External Factor Affecting Consumer Behavior, Essay Example

Executive Summary

Consumer is the real asset of any organziation. There are a number of factors that affect on consumer’s buying. Every organziation keeps an eye on those factors and always try to minimize them or have a good impact on its consumer purchase. These factors can be of any type, social, non-socil, cultural and religious factors. In this respect, marketers and producers are forced to conduct intensive market research in order to identify the various external factors that are likely to influence the decision making process or buying behavior of consumers in regards to a particular product. Like other products, tesco sales are also highly affected by these external factors, the paper focus on those internal and mainly focus on external factors of consumer purchase. Later sections focus on personal, cultural and psychological factors of Tesco purchase.  Tesco Consumer’s purchasing is highly affected by these social and non-social factors, the paper discusses these factors in its later parts.

Introduction

Tesco Corporation is one of the most prominent supplier and manufacturer of top drives and contractors. The company has a diversified presence across the globe. TESCO has a product line specially targeted to different needs of different types of the customers. Here, we will attempt to investigate the external environment for TESCO PLC, where different forces present in the external environment would be evaluated.

Factors Affecting Consumer Behavior

One of the most discriminating outer business elements is rivalry. This is true for industrial work, blue collar jobs, and top CEO corporations. In order to properly function as a business one of the most important goals is to know the competition: therefore it behooves an employer to conduct proper research about the opposition. Some organizations do just that: they exam the market value of a product, the necessary marketing involved, the packaging, and the cost to benefit ratio in similar contender’s offices and base their final strategies about business on this information.

The regular outer components fall into a few classes, including socio-investment, legitimate or moral, political and mechanical. Socio-monetary components concern the buying power of the consumer as well as the actual target audience of the product. Withint the target audience, businesses asses their potential client’s spending power. Thus, ratios incorporating this spending power with market value and cost of production become instrinsic to business schematics. There are other implications outside of this ratio that also contribute to cost such as moral implications involved in marketing and selling certain products, political import, and lawful distribution of company funds (e.g. child labor laws, unions, sweatshops, etc.) In order to uphold a standard businesses must stay in tune to client’s needs as well as these moral obligations. In this tech savvy culture, it is also important to note that when beginning any kind of venture, something that may drive the company could be requirments for potential upgrades (which occur at an exponential rate) which in turn requires organizations to adjust how they handling their marketing and consumer relations.

Family & Roles

Family roles and family members impact consumer behavior. Economic changes however can also impact market patterns and social behavior (i.e. buying/consumer behavior). TESCO is an example of such an occurrence. TESCO differentiates between a consumer that actually purchases an item and the person in the family or dynamic that has the buying power (e.g. children choosing toys and the parents paying for them). The United States and the United Kingdom are propnents of this dynamic in which the buying power remains with the parent. Under this premise TESCO has responded by targeting children as their main consumer despite their lack of buying power. TESCO does this through adverts and promotions. These combined efforts did not prove any efficacy as they were considered a one-off public relations endeavor. Research shows that financial markets are finicky and that TESCO’s pull in advertising to children was not well received. The public considered this a stunt that was impractical and immoral on certain grounds. The actual PR campaign was found to be just as immoral despite the pressures of consolidation TESCO had, there was no reason for such a one-off PR campaign. The campaign was seen and interpreted as the company begging for retail to be put on a multinational level so that the company was secure international funding through this consolidation. TESCO argued that their message wasn’t properly interpreted by investors and as such they should not be chided or cold-shouldered. Analysts for the company, who showed previous research on TESCO’s productivity and past international sales, said that this gave a false hope to investors which in turn didn’t allow for proper recording of the company’s current profit margin. This intentful obscuring of facts further infuriatated investors and detrimentally affected TESCO’s future investments with international companies.

One such example of this is found with TESCO’s Clubcard. This retailer’s scheme did more than just offer customers loyalty perks. Analysts also noted that Clubcard offered a reduction at checkout from the retail value of the product. These schemes are easily copied and are deletrious to investors because it misrepresents actual sales and profits of a company (Alexander,Quinn,2002). TESCO’s Clubcard:

Unlawfully collects data for each purchase made. This data is further used to compromise investors by reporting or not reporting sales at a particular store (at least not the full sale). This card also promotes customer loyalty by doing a mail-in rebate, or by mailing out vouchers to customers. These vouchers are brand specific to that particular customer based on previous purchases and the potential of the customer to buy a product based on those previous purchases (if customers like a certain brand then they may also buy something else the brand makes).

Using databases that recorded consumer buying patterns TESCO pulled information about customers disregarding the company’s nappies. Instead, customers were buying this product from a competitor. TESCO took this information and made a baby club that offered new mothers classes on their pregnancy and infancy care. In two years time TESCO had cornered the baby/mother market.

