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Contents
Introduction..........................................................................................................................................4
Tesco and the implementation of Ansoff’s Matrix...........................................................................4
Market Penetration.............................................................................................................................5
Product Development.........................................................................................................................7
Market Development..........................................................................................................................7
Diversification......................................................................................................................................9
Conclusion.........................................................................................................................................10
References........................................................................................................................................10

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Introduction

The retail sector includes any business involved with selling products directly to
consumers. Over the past decade, the retail sector’s economic output has followed a
similar path to the whole economy. (Rhodes, 2018)

Tesco is one of the largest grocery retail chains in terms of number of outlets and
annual income. As of 04 April 2020, is placed as the UKs leader in terms of ‘Grocery
Market Share’ with 26.8%. (kantarworldpanel.com, 2020)

Tesco and the implementation of Ansoff’s Matrix

The Ansoff Matrix (See table below) is a business analysis technique that provides a
framework enabling opportunities for potential growth. Each of the growth options
draws on internal and external impacts that are then worked into alternative
strategies. (FME, 2013)

It considers a business’s entry into new markets and the possibility of withdrawing
from current markets and moving into unrelated markets (Lynch, 2015).

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Market Penetration
‘Market Penetration’ implies increasing share of current markets with current product
range (Johnson et al, 2017). Tesco’s main goal would be maintaining or increasing
market share (See table below). This can be achieved by competitive pricing
strategies and advertising (FME, 2013). Driving out competitors is another method of
market penetration.

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Annual revenue of Tesco Group in the UK and the ROI from 2015 to 2019 (statista,
2020).

Tesco diversifying into different markets such as mobile phone and banking sectors
are also ways they have surpassed their competitors. One of their most successful
strategies was development of the Clubcard to gather customer data and ensuring
loyalty via promotions.

In terms of Portal’s five forces, Tesco increasing market penetration is likely to

intensify rivalry as other competitors in the market defend their share. Greater
market penetration can raise concerns from official competition regulators. Increased
rivalry might also involve price wars or expensive marketing battles between
competitors such as ASDA or Sainsbury’s. This may cost more than any market-
share gains are worth (Johnson et al, 2017).

Market penetration may not be an option where economic constraints are severe
(Johnson et al, 2017). Tesco will need to consider withdrawing from marginal
activities to concentrate on other valuable segments of their business, for example,
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they have temporarily closed their mobile phone segment due to the COVID-19
pandemic.

Product Development
Product development is where organisations deliver modified or new products to
existing markets (Johnson et al, 2017).

Recently, Tesco have completed their rollout of eight new ‘Exclusively at Tesco’
brands, such as ‘Ms Molly’s’ and ‘Hearty Food Co.’, as part of the overall relaunch of
10,000 Own Brand products (Tesco PLC, 2019).

Reasons that Tesco may apply this strategy include utilising excess production
capacity, counter competitive entry, and protection of overall market share (Lynch,
2015).

‘Product Development’ is risky as it is uncertain if customers will buy new products.

There is also a risk that Tesco focusing on the development of a new product in their
stores, may prove detrimental to current product lines. (Lavinsky, 2012)

Market Development

Market Development involves offering existing products to new markets (See table
below). This quadrant involves Tesco moving beyond its main customer focus and
attracting new customers to existing product ranges (Lynch, 2015).

Tesco Financial Results for ‘Central Europe’ (Tesco PLC, 2019).

“It
is

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essential that market development strategies be based on products or services that
meet the critical success factors of the new market.” (Johnson et al, 2017:248)

Market development takes two basic forms:

 New users
 New geographies

The challenge is coordinating between different users and geographies, and possible
different needs (Johnson et al, 2017).

One market that Tesco has availed of in the last decade is online shopping. Through
their digital presence they can easily operate in various locations. As online shopping
experiences are becoming increasingly valued by customers, having a high-quality
website and a large range of products can ensure Tesco remain popular in these
markets.

Another advantage of Tesco’s online presence is that they are dynamic enough as a
large organisation to manoeuvre quickly from its traditional base as a ‘bricks and
mortar’ business in reaction to political decisions (Brexit) and/or unforeseen
circumstances (COVID-19 pandemic).

Choice and convenience are important considerations of the online shopping

experience, this is reflected by Tesco’s efficient and immersive online platform,
which facilitates market share growth (Jian et al, 2013).

