Table

of Contents
Executive Summary ............................................................................................................ 2
Part A ................................................................................................................................. 3
Marketing and value ........................................................................................................................................................... 3
Market segmentation ......................................................................................................................................................... 3
Customer Relationships and Loyalty ........................................................................................................................... 4
Pricing Strategies ................................................................................................................................................................. 4
Part B ................................................................................................................................. 5
The Organization ................................................................................................................................................................. 5
Market segmentation and Pricing ................................................................................................................................ 5
Use of Clubcard and Other Strategies for Maximum Customer Loyalty ....................................................... 6
Part C ................................................................................................................................. 7
Bibliography ....................................................................................................................... 7

Executive Summary
This essay critically analyzes the various literary reviews on the creation and addition of value to create
competitive edge. The essay starts by defining the traditional and modern definition of marketing. It also
describes the importance of marketing to the 21st century organization. One of the major aspects of
marketing is creating and adding value. The modern and traditional literature based on value is briefly
discussed and the steps to a value driven approach is identified.

The essay also looks at three main aspects that create and add value to the organization. The use of
market segmentation, targeting and positioning is discussed and a theory by Kotler (2009) is applied to
show how these issues help in value creation and allow a competitive edge. The effect of loyalty and
branding is also identified and critically reviewed. The essay further looks upon the pricing strategies that
organizations take in order to gain competitive advantage.

The organization discussed in this report is Tesco plc who are the leading grocery supermarket in the UK.
The essay highlights the marketing strategies Tesco employs to create the value of its brand amongst its
consumers. The marketing segmentation and targeting strategy is clearly identified and analyzed. The
pricing decisions based on sub-brands and positioning strategy leading to this is also dealt within the
essay. Tesco's use of clubcard and how it enhances the loyalty and perception of consumer is addressed.


The final part of the essay looks into the current weaknesses of the organization and also provides an
insight of how to improve and apply new strategies to gain further competitive advantage and create
greater value.

Part A
Marketing and value
Baumol (1957) described marketing as a multi-disciplinary practice that involves psychology, sociology
and economics. His complex definition changed over the years with modern views proving its large
importance in business success. The American Marketing Association (2007) defined marketing as more
of a management process than a practice, which can be used to improve the customer's relationship by
meeting customer's demands in a way that produces profit for the organization. This tends to increase the
'value' of the product/service for both the customer and organization leading to a competitive advantage
for the organization. As Kotler (2009) suggests that marketing is all about creating value for the customer
by fully understanding the consumers and also by analyzing the marketplace.
Anderson and Narus (1999) define value as the worth in monetary terms that the customers pays to the
company in exchange for the economical, technical, service and social benefits. It can more simply
explained as the elements a customer gets in exchange for the price he pays. Mathematically, the value
created by the company equals the benefits the firms consumers obtain minus the expenses the firms
suppliers incur and minus the costs of using the firms own assets.
Value-driven approach includes three simple rules. To attract consumers away from competitors, the
company must deliver greater value as compared to competing companies. To attract crucial suppliers
away from competitors, the company must provide sufficient supplier value. To gain a competitive edge,
the company must increase the value of the firm for its investors. The company must be able to create a
greater total value considering all the three components of value jointly, making sure that they have a
greater difference in their value than their competitors since this difference is the competitive edge they
have in the overall market. Value can be added by designing a customer driven marketing strategy which
includes the process of selecting customers to serve by segmenting and targeting and then using these to
create a value proposition (Kotler, 2009).
Market segmentation
Since the modern market is highly diverse and dynamic, it is important to carry out market segmentation
in order to understand the market and be more profitable. Kotler (2009) defines market segmentation as
process of dividing the market into smaller groups with distinct needs, characteristics and behavior that
might require separate marketing strategies. The figure below shows how a customer driven market is
usually segmented (Baines, Fill and Page, 2011).


