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Business Model Analysis | Tesco Case Study

1. Introduction:

            The business model of the company Tesco is based on three pillars of business and marketing. Namely, these three pillars are the customers, the product of the company and last but not least the channels of the company (Carayannis et al., 2014). The strategic report that has been presented by the company shows that the business model of the company is quite simpler than any other companies. According to their strategic report, the company tends to focus on the little details of the business that would sum up and make a big difference regarding their productivity and profitability (Berman, 2012). This report concisely evaluates the business model of the company even further to identify both the success factors and the possible risk factor.

2. Business Model Canvas:

            According to Slavik&Bednár(2014),Business model canvas can be defined as the start-up tool for developing new companies or to document the implemented business model of an existing business. The business model canvas also represents a visual chart including elements that influence the infrastructure of the company. It helps the company Tesco to align their activities with the company objectives as it illustrates the potential tradeoffs between partners (Remane et al., 2017). The business canvas model evaluates the business model through nine levels. These nine levels are;

2.1. Key Activities:

            As per mentioned in the article by Osiyevskyy&Zargarzadeh (2015),the key activities of the company business model canvas refer to the most important activities in the value proposition execution of a company. For Tesco, the various key activiti ........

the company (Carayannis et al., 2014). The strategic report that has been presented by the company shows that the business model of the company is quite simpler than any other companies. According to their strategic report, the company tends to focus on the little details of the business that would sum up and make a big difference regarding their productivity and profitability (Berman, 2012). This report concisely evaluates the business model of the company even further to identify both the success factors and the possible risk factor.

2. Business Model Canvas:

            According to Slavik&Bednár(2014),Business model canvas can be defined as the start-up tool for developing new companies or to document the implemented business model of an existing business. The business model canvas also represents a visual chart including elements that influence the infrastructure of the company. It helps the company Tesco to align their activities with the company objectives as it illustrates the potential tradeoffs between partners (Remane et al., 2017). The business canvas model evaluates the business model through nine levels. These nine levels are;

2.1. Key Activities:

            As per mentioned in the article by Osiyevskyy&Zargarzadeh (2015),the key activities of the company business model canvas refer to the most important activities in the value proposition execution of a company. For Tesco, the various key activities are, procurement, marketing, pricing of the products, customer fidelisation, diversification. Along with this the various activities regarding the customer demand analysis, implementing effective distribution system, and managing the warehouses and logistics also determine the efficiency of the value proposition of the company (JOhNSON, Yip &Hensmans, 2012).

2.2. Key Resources:

            The resources that are necessary for creating customer value can be defined as the key resources of the company. These key resources are considered to be the asset to the company and hence, are needed to ensure the sustainability of the company business. The key resources of Tesco are its stores and logistics resources, IT infrastructure, Supply contracts and so on. Moreover, the company has over 530000 peoples employed worldwide, who serve millions of customers every week (Cuthbertson &Furseth, 2012).

2.3. Key Partners:

            In order to regulate the business efficiently and to optimise the operations while reducing the risk factors in a business model, partners are necessary for a company. The partners of the Tesco have created a buyer-supplier relationship between them to focus on their core activity of the company (Stefan & Richard, 2014). The key partners of the company Tesco are the subsidiaries, such as the Tesco stores, the Tesco banks, Tesco Kipa, Tesco Ireland, Dunnhumby and Spenhill and so on.

2.4. Value Propositions:

            The value proposition of a company product can be defined when the collection of several products and services that a business offers meet the requirements of a customer. The factors that ensure the value propositions of the company is the good price of the company products, worldwide presence and selection, one-stop shopping place that offers everything, safety and integrity in online purchasing of product and so on (Lichy& Birch, 2016).

2.5. Customer Segments:

            While building an effective business model one should always consider the customer segment of their intended market. Moreover, the company must also identify their target market (Carayannis et al., 2014). The customer segments of the company Tesco included students, customers with low and middle income, homemakers, and older people and so on.

2.6. Channels:

            The expected value proposition can be delivered to the customers by the company through some particular channels. The various channels through which Tesco delivers their Value proposition are the Supermarkets, Hypermarkets, Tesco local, metro stores and so on (Berman, 2012). The in-store magazine of the company is one of the largest circulated magazines in the country of United Kingdom (Slavik&Bednár, 2014).

2.7. Customer Relationships:

            Customers are one the strongholds of any business and the pillar over which the marketing of the business is established. Therefore to ensure the survival and success of any business, the companies must identify the type of relationship they want to develop with clients. As for the company Tesco, the customer relationship is built on customer loyalty, trust and affiliation (Remane et al., 2017). The company has an online customer community, through which the company can communicate with its customers. Moreover, brand awareness and the efficient customer service strengthen the customer relationships with the company even further (Osiyevskyy&Zargarzadeh, 2015).

