Case study of Tesco

Innovation in the UK's Retail Sector: Opportunities and Challenges: Tesco as a Case Study

The retail sector in the UK is incredibly dynamic. Bold (2014, p. 1) claims that UK businesses cater to customers looking for higher-quality, more affordable goods and services. According to Pettinger (2014, p. 2), merchants must adopt new ways to set themselves apart from major rivals. The fact that UK vendors are constantly interacting with well-informed, budget-conscious customers and a domestic market that is only moderately developing helps to explain why innovation needs to be adopted in all endeavors. On the other hand, Carayannis, Sindakis and Walter (2015 p.87) explain that the retail sales in the United Kingdom are highly affected by digital innovations; the vendors who do not tailor their products and services to meet the expectations of their clienteles lose billions of dollars on an annual basis. The emergence of digital consumers has instilled massive changes on the face of UK’s retail industry; an aspect that has mounted pressure on these entities. Casadesus-Masanell and Zhu (2013 p.465) explain that development of profitable growth strategies in a slowing economy like that of the United Kingdom is likely to be a challenge for retail stores if innovative ideas are not well embraced. The current consumer landscape is characterized with a mass of detective clients who can easily access internet-friendly devices to help them enhance the move of searching for value in the merchandises they need at the prices they want. Therefore, retailers are faced with the difficult task of engaging this populace towards spending. As a result, Schneider and Spieth (2013 p.2) explain that topline sales increments are only realized by vendors who possess the ability of increasing the levels of customer loyalty through proper adoption of product and services that are highly innovative as a way of driving expansion into the less tapped international souks. The current study aims at undertaking a critical analysis of the roles played by innovation in increasing growth opportunities to the UK retail industry with great emphasis on the country’s supermarket chain. Further, an analysis of the challenges faced by supermarkets in the UK in their moves of ensuring that the required innovations are embraced is also put into perspective using Tesco, as one of the biggest players in this economy.

Part 1: Critical Evaluation of Strategic Issues

The United Kingdom’s Retail Industry

The UK boasts of its highly competitive and innovative business environment. The Office for National Statistics (ONS) reports that the retail industry is vast and highly pervasive based on the sales revenues which have been constantly collected over the years. For instance the retail industry contributed 5% to the UK’s of 9% Gross Value Added in 2012 with Tesco, Sainsbury, Asda and Morrisons accounting for a total of £17.5 billion in form of taxes; an equivalent of 9% to the total of the UK (Tesco 2014a p.3). Based on the ability of this industry to foster direct connections between consumers and suppliers, Kim and Min (2015p.35) explain that retail in the UK plays a critical role in influencing demand and supply.

Adoption of innovative techniques to better customer experiences in the UK retail sector has proved to be an excellent paragon. According to Hu (2014 p.588), the United Kingdom offers its consumers better product deals than other European economies. Matrtins. Rindova and Greenbaum (2015 p.101) explain that clients in this economy pay about 5% less for most of the basic products they purchase. In this context, retailers in this economy are preferred for their cheap products in the larger Europe. According to Wirtz et al. (2016 p.38), the prices of food has been innovatively lower in the UK than in other European economies despite the strong negative effects of cost-push inflation resulting from periodic depreciations of the sterling.

The Department for Business Innovation and Skills (2013) avowed that people’s standards of life have undergone massive alterations due to increments in the number of working hours, with a larger population re-entering the labor force to work on part time basis; aspect that call for adoption of innovative techniques from the retail industry as a way of ensuring that the demands of such populations are met. Accordingly, there is no doubt that consumers have increased their levels of demand for products and services that are better and of high quality which can be delivered at a quicker rate. Pantano (2014 p.2) explains that the inception of e-commerce on international scales has gone a long way in fostering cross-border trade initiatives; an aspect that has enabled retailers from different scopes to explore both local and international markets with a lot of ease. From the positivist’ point of view; this innovation has played a critical role in presenting global competition among UK retailers. Therefore, the massive changes evident in the face of the UK’s retail industry have been effective in facilitating and restructuring the entire industry based on its high levels of ability to lower the barriers of entry for new and existing ventures. According to the Department of Business and Innovation (2013 p), the changing face of this sector can be attributed to the massive rates of diffusion of innovations. On the other hand, innovation has played a useful role in enhancing the UK retail industry.

