Relationship marketing: a case study of Tesco Plc.

Introduction to relationship marketing at Tesco

Tesco is the leading chain retailer in the UK and among the leading retailers in the world. The company which has been the best performer in the UK retail industry thrives on enhanced customer loyalty (Tesco, 2013). Through continuous involvement with their customers, the company has been able to accurately translate changing preferences to introduce new products and new shopping experiences in a manner that has made them very successful in satisfying and retaining their customers. For instance, Tesco.com is the largest online retain business in the UK (Tesco, 2014). Tesco thrives on exploiting advanced technology in order to understand its customers better and introduce to them products and experiences that they require.

The relationship marketing approach in Tesco is founded on effective service provision by employees and an inculcated keenness to be more responsive to customers to inspire satisfaction and trust (Hassan and Parves, 2013). It is also founded on the introduction of new products and services which primarily target the growing needs of their customers. For instance, the introduction of Tesco Bank was primarily targeted at market penetration using the vast customer network that Tesco had already established over time (Hassan and Parves, 2013). This is in addition to maintained dynamism and innovation in the shopping experiences and introduction of new products within its retail portfolios. This paper discusses the opportunities and benefits of relationship marketing for Tesco.

Main opportunities offered by relationship marketing

The main opportunity offered by relationship marketing is enhanced loyalty to the brand. Customers who have made a direct connection with a company or brand tend to be very loyal (Hougaard, 2009). This is because their involvement creates emotional attachments and unique relationships that are not often easy to replace by competition. Tesco is a beneficiary of enhanced customer loyalty where it continued to record a strong performance despite the slow economic growth and increased levels of competition in the industry (Hassan and Parves, 2013). Research indicates that loyal customers tend to spend much higher amounts at more frequent intervals. Customer loyalty therefore yields greater profitability to the organisations.

Relationship marketing also helps organisations to learn about their customer preferences, spending patterns, and preferred shopping experiences. This information can be obtained from customer data as obtained from their shopping records. The process of collecting information was greatly enhanced from 1999 when Tesco introduced Tesco Clubcard, a loyalty scheme that would enable repeat customers earn discounts and prizes from time to time (Atkinson, 2013). With the information obtained, the company was able to track shopping preferences and in the same respect be able to predict future expenditures. In theory, relationship marketing is best practiced in conjunction with direct marketing (Hastings, 2012). Direct marketing focuses on individual customers with an individualised approach where messages are modified to suit each customer’s preferences.

Relationship marketing helps in improving the success of direct marketing initiatives. In marketing communication, effectiveness is enhanced when the marketing message being projected conforms to their immediate needs (Mullin, 2002). From this concept, it can be deduced that direct marketing messages are most effective when they are received at a point when one is about to be in need of the products being marketed. This pre-emptive marketing approach helps in ensuring that the customers do not embark on the information search process when the products are eventually needed and that they opt for the organisation from which they just received a marketing message advertising the same products (Hougaard, 2002). It is based on this potential of relationship and direct marketing that has seen the importance of customer data in organisations to rise remarkably.

At Tesco, the company maintains data on customers and contact information such as emails which they then use to send direct messages in a regular basis (Hassan and Parves, 2013). A team is dedicated to the process of ensuring that direct marketing messages are accurately sorted in accordance with predicted consumption patterns. Of greatest emphasis is: information on discounts, offers, coupons and new products being introduced in the market (Hassan and Parves, 2013). With this, the company is able to stimulate the interest of customers and pre-empt information search processes that could see their customers switch brands. This could be one of the main reasons why they maintain a loyal customer base.

Relationship marketing also provides the organisation with the opportunity to improve its marketing message (Tsai, 2011). This has been done by many organisations exploiting the social media where different messages are posted on the social media handlers and the ones that attract the greatest interest singled out. This of course requires that the company should have a following on the social media platforms from their customers. Modern communication technology is also part and parcel of the relationship marketing process where the organisation is able to learn from the market and modify its marketing approaches accordingly.

In Tesco, it is based on information gathered from their customers that they were able to establish the growing need for online shopping experiences (Atkinson, 2013a). It is also from maintaining relationships with their customers that they were able to establish a pricing model that sees them realise greater profits with customers having been found to be willing to do their online shopping from the same outlets where they’d normally shop and pay the prices that are charged therein (Plimmer, 2010). This provided an opportunity for Tesco to maintain a profitable online shopping portfolio which allowed them to maintain their regional pricing variations that are consistent with the prices in the different physical branches.

At the heart of considerations on the opportunities of relationship marketing is technology. Modern communication technology makes it relatively easy to harness data and interpret it in a manner that can easily be used to improve effectiveness (Donnelly and Fearne, 2012). Information technology makes it easy for such data uses to be implemented in a cost effective manner. A vast amount of data can also be analysed within a short time hence lead to an improvement in the quality of research where sampling needn’t be based on a small number of customers. In the end, information gathered on changing trends and quality of the products and shopping experiences is used to continuously improve the organisation (Herwina, 2012). Relationship marketing therefore helps in reducing knowledge gaps, conform to customer needs and enhance loyalty and profitability. 