2.8. Cost Structure:

            Cost structure depicts the various financial consequences that the company might face while operating under different business models. The cost structure of the company Tesco includes the costs of goods and products, costs invested in the infrastructure of logistics, advertising costs and so on (JOhNSON, Yip &Hensmans, 2012).

2.9. Revenue Stream:

            The way in which a company makes its income from each of the customer segment can be defined as the Revenue Stream. The revenue stream of Tesco involves, sale through their retail stores, e-commerce and online sale, advertising, financial income, and so on (Cuthbertson &Furseth, 2012). Furthermore, the company also gathers commissions from affiliated sales as well.

3. Key Relationships:

            As per the reviews of Stefan & Richard (2014),the business model canvas allows the company of Tesco and its executive team to identify and understand the various key factors affecting the productivity of the company. This understanding is efficient when the inter-relation between the nine building blocks of the business model canvas is adequately evaluated. The proper understanding of these key relationships between the nine levels can provide a significant strategic advantage for the companies (Ochinanwata&Ezepue, 2016). Furthermore, through the usage of the tool, an opportunity for innovation can also be found in the business activities of the company. Moreover, the correlation between the stages allows a neat breakdown of the influential strategic factors of business and decision making.

4. Critical Success Factors:

            In order to properly analyse the critical success factors of the business of Tesco, a SWOT analysis can be conducted. The data found from the analysis can be described as below.

4.1. Strengths:

            Tesco can raise more money for the company by selling their shares which can be more convenient for the company. Furthermore, the products of Tesco are cheaper than other retailer companies (Lichy& Birch, 2016). The lower price rate is the reason why Tesco has comparatively more clients, which in turn makes the company a tough financial competitor.

 

 

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Fig 01: Critical success factors

(Source: Cuthbertson &Furseth, 2012)

4.2. Weaknesses:

            The E-commerce management of the company is significantly weaker than other retailer companies. Tesco does not provide the clients with online discounts whereas other companies do.

4.3. Opportunities:

            Tesco has several opportunities to increase their market share as the enviable position of the company allows them to enter almost any market and have good performance. Moreover, the management sector of the company Tesco is quite efficient as well.

4.4. Threats:

            The globalisation of market is the main reason for the threats that emerged in the business of Tesco. Emergences of various other retailers who offer a good price for product pose as a great competition as well as a threat to the company (Carayannis et al., 2014). Moreover, Tesco is lesser adaptive to changes in technologies, ideas or services.

5. Downside Risk:

            Despite being one of the largest retailers company in the United Kingdom, the risk analysis of the business model of Tesco shows that, the company faces three huge risks. These risks are;

5.1. Performance Risk:

            According to Berman (2012), the recent business strategy reports of Tesco suggest that it has been quite evident that the company has been facing some pressure regarding the growth of their sales. This also implicates that the company is underperforming against their strategised plan. Like all the other retailers, this can affect the economic downturn of Tesco as well.

5.2. Reputational Risk:

            Tesco has enormous brand recognition as a company that covers almost everything, from groceries to financial services. Hence, there is always pressure and a risk that the failure to protect the reputation of the company would lead to loss of trust and confidence of the customers (Slavik&Bednár, 2014).

5.3. Economic and Political Risk:

            The economic and the political issue both arise from the current economic and political state of the country. In each country where Tesco operates, the organisational activities get affected by the regulatory, legal and tax changes. The political and economic condition of each country affects the business of Tesco differently (Remane et al., 2017). This makes it difficult for the management team to operate freely.

6. Conclusion and Recommendation:

            From the above study, it can be concluded that the company Tesco has a quite strong business strategy. Through implementing the strategy for the business, Tesco has become one of the largest retailers in the global market. However, upon doing an in-depth analysis of the business model that Tesco follows, various risks have been found. These risks are mainly categorised as performance risks, reputational risks, and economic or political risks. In order to avoid or overcome these risks or the consequence of the risks, below recommendations can be made.

  • Clear goals and objectives must be set for the CEOs of the subsidiary companies of Tesco.
  • Regular review of the performance tasks must be conducted by the company board or executive members. This is to monitor and stabilise the growth rate of the company business.
  • In order to avoid reputational risks, the company must develop a set of values which needs to be embedded into every level of the business practices of the company.
  • External uncertainties are needed to be considered carefully while developing the strategy for the company. This way the company can anticipate the influences of the external factors over the company performance and management.