Tesco - Porters 5 Forces

Porter's Five Forces

Porter's Five Forces allowed us to analyse the influences on the industry in which Tesco operates. It highlights where Tesco has developed a competitive edge over its rivals.

Potential entrants:

Throughout the recession Tesco has continued to invest into expanding the company and developing efficiencies, making it as competitive as ever to defend against the threat of new entrants (Datamonitor, 2010, p. 19).

The threat of a new competitor entering this sector is relatively low, due to the huge capital investment required to be competitive and establish a brand identity that stands out.

One of Tesco's main advantages is their ability to buy in vast quantities, making them highly price competitive.

Along with being the cost leader in many areas, they are also one of the few retailers to offer convenience services, like on-line shopping, home delivery and self-service checkouts.

All of which helps to protect them from the threat of new competitors.

Subsitutes:

There are many substitute options in the food retail sector and there are no switching costs to the consumer. Whereas, the switching costs for Tesco's financial services can be high and therefore a significant deciding factor for the customer.

To reduce the risk of customers turning to substitute major food retailers, Tesco expanded into many non-food areas including clothes, telecommunications, electronics and financial products, this provides customers the convenience of satisfying many of their consumer needs at one location.

Tesco also expanded into "express stores" to cater to the consumers who prefer the convenience of small local shops, thus combating against the substitute services of butchers, off-licences and convenience stores.

Buyers:

Most of Tesco's products are standardised or undifferentiated. They, therefore, have to invest heavily into attracting customers and promoting customer loyalty.

The loyalty "clubcard" has played a major factor in retaining customers for Tesco. According to Loyalty Square (loyaltysquare.com/about_us.php), marketing consultancy, the "Clubcard" is an important tool for collecting useful marketing data related to the buying habits of individual customers. Tesco then use this customer data to shape product offerings, create ranges, gain a better understanding of consumer segments and shopping