Reference Group

Tesco is also hoping to capitalize on concerns about obesity levels and the growing interest in a healthy lifestyle with a focus on eating more salubriously. In regards to this TESCO plans to implement varying additive-free foods that are ready for marketing in the U.S. TESCO will of course face stiff competition in the American market with such business as Walmart and Costco. In order to out perform these competitors, TESCO must reduce cost in any way possible while still adhering to ethical standards of business practices. The best way that TESCO can reduce costs is by having canned or frozen foods or even by having meals prepard on site from store-bought raw ingredients (Dawson 2011).

The US market is a roller coaster, full of highs and lows. This does not exclude higher end items vs. cheap products. There has been a fast and steady decline on mid-market specialists. On the face of it, aiming directly at this sector would therefore appear suicidal. TESCO has proven itself a unique UK company, among countless other supermarkets by the way that it handles its competition, and the way that it in turn attracts new customers; customers that range the gambit on the social ladder.

TESCO’s past approaches in this area have mostly centred on adapting to local market needs thereby making the global chain have more of a mom and pop feel to it that appeals to the local conscientious consumer. Doing extensive market research and the patterns of consumer behavior with the bread-winners of the family has aided to this approach. Using such innovative approaches makes TESCO a strong contendor on the U.S. market. Other contendors for this market have not had as musch success, or potential success as TESCO.

TESCO’s approach includes the belief that although previous market shareholders (Walmart, Costco, etc.) have strategized that people live close to their supermarkets, TESCO is approaching their marketing based on this and on the fact that people don’t like the feel of a chain store. Consumers, according to TESCO research prefer the feel of a small time conenvience store for many different reasons (e.g. less space to get lost in, less hegemony, more unique “flavor” etc.). Under this research TESCO has spent a lot of time, money and effort in their TESCO Fresh and Easy Stores. These stores offer a smaller space in which the consumer may shop but large enough to allow for plenty of stock and options (which include range of product) compared to other U.S. supermarkets.

Cultural Factors

TESCO is concerned with the legal environment as their ventures may prove profitable unless certain codes of conduct are not being followed.The energy industry is subjected to extensive public policy, federal, state, and local laws and regulations, which supercede the innovative development for drilling for oil and gas for a myriad of reasons, chief among them being the triad: economic, environmental, and other policy reasons. It may also adversely affect the company’s operations since its customers would then have limited drilling. The operations of its customers, as well as its properties, are also subject to increasingly stringent laws and regulations (laws that relate to the environment such as air emissions, water discharges, waste management, and workplace safety). These laws and regulations are complex and frequently change. Such regulations could negatively impact the company’s financial condition.

Cultural factors affects consumer buying Example

TESCO is a company that has it’s hands involved in a myriad of projects such as design, manufacturing and technology on an international level. As a matter of fact more than half of its conglomerated sales were made on an international level (locations included Europe, Asia, Africa and the Middle East). Some factors that are involved in this ratio include the potentials risks of the US market. The above mentioned geographical areas do present a certain undeniable limitation that that are not of concern when dealing with the US markets. Such foreign trade policy drawbacks include risk management, trade restrictions (in quantity and price), regulations on investments, and political instability.

In addition, the political and economic changes in these countries, including civil uprisings, riots, and terrorist acts, could impact the revenue inflow of the company. Further, in these countries there could be changes in regulations, restrictions on repatriation of earnings or expropriation of property without fair compensation, governmental sanctions, and governmental actions that could result in the deprivation of contract or proprietary rights. Such instabilities could negatively impact the revenue growth of the company.

Operational hazards and uninsured risks

Tesco’s products known for being used in hazardous situations such as in drillings. There is potential risk here for failure in a product or even of potential accidents because of the nature of the work. An example of this includes drilling failures when a drive meant to rotate a drill fails during it’s usual operation and this failure in turn has to consequence of loss of control over a company’s well which in turn leads to a system malfunction on a grand scale (e.g. pollutants leaking into the local water supply or river bed making the clean up catastrophic). The damage from such an occurance leads to legal action against the company (something that has happened in the past).

The company has tried to create distance between itself and the occurrence in an effort to limit poor consumer associations with its name and thereby risking its profit margins. Such efforst, however, fail at TESCO being liable for such a catastrophe (these potential and past catastrophes include damage to equipment, lost man hours, poor reputation for the company, explosions, fires, and lost equipment, etc.) which in turn lead to the business being unoperational for an unspecific amount of time and thereby the stock market value of the company plummets leading to further financial crises and devestations. The company’s insurance does provide a certain comfort from these risks but it may offer an umbrella coverage and thereby the company still shoulders some of the financial responsibility of covering losses of equipment, etc. The occurrence of an event not fully insured or indemnified against, or the failure of a customer or insurer to meet its indemnification or insurance obligations, could result in substantial losses. Any future damages caused by Tesco’s products or services that are not covered by insurance, are in excess of policy limits or are subject to substantial deductibles, could reduce the company’s earnings and cash available for operations.