Innovation: A Theoretical Overview

The fundamental aspects of innovation were first put into perspective by Kondrateiff; a Russian scholar whose discussions were not given the required levels of recognition both in his home country and internationally (Coombs and Nicholson 2013 p.657). The issue of innovation has been embraced to become the pivot area of concern in critical subject areas like business, economics, technology, sociology and engineering. Cao (2014 p.70) defines innovation as the process of making “alterations in something established, especially by presenting new methods, concepts or products”. Further, Hu (2014 p.587) describes innovation as the act of underrating renovations, modifications, and coming up with more operative procedures and means of production. Interestingly, researchers like Wirtz et al. (2016 p.38) designate innovation as an aspect of human mentality in which the ways of thought are allowed to permeate beyond the current ways of accomplishing tasks by embracing future visionaries. Therefore, innovation refers to the individual mindsets which possess the abilities of being felt, sensed and thought; an aspect that explains its importance in guiding business ventures towards making observations beyond the current landscape through creation of future visionaries.

A part from gaining the desired competitive advantage, it is the role of business ventures to ensure that their innovative ideas are put to effective use. According to Pantano (2014 p.346), novelties embraced by any business go a long way in ensuring that the real competitive advantage is attained and retained through focusing on initiatives geared towards production of merchandises that are new to the market and cater for the diverse needs of consumers in different niches. Therefore, innovation is one of the most effective strategic instruments of ensuring that a venture gains the desired competitive advantage in business environments that are highly complex.

Types of Innovation in the Retail Industry

Coombs and Nicholson (2013 p.658) explain that innovation does not only look into the processes, products and services of a business venture but also its marketing initiatives. Hu (2014 p.589) brings forth different aspects of modernisms which include exploitation of new customer segments, new forms of business organization as well as fresh products and techniques of production. From a holistic point of view, innovations in business settings can be categorized into technological and non-technological.

Technological innovation

While the conceptual comprehension of innovations in organizational settings puts demarcations between the processes of innovating products and services, technological novelties are aimed at fostering some levels of consensus between the two. Therefore, product transformation is a complex process that is highly motivated by the periodically evolving technologies as a way of fostering alterations in punter requirements, reducing product life cycles and enhancing the rates of global competition. Further, Veit et al. (2014 p.46) explain that technological modernizations are aimed at execution of delivery techniques that are highly improved through inclusion of updated software and equipment. While project innovations play a role in decreasing the levels of unit costs of delivery in the retail industry settings, Carayannis et al. (2014 p.443) explain that they are of particular importance in producing new and significantly improved merchandises.

Schneider and Spieth (2013 p.2) explain that the ideology of technological innovation is made up of three critical viewpoints. The first approach looks into creation of new ideas and organizational solutions based on the aspects of technology, and the needs of the populace under consideration; aspects that lead to invention. In the second approach, critical aspects involving creation of solutions and ideas aimed at transforming products and services are fostered; an aspect referred by Pettinger (2014 p.3) as realization. In the last approach, technological innovation looks into the processes of introducing and supplying new merchandises with the aim of meeting the demands of purchasers. The effectiveness of technological innovations is based on their ability to encirclement new products and services including the modifications they offer. On the other hand, Wirtz et al. (201 p.41) hold the fact that innovations are only said to have been effectively applied if they have been introduced to the markets of intention.

Non-technological innovations

Kim and Min (2015 p.37) explain that the greatest difference between technological and non-technological inventions emanates from the roles played by the expertise under consideration. Putting into perspective the fact that technological inventions play a critical role in fostering inventions and use of fresh technical knowhow, Martins, Rindova and Greenbaum (201 p. 106) explain that this form of discovery does not uphold the use of emergent methods of business. Based on these viewpoints, non-technological inventions are described on the bases of the two forms of inventions; marketing and organizational innovations as discussed in the paragraphs below.

Marketing innovation

Kim and Min (201 p.36) explain that most of the retail stores in the United Kingdom devolve the marketing innovation function to the organizational strategies that emphasize on the channels of marketing, product distribution and increasing the levels of competitiveness. According to Coombs and Nicholson (2013 p.659), novelties in marketing can be explain in terms of product, price and promotional strategies adopted by a firm. The initiatives used in marketing lead to tactical deviations in the actions of publicizing goods and services. Therefore, the overall intention of marketing innovation is to enhance the levels of awareness of the goods and services offered by a retailer to new market segments.

Organizational innovation

Wirtz et al. (2016 p.38) explain that organizational innovation is a holistic acuity that encompasses strategies whose dimensions are both structural and behavioral. According to ()0, business ventures which adapt technological innovations tend to embrace organizational novelties as a way of advocating the innovative approaches they uphold. Therefore, institutional modernizations should be looked at as inputs aimed at guiding the innovative capacity and processes of business ventures.

