Tesco Marketing Mix: The 7Ps Applied to a Grocery Retailer in Practice

A large grocery chain is the standard case for applying the extended mix, and it is a demanding one. A supermarket operator runs several store formats, an online channel, own-label ranges spanning three price tiers, a financial services arm and a loyalty scheme, and each of those makes demands on the same seven elements.

What makes the case instructive is not that a chain does each element well. It is that retail forces elements the framework separates back together — the store is place, process and physical evidence simultaneously — and a workable analysis has to deal with that rather than pretending the categories hold.

Product

A grocery retailer's product is the assortment instead of any item in it. The decisions are range width, depth within a category, and the balance between branded goods and own label.

The tiered own-label structure is the mechanism that does most of the work. A value range, a standard range and a premium range allow a single store to serve customers with very different budgets without any of them feeling they are shopping in the wrong place. The value tier answers the discount competitor, the premium tier retains customers who would otherwise trade up elsewhere, and the standard tier carries the volume.

Beyond groceries, the product extends into clothing, general merchandise, financial services, fuel and mobile telephony. Each of those was added on the strength of a customer relationship built elsewhere, and each is a test of how far a grocery brand transfers.

Price

The pricing problem for a full-range grocer is structural. Discount competitors carry a fraction of the range, operate a simpler store, and can price a comparable basket lower. A full-range operator cannot match that on every line and cannot afford to be seen as expensive.

The response has three components, and they are usually taught together because none works alone.

Price matching and price promises address comparison on a defined basket, which is what customers use to form an impression.

Known-value items are priced sharply because they are the lines customers remember. Perceived price level is formed from a small number of familiar products, not from an average.

Promotional structure carries the rest: multibuys, temporary reductions, and personalised offers issued through the loyalty scheme.

The loyalty scheme deserves separate mention as a pricing instrument and not a promotional one. A personalised discount is price discrimination conducted at the level of the individual customer: the same item is sold at different effective prices to different people, based on what their purchasing history suggests they will respond to. That is a capability a competitor without the data cannot replicate by matching a shelf price.

Place

Place is the most visible part of the strategy and the one that has changed most.

The format portfolio is the core of it: large stores for a weekly shop, supermarkets for a mid-sized one, convenience stores for immediate needs, and an online operation delivering to the home or to a collection point. The strategic argument is that different missions call for different formats, and that the same brand can serve all of them if each format is designed around its mission rather than being a scaled version of another.

Two tensions follow, and they are the substance of any serious analysis.

The first is between the large store and the convenience store. Floorspace acquired when the weekly shop was the dominant mission becomes a liability when shopping fragments into smaller, more frequent trips. The convenience estate grows while the large estate has to find additional uses for space that no longer turns over quickly enough.

The second is between physical and online. Online grocery carries picking and delivery costs that a shop does not, because the labour the customer supplies for free in a store must be paid for. Fulfilling online orders from stores uses existing assets and congests them; fulfilling from dedicated warehouses is more efficient at volume and requires capital before the volume exists.

Promotion

Promotion runs on three levels that serve different purposes.

Brand advertising maintains the position and addresses the price perception problem at a level shelf pricing cannot reach. Tactical promotion drives traffic and shifts volume on particular lines. Personalised communication, drawn from loyalty data, addresses individual customers with offers derived from what they already buy.

The third level is the one that distinguishes a grocery operator from most advertisers, and its significance is that it changes the objective. General advertising seeks acquisition; personalised offers seek retention and basket extension, which are cheaper and measurable. The scheme's original contribution was not the discount but the data, and the discount is the price paid to obtain it.

People

A supermarket's staff are encountered briefly and at moments that matter: at a checkout, at a service counter, or when something has gone wrong.

The design question is where to spend. Self-service checkouts and scan-as-you-shop remove staff from routine transactions and redeploy them to the interactions where presence adds value — the fresh counters, the queries, the recovery when an order is short. Removing staff from every interaction reduces cost and removes the only human element of the offering, which is the trade-off the format decision has to settle.

Convenience stores invert the balance. A small store has few staff, they are visible throughout, and the customer's impression of the brand is formed almost entirely by them.

Process

Process is where retail efficiency becomes customer experience, and the elements are easy to list and hard to run.

In-store: store layout and the route it imposes, queue management, checkout options, the availability of what the customer came for. Availability is the single largest driver of satisfaction in grocery, because a missing item is a failure the customer cannot work around and attributes directly to the retailer.

Online: the ordering interface, slot availability, substitution policy when an item is unavailable, delivery windows, and returns. The substitution policy is disproportionately important, because it is the point at which the retailer makes a decision on the customer's behalf.

Behind both sits the supply chain. Replenishment frequency, distribution structure and forecasting determine availability, and availability determines whether the rest of the mix has anything to work with.

Physical evidence

The store is the evidence. Cleanliness, lighting, the condition of the fresh departments, signage, the length of the checkout queue and the state of the trolleys all communicate quality, and the fresh produce and bakery areas do so most because they are the hardest to maintain and therefore the most informative.

Format differentiation shows here as much as in the product range. A premium-positioned store and a value-positioned one can carry overlapping ranges and communicate entirely different positions through fitting, lighting and density of display.

Online, the equivalents are the interface, the packaging, the condition of chilled goods on arrival and the conduct of the delivery driver, who is frequently the only person the customer meets.

The limits of the analysis

An evaluation of a large retailer's mix has two weaknesses that should be acknowledged rather than concealed, because an examiner is looking for them.

The first is that almost all the evidence available from outside is the evidence the retailer chose to publish or display. Range architecture, store formats and advertising are visible; margin by category, the economics of a delivery slot and the profitability of each format are not. Conclusions about whether a decision is working are therefore inferences, and they should be written as inferences.

The second is that the mix describes the offer and not the competitive position. Two chains can present near-identical mixes and perform very differently because of buying scale, property costs, distribution efficiency or the demographics of where their stores happen to be. The mix is the part of the strategy the customer sees, and the part that determines whether it pays sits behind it.

That is why a good answer pairs the mix with at least one structural observation. A retailer facing discount competition is not losing on the mix alone; it is operating a cost base built for a different assortment and a different shopping mission, and no adjustment to promotion will address that.

What the case demonstrates

Three points that generalise beyond the individual retailer.

Retail collapses the elements. The store is place, process and physical evidence at once, and the analysis is stronger for saying so than for allocating each observation to a heading.

Multi-format operation multiplies the problem. Seven elements have to be resolved separately for each format while remaining recognisable as one brand. Too much consistency produces formats unsuited to their missions; too little produces a brand that means nothing in particular.

Scale creates its own instruments. A loyalty scheme at this size is a pricing capability, a promotional channel and a source of range decisions simultaneously. That is an element of the mix a smaller competitor cannot imitate by copying any individual tactic.

How it is examined

Questions ask for an evaluation of a named retailer's mix, often with a recommendation about a specific pressure such as discount competition or online costs.

Use observable detail instead of statements that could describe any retailer. A named range structure, a specific format, a described process is worth more than a paragraph about how important customer service is.

Identify the trade-offs explicitly, because the interesting part of a retail mix is where the elements pull against each other: price against margin, self-service against people, store fulfilment against dedicated capacity, range breadth against operational simplicity.

Then recommend with a cost attached. Any proposal to improve one element in this business degrades another, and an answer that says which and by how much is doing the analysis, not describing the company.