Shop on the Go

This case study looks at how Tesco "virtually" created a new market based on a country's
lifestyle.
How Starbucks survived financial crisis of 2008
Executive Summary
South Koreans have amongst the longest working hours in the world, with
young, upwardly mobile executives often too busy to go shopping for
grocery at a traditional store. The UK's giant retailer, Tesco, sought to turn
this disadvantage to its benefit. It introduced "virtual stores", which are
essentially a display of products on walls of metro stations and bus stops.
Commuters, especially the tech-savvy, ultra-busy lot, could scan the QR
codes of the products on display with their smartphones, and place their
orders even as they waited for their trains or buses. This case study looks at
how Tesco "virtually" created a new market based on a country's lifestyle.
Ads by ZINC

In 2011, when domestic sales of the UK's retail giant Tesco slumped, it fell
back on its second-largest market, Asia, which accounted for 30 per cent of its
total profit. Tesco's success in Asia, and specifically in South Korea - currently
its largest market outside the UK - is based on its ability to adapt to the local
consumer.
Tesco's expansion into Asia has been an important focus for the company
since the late 1990s. Following its acquisition of Thailand's Lotus in May 1998,
the company announced a 142-million investment in South Korea in March
1999 by partnering with Samsung to develop hypermarkets. Through its tie-up
with Samsung, Tesco made a localisation effort to adapt its Homeplus stores
to the local consumer.
The latest example of this localisation was the launch in 2011 of its first virtual
store, located in a Seoul subway station, an idea based on the observation that
the typical Seoul commuter did not have the time to shop at her nearest brick-
and-mortar Homeplus store.
The Virtual Store
The virtual stores are set up in public spaces, most often in subways and bus
stops with high foot traffic and frequented daily by tech-savvy commuters.
This is how such stores work:
- Interested customers download the Homeplus app into their smartphones.
- They then use their smartphones to scan the QR codes of the products they
want to purchase. The posters in the virtual stores are designed to resemble
the actual aisles and shelves of a regular Tesco store, making the experience
very user-friendly.
- The scanned products are stored in the customers' online shopping basket,
who pay online once their order is completed. Homeplus reported that the
majority of the orders are placed at 10 am and 4 pm, when people are
commuting to and from work.
- Customers schedule a time for home delivery. Same-day delivery is the norm,
so that customers can get their products by the time they get back home from
work.
The virtual store has been a huge success with commuters and drove over
900,000 app downloads in less than one year, making the Homeplus app the
most popular shopping app in South Korea. Online sales increased 130 per
cent since the introduction of the virtual stores and registered app users
increased by 76 per cent. In February 2012, Tesco Homeplus announced it was
extending the virtual store concept to 20 new locations across the country.
Today, there are 22 Homeplus virtual stores in South Korea, and the brand is
the country's No. 1 online retailer.
Understanding the Consumer
South Korea, a country of around 50 million people, is the fourth-largest
economy in Asia and the 12th largest in the world. Compared to other Asian
countries, South Koreans generally have higher levels of education, higher
average household income, and better living standards. Over the past few
decades, the country has built itself up with its largest resource - people - and
has achieved rapid economic growth through exports of manufactured goods.
It is now a major producer of automobiles, electronics, steel and high-
technology products such as digital monitors, mobile phones, and
semiconductors.
Over the past decade, South Korea has advanced tremendously and has been
shaped by constant innovation, technology and westernisation. In today's
world, shopping habits and behaviour of South Korean consumers are
impacted by several key factors.
Extensive use of technology/connectivity: According to a report by McKinsey
& Co., South Korea is one of the most advanced countries in terms of
broadband penetration, and has more than 10 million smartphone users. In
other words, one in five South Koreans use a smartphone. Additionally,
according to Nielsen, households in South Korea are making six per cent fewer
shopping trips. When they do shop for products, an increasing number of
South Koreans go online.
