The research draws attention to the fact that the current product life cycle of Tesco Bank is in the Maturity stage. And now Tesco Bank is a question mark according to Boston’s Matrix. The target market of Tesco Bank includes Tesco Clubcard holders, families with children, pet and car. By Geographic segmentation, Brislington in the North East, Coventry in the Midlands and Blackpool in the North West are its target market. By Demographic segmentation, the age should be targeted from 18 to 50 and over 50s. By Behavioural segmentation, its loyal customers are targeted.
Further investigations reveal that the Tesco Clubcard Credit Card’s position in the market is not enough good and the repositioning makes this product become more competitive in the market. The main price strategy is competition-based pricing. A new Good-value pricing strategy is made for the repositioning product. Moreover, an A3 size poster for Tesco Clubcard Credit Card is designed for advertisement. It is recommended: ? The future market strategy of Tesco Bank should focus on strengthening its customer base and service improvement. Innovation of products is important. * Tesco supermarkets are good platforms for Tesco Bank to advertise itself. TASK 1 AREA OF STUDY Tesco Bank is a subsidiary company of Tesco (the UK’s largest supermarket) in the UK. This bank was ever named Tesco Personal Finance. Initially, Tesco Personal Finance (TPF) was a joint venture business between Tesco and the Royal Bank of Scotland (RBS) (Datamonitor, 2011). Then, Tesco took full control of Tesco Personal Finance, by an agreement with RBS to buy its 50% shareholding in TPF in 2008 (Sky News, 2008).
TPF was renamed Tesco Bank in 2009 and it was a signal that Tesco would like to join into the high street banking sector (The Telegraph, 2009). Tesco Bank has continuously made good progress in 2011. For example, savings, the number of credit cards and insurance sales have strongly increased (Tesco plc website, 2012). As a new entrant with great brand awareness that was untainted by the banking crisis, Tesco Bank has great potential to boost sales in the UK because the current customer dissatisfaction with banks is serious in the UK (MarketWatch, 2009).
However, it is necessary to focus on this area for improvement because the infrastructure of Tesco bank is not enough and it should have a better market strategy to attract more customers as a new entrant. TASK 2 PLC STAGE Kotler and Armstrong (2012) define product life cycle (PLC) as a development trajectory of a product based on its sales and profits over its lifetime. The five distinct stages (product development stage, introduction stage, growth stage, maturity stage and decline stage) of PLC describe how products and markets work.
The Figure 2 shows the sales and profits of Tesco Bank from 2002 to 2010 (See Appendix 1). It is hard to analyze the trend of sales from 2009 to 2011. The sales fluctuated during this period. The profit increased rapidly from 2002 to 2005, then declined gradually due to the possible reasons of the bad global economy situation and the financial crisis. After Tesco Bank was entirely owned by Tesco, the profit boosted remarkably again such as the growth rate was 65. 625% in 2009 and the average growth rate of profit from 2008 to 2011 was 29. 72%. However, the growth rate declined year by year.
Based on the evidence above, it can be inferred that Tesco Bank is now at the maturity stage. According to the trend of profit, the product achieved acceptance by customers for a period of time, then the big change in 2008 led to rejuvenation of its business. At the same time, the sales growth was slowdown but it seems to increase in the future. These points match to the characteristics of maturity stage (Kotler and Armstrong, 2012). Boston’s Matrix is a chart to evaluate a company’s market strategy and situation according to its relative market share and market growth rate (Kotler and Armstrong, 2012).
It can be described as Figure 3. The market growth rate of Tesco Bank was high in recent years but the relative market share is still low based on the data above. Pettinger (2011) states that Tesco Bank is a smaller bank in the UK which ranks 10th of 10 Largest UK Retail Banks. Question marks means a company has relative low market share and high market growth rate (Kotler and Armstrong, 2012). Thus, now Tesco Bank should be a question mark. It is time to think about the future direction of Tesco Bank.
Datamonitor (2010) reveals that the current consumer dissatisfaction with banks is a good chance for Tesco Bank to gain market share by the similar way Tesco is successful in the grocery sector. Tesco Bank announced it has targeted to win 10% market share of the UK’s financial services market in the future (Halime, 2010). It seems that Tesco Bank is expected to be a star in future years. TASK 3 TARGET MARKET Target market is defined as a set of customers who have common needs or characteristics that companies would like to give service to (Kotler and Armstrong, 2012).
Now All Tesco Bank’ products have a common characteristic that every product purchased can get points and discount with a Tesco Clubcard. This is not only a fantastic way to attract customers, but also all Tesco customers who have a Clubcard have been targeted. Tesco states that the most loyal shoppers (15 million Tesco Club card holders) are initially targeted by Tesco Bank (Aldrick, 2009). Credit cards and loans are only available to UK residents and over 18s. All Tesco Bank’s products such as home insurance, pet insurance, travel money and credit card are relative to the needs of families and daily life. Geographic segmentation
This segmentation divides market into several geographical areas. Tesco planned to open Tesco Bank branches in 30 of its stores in the UK in 2009 and branches would open in Brislington in the North East, Coventry in the Midlands and Blackpool in the North West (Clews, 2009) Demographic segmentation This segmentation divides market into segments such as age, family, income, occupation, religion and nationality. According to bank’s insurance classification (car, home, pet, travel, life, over 50s, health, dental, breakdown), credit cards and loans condition, the age should be targeted from 18 to 50 and over 50s.