Diversification
According to (Lynch, 2012) there are two forms of Diversification:

 Related markets
 Unrelated (Conglomerate) markets

Over the years, Tesco has displayed an unrelated diversification approach as they
have moved from the grocery sector into clothes, banking, and mobile phone
markets.

They have also differentiated in terms of their store range by introducing a variety of
smaller convenience outlets such as Tesco Metro and Tesco Express.

When discussing Tesco, it is important to consider that expansion is rarely just cause
for diversification on its own: there must profitability. Indeed, growth can often be
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merely a form of ‘empire building’…. Diversification decisions need to be approached
sceptically. (Johnson et al, 2017)

One potential value-creator for Tesco diversifying would be the Increase in market
power. Being diverse in many markets can increase power over competitors in at
least two ways:

1. Possessing a similar wide portfolio of products as a competitor, increases the

potential for mutual forbearance. A potential retaliation by Tesco across a
range of markets could provide a safeguard from their competitors, (for
example, in the UK and Ireland, Asda, Sainsbury’s and Dunnes Stores, Aldi
and Lidl in Europe) from making any aggressive moves. Consequently,
diversified competitors are likely to forbear from competing aggressively.
2. Having a diverse range of services increases the power to cross-subsidise
one business from the profits of another. Cross-subsidising can support
driving competitors out of a market and competitors without equivalent power
will be reluctant to attack that market (Johnson et al, 2017).

Conclusion
The Ansoff Matrix helps evaluate Tesco’s overall strategic marketing presence and
planning. It highlights areas for growth from quadrants such as market development,
penetration, and diversification. It also highlights how a diversification and/or product
development strategy should have a cautious approach and be considerate of recent
and current macro environmental factors such as Brexit and the COVID-19
pandemic.

In terms of evaluating the effectiveness of the model, it can be conceded that it

provides only limited predictive capacity. At best it can be viewed as a framework for
market planning and strategy based on the quadrants. Other strategic tools such as
‘Portals Five Forces’ and ‘SWOT analyses’ could also prove useful to Tesco in
identifying other factors, for example, potential risks, and competitor behaviour.

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References

Free Management E-Books (2013) Ansoff Matrix Strategy Skills. [Online]. pp.6-11,
Available at: file:///D:/Ansoff%20Matrix/294550448-Ansoff-Matrix.pdf (Accessed: 2nd
May 2020).

Hussain, S., Khattak, J., Rizwan, A. & Latif, M., 2013. ANSOFF matrix, environment,
and growth-an interactive triangle. Management and Administrative Sciences
Review, 2(2), pp. 196-206. Available at:
file:///C:/Users/rorym/Downloads/MARSJUL2013.pdf [Accessed 29 Apr. 2020].

Jiang, L., Yang, Z. & Jun, M., 2013. Measuring consumer perceptions of online
shopping convenience.. Journal of Service Management, 24(2), pp. 191-214.

Johnson, G. Whittington, R. Scholes, K. Angwin, D. and Regner, P. (2017) Exploring

Strategy , 11th edn., Edinburgh : Pearson Education, pp.245-251. [Accessed 29 Apr.
2020].

Lavinsky, D. (2012). Start at the End: How Companies Can Grow Bigger and Faster
by Reversing Their Business Plan. [online] Wiley. Available at:
https://www.scribd.com/read/111201575/Start-at-the-End-How-Companies-Can-
Grow-Bigger-and-Faster-by-Reversing-Their-Business-Plan [Accessed 3 May 2020].

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Lynch, R.L. (2018). Strategic management. Harlow, United Kingdom ; New York:
Pearson Education Limited, pp. ‌280-284. [Accessed 5 May 2020].

Rhodes, C. (2018). Retail sector in the UK. [online] London: House of Commons
Library, p.4. Available at: file:///C:/Users/rorym/Downloads/SN06186.pdf [Accessed 3
May 2020].

Statista. (2015). Tesco financial revenue United Kingdom 2015-2018 Statista.

[online] Available at: https://www.statista.com/statistics/490931/tesco-group-finance-
revenue-united-kingdom-uk/.

Tesco, P. (2019). Annual Report and Financial Statements 2019. [online] Tesco
PLC, Tesco, pp.12–24. Available at: https://www.tescoplc.com/investors/reports-
results-and-presentations/annual-report-2019/ [Accessed 4 May 2020].

www.kantarworldpanel.com. (n.d.). Grocery Market Share - Kantar. [online] Available

at: https://www.kantarworldpanel.com/grocery-market-share/great-britain.

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