Once the market is segmented, the firm is
now able to evaluate the various segments
and decide on which segments to target.
The firm can target separate segments and
design distinct offers/products for each
(Differentiated marketing) or it can also
sell a large share of it's products on a
specific segment (Niche marketing).
Choosing a target strategy depends on
several factors such as company
resources, product's life cycle and also the
market variability (Anderson and Narus,
1998).
The company must then decide on how it
will create a differentiated value for its
targeted segments and the position it
wants to sits in the segment. Kotler (2009)
explains that product position is the way
the product is positioned in the
consumer's mind in relative to the
competing products. To build a profitable
relationship with target customers, the
company must be able to differentiate and
position itself as a superior value provider
in the customer's mind thus gaining a

competitive edge. This can usually be done using lower prices or by providing more benefits in exchange
of the higher prices.

The full mix of benefits upon which the brand/product is positioned in the market is called the Value
proposition (Kotler, 2009). The figure is used by Kotler (2009) to show some possible value proposition
upon which the company will position its products. The green cells show winning value proposition
where the positioning will allow greater value creation and more competitive edge while the red cells
show losing value proposition. The yellow is a marginal competitive advantage. Finally the company must
take strong actions to deliver and attain the desired position to target customers. It should be maintain its
position through consistent performance and interaction with the consumers and be able to adapt to
changes in the market in the future. This is how an organization creates value and increases it over time.
Customer Relationships and Loyalty
By building customer relationships, a superior customer value is created. The firm can then create
satisfied customers who will stay loyal to the company's products and buy more. Customer loyalty is a
strategic tactic to refining shareholder value through the increase of suitable relations with key
consumers and customer segments.(Payne & Ballantyne,2002). Critics claim that the loyalty both
attitudinal and behavioral for almost all consumers is fairly inert and is more of a habit rather than
serious commitment. Using loyalty programs to reward regular consumers allows the company to reduce
the desire of consumers to consider another brand, boost word-of-mouth support and endorsement,
appeal a greater pool of customers, and increase the quantity of product bought (Bolton et al., 2000).The
main aims of the rewards programs are to to increase sales revenues by increasing purchase/usage levels
and by building a closer relation between the brand and current customers thus help to maintain the
current customer base. Kotler (2009) analyzed that there is a huge difference in the loyalty of less
satisfied customers and completely satisfied ones. He further explains the customer lifetime value, which
states that if a company loses a customer, it loses more than a single sale, rather loses the entire stream of
purchases the customer could have made in his/her entire lifetime. The customer might then buy
products from the competitors thus giving them the competitive edge in the market. Maintaining a healthy
customer relationship is very crucial for a greater long-run return since it can lead to even more potential
customers who will allow the maximum value and competitive edge.
Pricing Strategies
Pricing is a vital and generally neglected instrument in business marketingit has been analyzed that a
5% price growth leads to a 22% improvement in overall operating profits. Anderson and Narus (1998)
discusses that a pricing strategy focuses on where to place the price of a product within a range to gain
maximum profits as well as value and how to shift the range itself and the supplier's relative position
within it. Most firms usually rely on a more traditional strategy for pricing which has the following route.


Design a good
Determine product
Convince Buyer's of
Set
p rice
b ased on
product
costs
costs
products value


Modern marketing based research has led to the conclusion that a good pricing strategy included a
complete understanding of the value that a product/service creates for a customer. Kotler (2009) defines
value based pricing as the price based on buyers' perception of value rather than the seller's cost. Thus it

contradicts traditional views and the process of pricing begins with analyzing consumer needs and value
perceptions, and the price is set to match the perceived value of consumers. Value based marketing can be
divided on to two subdivisions:

Good-value pricing: Many companies nowadays use a good-value pricing strategy where they have the
proper combination of both quality and service at a lower price. This usually involves introducing a less-
expensive version of the same line/brand of product to meet the difficult recession times and more frugal
consumer spending habit (Kotler, 2009).
Value-added pricing: Rather than cutting prices, a company can increase their pricing power by attaching
additional value added feature and services to distinguish their offers and support the higher prices.
Nevertheless, cost is a very important factor in pricing decisions as Kotler suggests that while the
customer perceived value of the price is the ceiling but the cost is the floor of the pricing strategy since it
helps the company analyze the predicted profits.