RM, segmentation, and market development

Market segmentation helps in ensuring that the organisation concentrates on the most potent market segments. It is based on the pareto rule that states that 80% of the organisation’s revenues are raised from 20% of the market (Hougaard, 2002). This means that segmentation ought to be done to target the 20% of the market that the organisation is likely to realise the greatest value from. In a big company such as Tesco, segmentation may not necessarily apply to the entire organisation. This is because its product offering is vast from which it can attract a wide array of customers (Tesco, 2014). However, this can be done at a multiple level where product categories and brands under the same organisation are marketed differently with each brand or product category targeting the market segments that are likely to demand for the products being advertised.

Relationship marketing can be applied to understand the product preferences of customers for products and shopping experiences. With continuous interaction, the organisation is likely to predict with relative accuracy the demographic characteristics of the customers such as income levels, occupations and others (Gorton, Angell, White and Tseng, 2013). This would be in addition to the information that customers would often provide such as age, sex and occupation. Through these pieces of information, the organisation can accurately come up with demographic profiles and what each market segment likes or is likely to demand for in future. So far, there is little evidence of this approach to multiple targeting and segmentation at Tesco. Nevertheless, the company practices this in the context of direct marketing. It needs to be explored a little further.

The same advantage identified above can be explored to ensure that market development is done effectively. By analysing the demographic characteristics of their customers and corresponding product preferences, the organisation can attribute these tastes and preferences to consumers in markets that are yet to be explored (Harwood, Garry and Broderick, 2008). This lessens the need for extensive research on customer preferences in markets targeted for organisational expansion. Market development occurs where an organisation opts to expand into new markets. In many cases, this is done to survive intense competition in the home markets. Competencies developed in the home market are very crucial for success in market development (Hougaard, 2002). An understanding of the different market segments is thus important crucial. However, there could be challenges especially where the home market is significantly different from the new markets hence misleading the organisation on what constitutes the market preferences for products and shopping experiences.  

Implementation challenges: the Gaps Model

The main challenge with relationship marketing is that it is dependent on perceptions and interpretations of those perceptions into products and services. This can be analysed in the context of the 5 Gaps model which is as discussed below.

 Gap 1: This relates to the accuracy in the interpretation of customer expectations. This can be caused by poor management perceptions or through poor expression by the customers. In some cases, customers may fail to point out what they dislike about a product or service in fear of disappointing the organisation’s employees (Merlin, 2000). This could lead to misunderstanding of their true expectations. In order to overcome this challenge, relationship marketing should be combined with occasional independent research.

Gap 2: This gap is present where the employees or management are unable to accurately translate their perceived consumer expectations into products and services. The success of Tesco.com is evidence of the fact that Gap 2 is absent in Tesco’s development of the online shopping experience (Hassan and Parves, 2013). This is however not evidence that future mistakes may not occur. Nevertheless, Tesco’s vigilance over the social media can be exploited to establish the extent to which the products and services being introduced conform to their expectations.

Gap 3 and 4: Gap 3 relates to service delivery approach while Gap 4 relates to mode of communication to customers. With effective use of the information technology at the disposal of the organisations, effective direct marketing programs can be implemented targeting the customers that would be expected to demand for the products (Donnelly and Fearne, 2012). Even though Tesco runs a direct marketing program, the same is not fully developed. Besides, there is always the risk of the customers not being frequent users of the communication means kept by the customers.

Gap 5: The difference between the perceived service and the expected service can be remedied by focusing marketing communications at explaining the service delivery processes and functionality of the products being sold (Merlin, 2000). In this regard, Tesco runs advertisements and interacts actively with customers in the social media. However, few studies have been conducted to monitor trends in the widening or narrowing of these gaps. Relationship marketing can be exploited to reduce this gap by encouraging candid discussions on the same.  

Conclusion and recommendations

Relationship marketing is very crucial for organisations due to its capacity to inspire trust and improve customer loyalty. Tesco, a leading player in the global retail industry embraces relationship marketing as part of its overall marketing strategies. Their focus has been to engage their customers in interactions and through the data collected learn about changing preferences on products and shopping experiences desired. Through this, the company has remained innovative and continues to inspire customer loyalty hence keeping itself competitive despite the high levels of rivalry in the industry.

In spite of its good performance, its main weakness is related to the absence of a formal policy for relationship marketing with efforts on the same only being deduced from haphazard marketing decisions made from time to time. This lack of a relationship marketing policy exposes the organisation to numerous weaknesses as characterised by the 5 Gaps model above. It’s therefore recommended that the company introduces a formal policy on relationship marketing modelled on the 5 Gaps model to ensure that implementation is accurate. This is especially in regard to the design of their direct marketing processes where email communication needs to be replaced with emerging communication channels as should be established through independent research. 

References

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