Tesco Bank also has child trust fund, Tesco Baby & Toddler club and Tesco Child Health Plan, so the target of family life cycle should be families with children, pets and cars. Behavioural segmentation This segmentation divides market into segments such as knowledge, attitudes, uses, or responses. As Tesco Bank’s products can all be linked to its Tesco Clubcard, loyalty status should be strong in this case. Consumers are loyal to Tesco brand for its great brand awareness. On the other hand, the Clubcard enhances the loyalty of consumers with its benefits. TASK 4 PRODUCT REPOSITIONING
Product positioning means products are considered by consumers when purchase, consumers will identify the products compared with competing products (Kotler and Armstrong, 2012). This assignment will choose Tesco Bank’s Clubcard credit card as main product compare with its competitors by perceptual map, then reposition this credit card to a more competitive position. The Figure 4 shows a positioning map for four types of credit cards from Tesco Bank, Sainsbury’s Bank, Halifax and HSBC on two dimensions: months of balance transfers for 0% and months of purchase for 0% (See Appendix 2) (Tescocompare, 2012).
Thus, customers’ view of Tesco Clubcard Credit Card is very different from others. Its 15 months of purchase for 0% is significantly more than others, but the months of balance transfers are the least of all cards. The main advantage of Tesco Clubcard Credit Card is that customers have a very long length of time for 0% interest rate credit so that the fewer months of balance transfers for 0% is acceptable. By contrast, the credit cards of Sainsbury’s, Halifax and HSBC focus on the months of balance transfers for 0%, but there is a transaction fee when customers transfer the debts.
However, Tesco Clubcard Credit Card has the lowest fee (2. 9% fee) compared with others (Sainsbury’s 3% fee, Halifax 3% fee, and HSBC 3. 3% fee) (See Appendix 2). In order to reposition Tesco Clubcard Credit Card to a more competitive position, it is better to extend the months of balance transfers for 0% as the figure 5 shows. Now Tesco Clubcard Credit Card is more attractive to customers. Beside its advantage of purchase, its balance transfers aspect is no longer weak compared with others. Tesco Bank may generate fewer profits from this product due to its long period of time for zero interest rate and less transaction fee.
However, this change will attract more customers to enhance its customer base in the short-term. The strong customer base will increase total consumption and is good for entire business performance in the long-term. TASK 5 PRICING STRATEGIES Pricing strategy is that a company sets a right price strategy in order to generate profits and be successful in the market. The main pricing strategies are customer value-based pricing, cost-based pricing and competition-based pricing (Kotler and Armstrong, 2012).
Competition-based pricing means the price is set based on competitors’ pricing strategies, cost, and marketing offering (Kotler and Armstrong, 2012). The main pricing strategy of Tesco Bank is competition-based pricing. Because most of the retail banks offer the similar products such as loans, credit cards, savings and insurance, Tesco Bank set a more competitive price to attract customers according to its Tescocompare. com system (a system compare Tesco Bank’s products with other banks’ products). For example, the interest rate of loans and credit cards is second lowest of all the similar products (See Appendix 2 and 3).
The reason may be that Tesco Bank is a new entrant and faces numerous experienced competitors setting slightly high prices relative to the value they deliver, charging a relative low price would be better for Tesco Bank to attract customers and gain more market share. In addition, Tesco Bank also uses discount pricing and promotional pricing. For example, new customers could save up to 20% with a Clubcard when they buy car insurance online. New customers with a Clubcard who quote and buy a Tesco Bank Pet Insurance policy directly from Tesco Bank between 12 April and 22 May 2012 can get a free ? 0 Tesco Gift Card (Tesco Bank website, 2012). New pricing strategies for repositioned product As the Tesco Clubcard Credit Card has repositioned, it has more competitive advantages. Then this assignment will develop a good-value pricing strategy for Tesco Clubcard Credit Card. Good-value pricing strategy means a company provides a combo of good quality and service at a reasonable price (Kotler and Armstrong, 2012). Cooperation with other retailers or restaurants in the UK to offer some benefits is a good idea to use this strategy.
For example, Tesco Bank can cooperate with Zara that every purchase in Zara by only using Tesco Clubcard Credit Card can get 5% discount. Thus, more people would like to use this credit card so that it would strengthen Tesco Bank’s customer base. On the other hand, Zara’s sales might increase because of the discount. In addition, customers get benefits. TASK 6 POSTER DESIGN FOR ADVERTISING CAMPAIGN It is a poster for advertising Tesco Clubcard Credit Card of Tesco Bank (See the A3 poster). In the white area, the credit card image and a red circle with words are striking.