Part B
The Organization
Tesco plc is an UK-based global grocery and wide-ranging retailing chain. It is the major British retailer by
both international revenue and national market share. Tesco currently panels just over 30% of the
grocery sector in the UK, estimated to the combined market share of its nearest competitors, Asda and
Sainsbury's. In 2007, the supermarket chain proclaimed over 2.5 billion in incomes. Initially specializing
in food, it has expanded into areas such as discount clothes, consumer electronics, consumer monetary
services, selling and renting DVDs, compact discs and music downloads, Internet service and consumer
telecoms.
Market segmentation and Pricing
Tesco has segmented its market into 5 different formats of store differentiated by size and the range of
product on display. 'TESCO EXTRA' are largest stores that stock all of Tesco's product collections. Most
Tesco Extra stores consists of a cafe/restaurant as well. 'TESCO SUPERSTORES' are large stores, stocking
groceries along with a range of non-food goods. They are known as "superstores" since it is very
convenient and designed for the complete weekend shopping of an average consumer. 'TESCO
METROSTORES' are smaller stores opened in almost every region of the country's city center. They are a
sort of a sub-brand having their own unique identity in the UK. 'TESCO EXPRESS' stores are local
convenience shops, stocking mostly food highlighting on higher-margin products (due to lack of
economies of scale) as well as everyday essentials that consumers can shop in a hurry.
This demographic divisions helps to segement the market in order to predict the type of customer that
will appear in the store and thus create location specific competitive edge over other competitors who do
not have such sub-divisions in their structure. This also increases the essence of Tesco's value in
consumer mind since each store has it's unique structure in the consumer's mind. The stores are
strategically placed to get maximum customer exposure and the formats allow segmentation to different
target population.

Tesco also have a further segmentation of its products according to price, quality and health issues. Tesco
is able to provide a 'good, better & best' policy for most of its products.
Tesco Value - These products are created keeping the 'Good value pricing' strategy in mind and is
aimed towards families and independent people having a lower income. They have a simple
packaging and never sold on offers so make sure the retail cost is at its minimum
Tesco Brand - Average products at "standard range, own label store prices".
Tesco Finest - These products are made keeping the 'Value added pricing' strategy as the main
strategy. The products are aimed at higher income customers. They have an elaborate packaging
and are advertised as products containing 'superior' ingredients. By advertising the products as
the ones of the finest quality, Tesco captures the maximum profits from sale of these products as
it adds a greater value.
Healthy Living - Range created for a greater variation of customer who want are more health
conscious. These products generally includes lower fat, sugar and salt content than in typical
Tesco Brand.

Organic - Tesco also provides organic food, bedding and clothing for its customer. Again this
allows a greater range for Tesco to position and deliver to different market needs.
Best Of British - Tesco has a separate range of British specialist foods for the customers who want
the products in their traditional British way.
World Foods - Since UK is a highly diverse country, Tesco makes sure it caters the needs of
customers of different cultures and religions. By providing, halal, kosher, Caribbean, Asian,
European and Oriental food ranges Tesco manages to get the maximum competitive edge over its
main rivals by attracting the locals of different areas.
Tesco Mobile - Tesco's own mobile network has 4 pay as you go tariffs; Value tariff, Standard
tariff, Extra tariff and the Staff Tariff for employees.

Use of Clubcard and Other Strategies for Maximum Customer Loyalty
Tesco also has it's own loyalty scheme which it started due to three major reasons:-
Technologically feasible- It was technologically achievable to process the quantity of transactional
statistics that a loyalty system would produce. For the first time there was a realistic prospect of
collecting and managing masses of accurate customer-based transactional data and using it to
provide insight advantage.
Me too factor - Since all the major competitors were trying to install their own version of the
loyalty scheme it was only logical in a marketing sense to start a better loyalty scheme in order to
gain the competitive edge.
Competitive Pressure - Tesco needed to protect its current market share by sustaining and
improving the value of its customer base. Club card became the main initiative to break the cycle
of under-achievement. The major motive, therefore was to increase market share.