Opportunities presented by innovation in the UK retail industry

Innovation plays a significant role in optimizing consumer experiences. According to Carayannis et al. (2014 p.443), the world of business has seen massive shifts and switches in power to customers; an aspect that calls for delivery of exceptional experiences. An Eco consultancy study conducted by Veit et al. (2014 p.47) revealed that more than 33% of clients in the UK retail sector appreciated optimized experiences as a way of delivering the desired exciting opportunities among customers. Retailers have the role of ensuring that they foster innovative models aimed at connecting with their punter segments based on their desires. Innovation is of particular use in conforming ventures to the prevailing social and economic dynamics by soliciting for intermittent feedbacks. Such feedbacks go a long way in guiding retailers towards offering their clients with the right products and services; leading to enhancement of customer experiences.

Innovation enables retailers to influence clients towards making purchases. Bold (014 p.3) explains that retailers can take advantage of consumer data in their possession to streamline their sales processes based on the customer trends they have periodically established. By applying innovation, businesses can evaluate and analyze critical issues like traffic patterns revealed by individual retail stores, assessing loyalty information and monitoring the behaviors revealed by clients in different media platforms as a way of fostering the right positioning strategies as well as intimate connections based on the desires of their shoppers. Carayannis, Sindakis and Walter (2015 p.87) explain that it is only through adoption of innovation that retailers will be able to gain a deeper understanding of their punters’ psyche and therefore foster up-selling, cross-selling and stirring of engagements in ways that are highly compelling

Challenges of adopting innovation in the UK retail industry

There exist numerous challenges in adoption of innovations among organizations in the retail industry. Implementation failure is one of the greatest challenges of adoption of innovations in businesses. According to Pettinger (2014 p.4), implementation failures take place in instances where stakeholders use the innovations less frequently and in an inconsistent way. On the other hand, lack of the required innovational knowhow goes a long way in hindering proper implementation of innovation.

Issues of technological commercialization which comprise of intellectual property, availability of brokers as well as exorbitant innovational trading platforms are considered by ()0 as the key underlying challenges in the efforts of adoption among retailers. On the other hand, increased levels of competition and globalization have led to massive challenges in patenting of financial innovations which are of particular importance in the retail industry.

Conclusion

Innovations are meant to increase the competitive advantage of businesses in their areas of operation. The UK retail industry is characterized with high levels of dynamism; an aspect that calls for key players like Tesco to come up with innovative ideas to maintain their competitive advantage. From a general perspective, business innovations are classified into technological and non-technological. On the other hand, non-technological innovations are divided into marketing and organizational. Novelties in business provide room for enhancing customer experiences, and influencing sales volumes. On the other hand, the expenses associated with such innovations account for the challenges they present.

Part 2: Generation of Ideas and Innovative Solutions

The retail industry has played a key role in contributing to the economy of the United Kingdom. Tesco is one of the leading retail stores in this economy based on its move to undertake innovative application of business strategies tailored with technology as a way of enhancing its position in the market. Despite the strong brand image enjoyed by Tesco, the retailer boasts of an ever increasing market share and key leadership positions in the UK. Further, availability of international growth opportunities coupled with the move to instill product diversification have played a crucial role in guiding the company towards gaining the chances of ensuring that its products and services undergo diversification.

Innovation at Tesco

Despite the strengths and opportunities presented to Tesco, the company is faced with massive innovation issues which must be looked into as a way of enabling operational efficiency. Issues like exposure to price battles with major competitors in the grocery market have threatened the existence and stabilization of Tesco’s operations in the UK despite its domination in the industry for over 15 years. The retailer’s success is highly dependent on critical innovation issues represented on the basis of four crucial aspects; marketing, process, product and organizational innovation as discussed below.

Product innovation

Tesco’s move to operationalize its Clubcard services is considered as one of the greatest product innovation. The Tesco Clubcard was incepted in 1995 with the aim of ensuring that the retailer’s customers were offered with bonuses in the form of points for every £ 1 they spent in any of the organization’s stores (Tesco 2014a p.2). A part from enhancing the experiences of shopper, the Clubcard has gone a long way in allowing clients to access discounts each time they undertake the shopping activity. On the other hand, Bold (2014 p.2) explain that Tesco has improved its customers’ experiences through adoption and installation of Wi-Fi that allow them to increase their frequencies of visiting the stores.