Customers can know what the product is at the first sight. “1 card, 3 great benefits” tell customers this credit card is outstanding because this card has 3 great benefit for customers if they use this card. These show the main part of poster that creates a general impression to customers and attracts them. The first three lines of words in the blue area are the details of the three great benefits. “0% on all purchases for 15 months” and “0% on balance transfers for 15 months” reflect its competition-based pricing strategy because this set of interest has an advantage compared with other products when customers make a decision. Balance transfers for 15 months” shows the repositioning feature discussed above. It makes this card be more attractive to customers. “Every little helps” is the slogan of Tesco enhancing the Tesco Brand. “Over 18s, UK residents” shows the segments which this product is available for, reflecting its target market as well. The collecting points also reflect the Tesco Clubcard customers are included in its target segment. “Ask at the customer service desk for more details” is guidance for further steps if customers want to know more. CONCLUSION AND RECOMMENDATION Tesco Bank has already done well as a new entrant into bank industry.
However, it still has some space for improvement according to the analysis above. It has the potential to boost sales in the future due to its particular advantages such as little influence by financial crisis and strong brand awareness. The low price advantage is also easy for Tesco Bank to attract customers. If Tesco Bank continues to adjust its market strategy in the future, it could reach the top of UK banks. The future market strategy of Tesco Bank should focus on strengthening its customer base and service improvement. Service quality is an important factor to determine customer satisfaction (Maddern, H et al, 2007).
Innovation of products is important. If the product has an available special characteristic, bank would have more power to generate profits and set slight high price. Tesco supermarkets are good platforms for Tesco Bank to advertise itself, and take full advantage of them. Appendix Appendix 1: Source: Tesco Annual Report from 2002 to 2011 Appendix 2: Source: http://tesco. lovemoney. com/creditcards Appendix 3: Source: http://www. tescocompare. com/loans. shtml Bibliography Aldrick, P (2009). Tesco moves closer to full banking. The Telegraph. [Online] Available from: http://www. telegraph. co. k/finance/newsbysector/banksandfinance/6617485/Tesco-moves-closer-to-full-banking-with-IT-system. html. (Accessed 13 April 2012) Bell, S (2010). UK’s Tesco Offers 0% Interest Rate For 13 Months On Clubcard Credit Card. CardLine; Vol. 10 Issue 31, p10-10, 1p. Clews, M (2009). Tesco to open bank branches in 30 stores. Marketing Week (01419285); 3/26/2009, Vol. 32 Issue 13, p44-44, 1p. Datamonitor (2010). Tesco Bank set to play with the big boys and be a top 10 bank. [Online] Available from: http://about. datamonitor. com/media/archives/3705. (accessed 13 April 2012) Datamonitor (2011). Tesco PLC company profile. Online] Available from: http://www. datamonitor. com/. (Accessed 13 April 2012) Halime, F (2010). Tesco Bank eyes 10% of UK market share. Retail Bank International. [Online] Available from: http://www. vrl-financial-news. com/retail-banking/retail-banker-intl/issues/rbi-2010/rbi-629/tesco-bank-eyes-10-of-uk-mark. aspx. (Accessed 13 April 2012) Kotler, P;amp; Armstrong, G (2012). Principles of Marketing (14th ed. ). Pearson Education. p 66-67, 224-230, 231-232, 297-303, 315-324. Maddern, H et al (2007). Customer satisfaction and service quality in UK financial services. International Journal of Operations ;amp; Production Management. Vol. 7 Issue 9, p998-1019, 22p. MarketWatch (2009). Industry Comment: Tesco: becoming the Tesco of financial services. Vol. 8 Issue 4, p5-5, 2/3p. MarketWatch (2009). Tesco: renaming of banking division heralds a renewed attack on Britain’s players. Vol. 8 Issue 11, p11-12, 2p. Pettinger, T (2011). Top 10 British Banks. Economicshelp. [Online] Available from: http://www. economicshelp. org. (Accessed 14 April 2012) Sky News (2008). Tesco Pays ? 950m To Become Bank. [Online] Available from: http://news. sky. com/home/business/article/15058484. (Accessed 14 April 2012) The Telegraph (2009). Tesco Bank to offer current accounts and mortgages. Online] Available from: http://www. telegraph. co. uk/finance/personalfinance/consumertips/banking/6266043/Tesco-Bank-to-offer-current-accounts-and-mortgages. html. (Accessed 14 April 2012) Tesco plc website (2012). Annual reports. Investors. [Online] Available from: http://www. tescoplc. com/index. asp? pageid=166. (Accessed 13 April 2012) Tescocompare (2012). Credit Cards. Money. [Online] Available from: http://tesco. lovemoney. com/creditcards. (Accessed 15 April 2012) Tesco Bank website (2012). Insurance. [Online] Available from: http://www. tescobank. com/personal/finance/home. html. (Accessed 15 April 2012)