Long working hours/busy lifestyle: Although the average annual hours
worked per person in South Korea is declining, the country still comes out top
among OECD countries with 2,193 hours. This is perhaps unsurprising, as the
work ethic and lifestyle of South Koreans get shaped at a young age. According
to the BBC, South Korean parents spend thousands of pounds a year on after-
school tuition on an industrial scale. There are just under 100,000 hagwons or
private academies in South Korea and around three-quarters of Korean
children attend them.
Travel time on public transportation: South Koreans spend a significant
amount of time on public transportation, predominantly between home and
work. What has helped is that public transportation is reliable and
inexpensive, and is the fastest and most efficient way to get around.
The introduction of Tesco's virtual stores in subways made use of time spent
by commuters waiting for public transportation, allowing buyers to use the
little time they have available for grocery shopping. Not only did this change
the way buyers shopped, it also increased the potential market for Tesco.
These buyers may not have otherwise had time to go grocery shopping
between their personal and professional lives, opting to buy take-out instead.
All of this implies that grocery customers in South Korea are more time-poor
and less price-sensitive. They value convenience and technology to
accommodate their busy lifestyle.
Tesco's Value Proposition
Buying on the move: Tesco's virtual stores in subways made use of time
spent by commuters waiting for public transportation (Image Courtesy :
Lildoremi.org)
Globally, Tesco's customers are price-driven buyers who look for value and/or
convenience. According to its corporate website, Tesco's customers care about
the following areas: (1) price and value (2) multichannel and convenience, and
(3) trust. Typically, therefore, the company's value proposition is to provide
customers with the products that they want at a low price. Tesco executes this
proposition through multiple channels, including hypermarkets, grocery
stores, convenience stores and online. When Tesco first entered South Korea,
it offered this value proposition for the local customer: to provide the variety
of products that the South Korean customer wants at a low cost in a beautiful
store environment.
As the economy progressed and South Koreans invested more time and money
into their careers and high-tech devices, Tesco adapted its value proposition to
fit its on-the-go customers. By introducing the virtual store, Tesco Homeplus
is able to execute its new localised value proposition: provide the variety of
products that the customer wants in a convenient location and at a low cost.
In South Korea, it can be argued that Tesco's customer values multichannel
options (for example, online and mobile), and convenience much more than
price. According to a March 2013 research from MasterCard, around 40 per
cent of online shoppers in South Korea used their smartphones to make a
purchase in the previous three months.
Image-value-experience Triangle
In addition to the virtual store's strong value proposition, Homeplus has also
developed a strong image and experience that mutually reinforce this value
proposition. The Homeplus virtual stores attract their customers through their
quick, tech-savvy, and cool image. They sell to their customer by offering the
value of extreme convenience that the customer requires. And they are able to
keep their customers by offering them the satisfying experience of easy-to-use
technology, on-time delivery and quality products.
Given that the South Korean on-the-go customer places much greater
value on convenience than on low prices, Tesco Homeplus may have been
enticed to increase product prices through their virtual store channel.
However, we believe that Homeplus decided not to increase prices in order to
maintain its overall Homeplus value proposition, which hinges on providing
desired products at low prices.
Key Learnings
This case study highlights important learnings that can be applied, generally,
to other businesses:
Customer-based marketing: A "real-world" application of the new
marketing paradigm, in which the process starts with the consumer and his or
her needs, as opposed to with the product.
Customer segmentation: When you enter a new market/geography,
companies need to understand and analyse consumer behaviour trends,
including shopping habits and purchasing behaviour, to identify who the
valued customers are and how they behave.
Adaptation of value proposition: If the needs, attitudes and lifestyle of
the company's "value customer" are different in the new market/geography,
the company needs to adapt its value proposition and value network across the
entire supply chain.
Power of technology in traditional industries:Technology has a
disruptive power in traditional industries, such as retailing. In this case, the
predominance of smartphones in Korea allowed Tesco to boost its revenues
through an innovative approach.
Innovative marketing: The way marketing can be used innovatively to
target captured audiences (such as commuters waiting for the next train in a
station).
Brand Extension: One option that Tesco Homeplus may have considered in
order to take advantage of is to create a new brand for the virtual stores that
would have remained independent from the Homeplus brand and, therefore,
limited the risk to the Homeplus brand by increasing prices.