Psychological Factors

Tesco’s research seemed to only focus on Americans’ buying behaviour and ignores other variables (e.g. aesthetics, shopping experience, store atmosphere, value  andquality) from which substantial corrective investments had been made in response tocomplaints associating with those marketing aspects (Tesco Plc., 2012a). For example, Tescosells pre- packaged fruits as opposed to American’s expectations of selecting their own freshfruits at F&E, and consequently, criticized to contradict its  Fresh & Easy image (Peacock, 2013).

Seemingly, Tesco have under-estimated the US market, thus failing to fully understand or appreciate its US customer base. It can be implied that Tesco had treated its US operations asa business extension of its domestic UK market. At the time of entry, Tesco may have beenmainly attracted by US’s booming economy and raising property value, which may also haveencouraged Tesco to opt for GI at the time. Yet, it failed to account the deeper financialdynamics, which could have saved Tesco from the financial crisis in 2009 (Arino,Torre,1998). Low customer loyalty and switching costs in the GRM emphasise the importance of marketing activities.

Understaning consumer behavior is a vital part of business practices and as such it is also important to understand the range of this behavior on both a national and international scope. This behavior must be understood from both sides of the coin (market and consumer) in order to properly come up with innovative techniques to strategize a business plan. Evidently, in international markets, local management are more suitable to makesuch strategic decisions. For both national and international markets TESCO shows that although it has garnered innovative business plans in the past it still needs to be proactive about the way that it approaches business in the future. This can easily be done by simly identifying future consumer buying patterns and pre-emptively creating a market for these anticipated needs.

Personal Factors

Technology is the most sensitive factor that influence the individual factor. TESCO found new ways of combining market research for international marketing with their more traditional business approach. The more that TESCO uses this business model of modernity fitted with classic approaches, the better and faster it grows as company. Viewing TESCO’s unique approaches to business, particularly on an international scale, it is clear that the company will face exponential growth in the future. TESCO has approached business on an international level by cornering the market through their research teams and by finding new ways to present products to consumers. TESCO seems to be aiming to be the leading company on all fronts through its experience on a local and regional level and applying that experience to its overseas ventures. Keeping this type of focus was vital to making use of these mriad oppoturnities. Making a decision about what market is more vital depends on not only availability but also the condition of the market at the time of the sell and the potential sellers and buyers at that time. In other words, it depends highly on how attractive or not the market is at any given time (Dawson, 2001). Selecting a market was intrinisic for goo business practice. Choosing a market however can be a very capricious endeavor as it tends to fluctuate on a daily basis and what is good one day may not be on the next. Thus, predicting patterns becomes enviable.  How TESCO reacted or acted upon these patterns and the win/loss mentatility of the market was what made the company innovative. TESCO may endure some missteps in their planning and implementation stages but their ability to transform something less than worthy into something worthwhile was a true demonstration of their innovation. This attitude contributed to their international marketing plan. TESCO utilized the very small-scale acquisitions to gather local market knowledge. Thus, TESCO was able to learn from their opportunities. Research also showed that approaching the market in such a way (locally) and a company’s willingness to experiment and use their acquisitions to the best of their experiential knowledge will result in a greater market share (Clarke & Rimmer, 1997).

TESCO also represents how international savvy does not always produce a progressive process (Alexander and Quinn, 2002; Burt et al., 2002, 2003; Mellahi et al., 2002). TESCO, while innovative, had also learned from past mistakes involving divestment and international market retailers. TESCO’s Catteau experience (which was a bad one involving misappropriation of funds and inappropriate acquisitions). Legal clauses with this company disallowed for any distance between them and TESCO during deliberation and so the company’s name was tainted with this episode.  Still lacking experience TESCO tried to turn this bad experience around by investing in a major re-haul of their company (e.g. re-branding and re-launching their product lines). Such an endeavor however lead to a divestment in manager’s time and thus the company suffered as a whole. Furthering this mistake in Northern Ireland, TESCO made further mistakes with their French international market. Alexander and Myers (2000) have emphasized that ethnocentric and geocentric operating items will affect TESCO’s learning curve on an international scale. TESCO thought this international endeavor would boost their sales and allow for a massive extension in their business. By the 1990’s however, this was not the case as shareholders began to question the value of products and markets on an international level. This in turn effected the “strategic credibility of the retail multinational and inevitably placed financial cost of capital restrictions” (Palmer, 2002a). TESCO finally restructured their business model and adopted a hybrid one that dealt with a new system of operations in their industry. TESCO’s failures did ultimately prove that the difficulty of adopting both corporate models at the same time.

