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In this week’s Business Surgery, Stephanie Teow comments on the recent struggles of supermarket giant Tesco over the Christmas period

According to an article sourced from the Daily Mail:

Nearly £5 billion was wiped off the value of Tesco yesterday after the firm revealed a fall in Christmas sales. Britain’s biggest and richest retailer said underlying takings fell by 2.3 per cent at the most crucial trading period of the year. Tesco’s flagship promotion the ‘Big Price Drop’ failed to bring in enough shoppers, while bosses admitted that a decision to cut back on vouchers and meal deals was wrong.”

Being a shopaholic, articles about retailers always catch my attention. Not only because I am curious to know what sales and promotions are currently being offered, but also, in a way, I think that retailers have a significant impact on our daily lives.

In the past few years, repeated reports have been discussing and criticising the disappointing marketing strategies and poor customer service performances within the retail sector. So, when I was browsing through the news recently, it wasn’t a big surprise at all for me to read another negative report on a giant UK retailer:

The poor festive trading meant Tesco’s share of the Christmas grocery market has dipped below 30 per cent for the first time in six years…Tesco was among a number of household name chains to reveal miserable Christmas sales yesterday, including Argos, Halfords, Mothercare and Thorntons.”

This is actually nothing new to me, because for the past few years I have seldom taken an interest in these names anymore, not just because of what I felt to be their unattractive prices and products, but also, from my point of view, the advertising and the promotions that they are offering are just not customer focused; in a way, not convincing.

Tesco chief executive Philip Clarke admitted it had wrongly pulled back on one-off promotions, such as meal deals and ‘buy one get one free’ offers, as its rivals increased them. The marketing push by competitors helped Sainsbury’s to deliver a 2.1 per cent increase in underlying sales at Christmas, while Morrisons was up by 0.7 per cent.”

It is self-explanatory that the total sales increment from Sainsbury’s and Morrisons of 2.8 per cent have resulted from that lost by Tesco. It must be shocking for a business to realise that its losses are feeding its rivals. But what shocked me the most are the decisions that have been made at such a critical period of the year by the pioneer of the sector.

It’s easy to be smart after the event, trying to lay the blame either to some person or some decision which has been made, but understanding the root cause will always be the most effective solution.

Most promotional tools and marketing strategies that a business (in this case the retailer) implements are done to create a positive impact to the business operation and growth. For example, ones most commonly seen in the stores are: “Buy 3 for the price of 2” and “Buy the second one half price”. This is an excellent idea to increase the customer buying potential and to ensure the products are all sold before the next manufacturing and delivery deadlines are up, to avoid over-stocking.

From the customer point of view, we only see this happening when the product expiry date is approaching. But do we really need more than 1 item in such a short period, even if the second item is slightly cheaper? Hence the questions: does this strategy really work? How many items are sold in the end? Will the customer fall into the same ‘trap’ again? Or would it be more effective to simply reduce the price of the product by 1/3 from the start?

Another example which has been discussed in the article:

The supermarket raised prices for a few days and was then able to say customers were making big savings. Many of the items that were reduced were either sold for the same amount they were six weeks before the promotion or have only been cut by a small amount.”

Example: Tesco Value Unsalted Butter – August 23: £1.10; August 30: £1.19; September 26: £1.10”

As a marketing tool, the retailer will show a price tag with a reduction from the latter 2 dates. In a way, this is a brilliant marketing idea. However, if we are regular shoppers familiar with prices, what will we make of this?

A penny saved is a penny earned, but in business this is not always applicable. Not only is focusing on the customer’s needs essential, but at all times we need to stand in the customer’s shoes to understand what kind of service, products and treatment they need. While many customers are happy – and indeed prefer – to be regulars, they expect to be treated well. Businesses should therefore be wary: few businesses are completely unique (i.e. irreplaceable) and once a customer has switched away, they have switched away.

£5million is a big price to pay for a few poor decisions made in the festive season which are not customer-focused enough. Is there a role that market research can play to minimise the lost revenue or even to turn around the situation? I think the answer absolutely is yes!

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