Tesco PLC (2014a p.3) explain that while the retailer has moved with the haste required to ensure that it embraces the required product innovations, there is need for adoption of strategies to ensure that the in store experiences for clients are strengthened. For instance, the supermarket could adopt scanning technologies in its perishables and fast moving products to ensure that the products supply section is given timely notifications whenever the supplies are replenished. Tesco (2014a p.2) explain that the use of Broccoli Cam; a digital technology adopted by other stores in the UK to locate empty trays can be of great use in Tesco’s vegetable section. Further, Tesco needs to enhance is in store scan-as-you-go technology which has played a crucial role in allowing clients to shop with high levels of efficiency by doing away with checkout queues.

More importantly, Tesco needs to team up with mobile phone software developers to institute more reality augmented mobile technologies as a way of boosting its customers’ shopping experiences (Pettinger 2014 p.3). According to Tesco (2012 p.1), the fact that a greater part of the world’s population possesses mobile phones should act as an opportunity for physical retailers like Tesco to increase their sales volumes. Use of mobile applications will go a long way in allowing the business venture to maintain its competitive advantage while increasing its levels of sales as well as maximization of inventory.

Process innovation

Tesco boasts of the noteworthy technological innovations it has constantly put in place to ensure that its process operations are highly facilitated. For instance, BT PLC (2013 p.2) explains that Tesco is among the first supermarkets in the UK market to institutionalize self-service initiatives as a way of responding to the pressures and challenges associated with queuing. However, as the business grows to exploit the desired heights of operation, Tesco (2014b p.3) explain that there is need to adoption of innovations aimed at cutting down on queuing periods through the use of smaller self-service checkout technologies. For instance, Tesco could take the option of adopting Slimline tills (Bold 2014 p.2).

Tesco’s operations are considered to be fully physical; customers must access the stores to get what they require. According to Tesco (2014c p.3), the present day shopper calls for swift services in which they can access the products they need at the comfort of their homes. On the other hand, BT PLC (2013 p.6) explain that retailers adopting online shopping systems must also move with the haste required to embrace accompanying technologies to ensure that the products requested by customers reach within the right timeframes and shapes. Therefore, Tesco needs to embrace multiple products tracking software like Mapster (Kim and Min 2015 p.37).

Marketing innovation

There is no doubt that price competition among retail stores in the United Kingdom is at its prime. Therefore, supermarkets need to come up with strategies aimed at giving the right responses to such environments. Bold (2014 p.6) advices that Tesco needs to introduce more price promise initiatives to ensure that loyal customers are offered with automatic compensation vouchers for at relatively higher prices. Tesco PLC (2014) explains that Tesco has gone a milestone to invest £200 million in its perishable’s section as a way of ensuring that the prices of essential products like milk and eggs are kept at the least prices possible to cushion clients from fiscal shocks.

Tesco has seen massive improvements in its brand recognition and marketing initiatives. For instance, the inception of the supermarket’s Clubcard has gone a long way in ensuring that it caters for highly personalized and differentiated offers among its punter segments. While the retailer looks at the Clubcard scheme as one of the unique ways of relating with its clients, there is need for adoption of other distinctive channels of fostering such relationships. For instance, Tesco could get closer to its clients through the use of BT cloud contact technologies based on its ability to give the clients of a business with center services that are highly responsive based on their unique levels of superiority and flexibility (BT PLC 2013 p.3).

Conclusion and Recommendations

There is no doubt that Tesco operates in a business environment characterized with high levels of rivalry and competition based on prices. However, the organization has endeavored to ensure that its customer segments are well maintained by offering exciting shopping experiences. Tesco needs to make the required changes and adapt to the highly dynamic environment of operation through implementation of innovations to survive in the UK economy which is fast growing and highly digitalized. The following recommendations are made to ensure operational flexibility at Tesco:

Tesco’s organizational innovations should be enhanced through adoption of new business strategies and models. While the supermarket has diversified its products and services, it needs to respond to the endless triggers of adopting e-business platforms. Such a move will enable the organization to maintain a competitive edge against key rivals like Sainsbury and Alda.

Tesco needs to increase its online shopping portfolio as a way of catering for the new generation shoppers. ()0 explain that the retailer has only adopted an online platform for its grocery section to enhance its move of creating a strengthened multichannel offer. With the first online grocery launched in 2010, there is need for the supermarket to come up with more of these platforms as a way of increasing its customer experiences.

On the other hand, Tesco needs to move out of the conventional shelf labeling techniques to ensure that the entire store adopts electronic shelf edge labeling. According to ()0, such innovations go a long way in allowing for the retailer to institute periodic alterations in prices with a lot of efficiency.

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