TESCO’s inexperience on a large market, international scale lead to many failures or stress on the company. TESCO’s international division was great at targeting it’s market by using traditional business strategy. It did this by investing large sums of their capital into their overseas operations but unfortunately management didn’t account for the higher need in the human resource departments. International literature on business markets doesn’t highlight the basic and added need from this department and so such negligence in turn leads to poor retail performance. Current research suggests that  an international, retail business may exhibit a gap between their financial and human capital during their processing stage. This means that for TESCO to be able to be at the top of their game, as in, fully functional on an international scale they must pay attention to systems operations along with the deisre to compete. TESCO exhibited setbacks along both of these fronts such as an oversupply of goods and a neglected human resources department. Results from these failures were that TESCO showed signs of strain during recruitment. Investors did not feel as though TESCO was an authority or breadwinner on an international scale and this detrimentally affected their market value. Subsequent investments were based off of this assumption and the company’s value lessoned (Carson & Gronhaug,2001).

Relationships however remain strained on the business-to-business side of things between communication on international and national levels. This is true at both the investor and the customer interface side of things. This delicate relationship shows strain as soon as poor communication or a sense of disjointed efforst come into play. The effect of this communication was that TESCO’s authority was damaged and consequentially, the company met with many different struggles further along their strategic plans such as lack of faith from investors and problems with governmental controls. Research showed that customers reacted to such shortcomings by further isolating the company in terms of potential market sales (Shackleton, 1996a, b, 1998). It is difficult sometimes to gauge consumer behavior because it is often times very fickle. In predicting the patternistic behavior of a human element often times businesses fail because they have predicted buying patterns wrong and their investment on new devices or promotions have gone into the wayside. Such a deleterious move by a company can often make or break it, and on an international scale this can have devastating effects. During this critical period of change of pursuit in applying consumer buying patterns, was that consumers made buying compromised according to negative factors within the company resulting in poor or deleterious sale’s performances.

Research suggested that TESCO should be focusing on reducing the price difference between markets of courced merchandise during their strategic international processes. The financial investors believed there were advantages and disadvantages. This scale in turn presents two things: a foundation by which to properly place market value on the company through proper integration of its sales, and a way in which the company can expand its growth and not compromise (hopefully) its sales.

Tesco was then able to rely on not only their domestic but also their international business model. This also mean that stronger local as well as international retailer-supplier partnerships were to be more important for TESCO to continue functioning as a forerunner of international grocery stores. This research further suggests that manufacturers changed their structures on an organizational level in order to bolster leading brands in the belief that such a switch would place more emphasis on leading market brans. TESCO’s globalization then significantly altered the retailer-supplier paradigm. Such a paradigm differed from country to country, and state to state even.

Conclusion

The 1990’s have proven that there is a significant shift in the market in regards to its rate of accelteration in relation to a company going from local to interntional and as such, retailers are on the front lines of learning new market trends. In regards to the aims of this paper, it proved that TESCO could be seen as the canon by which future internationalization is measured. Companies in the future that try to successfully manage an interntional business will turn to TESCO’s success and failures as a way to gauge their own and know whether or not they are staing ahead of the curve that TESCO set. TESCO’s works as a new paradigm by which understanding market trends, retailer-consumer and retailer-investor relationships can be taught. This case study exemplifies a myriad of various forms of the company’s international market experiences. Many varied and no less important lessons have been learned by TESCO during their venture into international territory. This in lieu of the company researching buying patterns and trying to adapt to them from nation to nation. TESCO invested a lot of its money into their overseas venture despite the potential for failure as witnessed by other UK based companies venturing before them. The elements that made TESCO unique were their innovative style, tenacity, and their ability to perform and enhance a flexible business strategy. TESCO has experienced and learned from may different “shocks” in regards to patterns and trends in the local and international marketplace – a consequence of which has been TESCO paying due diligence to anticipating such trends and a willingness to be innovative and learn from not only what works but what doesn’t work. This is key to a business’s future: that ability to bounce back after an initial failure and its what differentiates TESCO from other companies. While TESCO may have face failure on a global scale they learned from their mistakes and adapted their company profile in order to better manage their resources. In order to properly do this TESCO must find the necessary dogma to instill in its human resource department overseas to better gauge company adaptation to international rules and regulations and to ensure a smooth transition during company ventures, growth and moves. It is with TESCO’s willingness to adapt that marks it as a different company and that will ultimately see it survive its international ventures in Asia, Europe, etc.

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