrose is evidence that customers are prepared to pay more for better value. This value is not only contained in the quality of the products but in that of the service. In the same Which? survey that ranked Tesco just two stars for customer service, Waitrose came out on top with five. Likewise, Marks and Spencer was awarded four stars by customers.
If Tesco wants to see an increase in profits, it needs to attract more loyal customers for the long-term. In the short-term, the supermarket needs to cut prices and keep investing in staff so that customers can enjoy lower costs and better service. In the long game, this will result in higher levels of customer loyalty, which will improve the brand’s bottom line in the future, as well as today.