Tesco launch of the clubcard proved to be a major success. Time between Tescos Clubcard launch and
Sainsburys Reward Card, according to Market researcher Taylor Nelson AGB, customers spent 28% more
at Tesco and cut spending at Sainsburys by 16%. Tesco's motto for the clubcard was Creating value for
customers, to earn their lifetime loyalty and this proved to be an instant hit since Tescos customer
management had the ability to connect and assimilate customer information across the entire business,
completely integrate the Clubcard programme into its online and offline procedures letting Clubcard-
members to amass points when they buy in-store or at Tesco.com (as well as with Tescos coalition
partners) through nearly all product category offered. By permitting Clubcard-members to check their
points surplus when they want via the Internet, the strategy generated value to its supporters since it was
easy to use and transparent. According to Butscher (2001), the greatest factor of any CLP is the rewards
bundle a plan offers to its members, which is the major success factors behind the Tesco Clubcard, since
Clubcard vouchers can be used for a vast range of benefits that appeal to people from all types of social
classes with distinctive interests, and also increase the likelihood of making aspirational value (how
much the Clubcard-member wants the reward, e.g. exotic free travel might be more desirable than in-
store shopping discounts) to Clubcard-members (O Malley, 1998). Since Clubcard members have the
opportunity to store and redeem the point at both Tesco and its partners, Tesco produces a 'cash value'
from its consumers (O'Brien and Jones, 1998). This leads to a higher competitive edge than its
competitors.

Part C
Although Tesco is performing very efficiently however some further enhancements to its 'Value creating'
strategy can allow Tesco to be the leading supermarket having greater brand value and recognition. Tesco
needs to look at the following strategies in the future:
Most of Tesco operations are in the UK retail sector where it earns about 75% of its revenues.
Tesco should segment itself and utilize greater logistics management to allow greater geographic
diversification. This will provide greater value addition for Tesco as an internationally recognized
brand. It also avoids the chance of being subjected to the systematic risks of the UK market.
Tesco needs to manage its market positioning more effectively by introducing a greater variety of
world foods according to location. This means for example in the Upton Park region (London)
they should stock more products from the Indian subcontinent since most of the population is
Pakistanis and Indians in the area. This will allow them to make maximum sales and create edge
over the 'Off-License' grocery stores who are currently reigning as the market leaders in such
areas.
Since the UK consumers are changing their taste and preferring healthy and friendlier approach
to the environment rather than mass produced food made from artificial ingredients, Tesco
should introduce a new product line that attracts the higher end market. The product line should
contain healthier and fresher 'home-grown' products which Tesco can charge a high price to
consumers who shop at higher end supermarkets such as M&S food and Waitrose. By charging a
higher price Tesco will be able to maximize its profits and potentially boost sales as well as create
a friendlier brand image amongst its consumers. Doing so will also allow them to compete
effectively against the Farmers' Market since they as a bigger company can provide better value
to the consumers. Although the pricing will be higher in the initial stages but once the line
matures, Tesco can lower its prices to attract the price-fussy market consumers as well.

By creating an effective customer relationship and implementing the further suggestions on its strategy
Tesco can be the leading grocery supermarket in the UK beating its closest rivals as well independent
businesses to gain the maximum value and profit.

Bibliography

Anderson J.C. and Narus J.A., 1998. Business Market Management: Understanding, Creating and Delivering
Value. 1st Edition. Prentice Hall

Baines P., Fill C. and Page K., 2011. Marketing. 2 Edition. Oxford University Press.

Baumol W. J., 1957. On the role of marketing theory. Journal of Marketing, 21(4), 413-418

Bolton, R.N. and Lemon, K.N. (1999), A dynamic model of customers usage of services: usage as an
antecedent and consequence of satisfaction, Journal of Marketing Research, Vol. 36 May, pp. 171-86

Kotler P., 2009. Principles of Marketing. 13th Edition. Prentice Hall.

Martin Christopher, 2002. Relationship Marketing: Creating Stakeholder Value (Chartered Institute of
Marketing). 2nd Edition. Butterworth-Heinemann