DUE MONDAY 2/10/2020
Case studies are an important learning strategy in business classes as they provide an opportunity for you to critically analyze events that have taken place in real-life businesses. This develops your critical thinking and research skills as you research the competition and industry in which your business resides with an end goal of formulating a recommendation for the challenges faced by the company.
Select one of the three case studies listed below, which can be found in your textbook. Evaluate the case of your choice, and respond to each of the questions below using both theory and practical managerial thinking as well as supporting research.
Option 1: Microsoft (pp. 94–95)
- Evaluate Microsoft’s product and marketing evolution over the years. What has the company done well, and where did it falter?
- Through the application of a political, economic, social, and technological (PEST) analysis, what are the current environmental factors impacting Microsoft?
- Who are the top three competitors of Microsoft, and what are their advantages/disadvantages with respect to satisfying the value proposition of their customers?
- Evaluate Microsoft’s recent expansions into areas such as search engines and smartphones. Do you think these are good areas of growth for Microsoft with a focus on customer value, satisfaction, and loyalty?
Option 2: Tesco (pp.154–155)
- Evaluate Tesco brand’s product and marketing evolution over the years. What’s most important to the Tesco brand with respect to changes in how consumers shop for grocery products?
- Through the application of a PEST analysis, what are the current environmental factors impacting Tesco?
- Who are the top three competitors of Tesco, and what are their advantages/disadvantages with respect to satisfying the value proposition of their customers?
- How will Tesco grow without losing focus on its core customer as they look to maintain customer value, satisfaction, and loyalty?
Option 3: IKEA (pp.185–186)
- Evaluate IKEA’s business model concept and how it has evolved through the years. It has been stated that they have essentially changed the way people shop for furniture. What are the pros and cons of this type of strategy for IKEA?
- Through the application of a PEST analysis, what are the current environmental factors impacting IKEA?
- Who are the top three competitors of IKEA, and what are their advantages/disadvantages with respect to satisfying the value proposition of their customers?
- As IKEA looks to maintain markets in the United States as well as expand to areas such as Asia and India, what would you recommend to maintain customer value, satisfaction, and loyalty?
In formatting your case analysis, do not use the question-and-answer format; instead, use an essay format with subheadings. Your APA-formatted case study should be a minimum of 500 words in length (not counting the title and reference pages). You are required to use a minimum of three peer-reviewed, academic sources that are no more than 5 years old (one may be your textbook). All sources used, including the textbook, must be referenced; paraphrased material must have accompanying in-text citations.
Marketing Excellence Tesco
Tesco hasn’t always had a reputation as a customer-friendly retailer. Back in the early 1980s, it was a UK grocery store chain that suffered from a reputation for “piling it high and selling it cheap” and trailed behind Sainsbury’s, a more upscale UK retailer. Only when the company came under the leadership of Ian MacLaurin did it began to reinvent itself as a consumer-friendly brand.
In 1983, Tesco began the long process of updating its stores and improving its product selection. Over the next decade, it took on Sainsbury’s head on with brighter stores, higher-quality products, affordable prices, and more locations. Between 1990 and 1992, Tesco launched 114 separate initiatives to improve the quality of its stores, including adding baby-changing rooms, stocking specialty items such as French free-range chickens, and introducing a value-priced line of products.
The company also developed a well-received marketing campaign titled “Every Little Helps” that helped communicate these improvements and enhance its brand image in the public eye. The campaign included 20 ads, each focused on a different aspect of its new approach: “Doing right by the customer.” As a result, by 1995, Tesco had attracted 1.3 million new customers and its market share surpassed Sainsbury’s for the first time, making it the new market leader.
In 1996, Terry Leahy took over as CEO. During his tenure, Tesco grew from the third-largest UK supermarket chain, with $7 billion in sales, to the third-largest retailer in the world, with more than $100 billion in sales.
Under Leahy’s guidance, Tesco introduced its Clubcard frequent-shopper program, an initiative that helped make the company a world-class example of how to build lasting relationships with customers. The Clubcard not only offered discounts and special offers tailored to individual shoppers but also acted as a powerful data-gathering tool, enabling Tesco to understand customers’ shopping patterns and preferences better than any competitor.
Using Clubcard data, Tesco created a unique “DNA profile” for each customer based on shopping habits. It classified each product a customer purchased on as many as 40 dimensions, including price, size, brand, eco-friendliness, convenience, and healthiness. Based on these profiles, Tesco shoppers received one of 4 million variations of the quarterly Clubcard statement, containing targeted special offers and other promotions. The company also installed kiosks in its stores where Clubcard shoppers could get customized coupons.
The Clubcard data helped Tesco run its business more efficiently too. Tracking Clubcard purchases uncovered each product’s price elasticity and helped set promotional schedules, which saved Tesco more than $500 million. Tesco used its customer data to pick the range of products and type of merchandising for each store and even to choose the location of new stores. Within 15 months of introduction, more than 8 million Clubcards had been issued, of which 5 million were used regularly.
Next, Tesco expanded its powerful private-label program with three distinctive brands in various price ranges; “Finest” offered the best-quality item at the highest price, “Mid-range” targeted the middle range, and the “Value” product line offered the best bargain prices available. Through this simple system, consumers came to expect a certain quality at variable prices.
By 1999, the company’s market share in the United Kingdom rose to 15 percent, and it was voted Britain’s most admired company. In the following years, Tesco continued to apply its winning formula of using private labels and customer data to dominate the British retail landscape.
It also moved further into “big-box” retailing of general merchandise, or nonfood products. This strategic growth plan not only provided additional convenience to consumers who preferred shopping under one roof but also improved overall profitability. In 2003, the average profit margin for nonfood products was 9 percent versus 5 percent for food products, and nearly 20 percent of Tesco’s revenues came from nonfood items. That year, the company sold more CDs than Virgin Megastores, and its apparel line, Cherokee, was the fastest-growing brand in the United Kingdom. By 2005, the company had a 35 percent share of supermarket spending in the United Kingdom, almost twice that of its nearest competitor, and a 14 percent share of total retail sales.
Tesco’s stores are now categorized into seven different formats, depending on where they are located and whom they target: Tesco Extra, Tesco Superstores, Tesco Metro, Tesco Express, One Stop, Tesco Homeplus, and Dobbies. Tesco Extra is the largest and offers a wide range of food and nonfood products and services like optical centers. Tesco Superstores are standard large supermarkets that offer some nonfood products. Tesco Express stores are neighborhood convenience stores that stock mostly higher-margin products and everyday essentials.
Tesco continues to diversify its product and service offerings to reach more consumers. The company partnered with existing telecoms to create Tesco Mobile and Tesco Home Phone and launched Tesco Broadband to provide Internet access to homes and businesses. In addition, it now offers insurance policies, dental plans, music downloads, and financial services. In 2008, Tesco joined forces with the Royal Bank of Scotland to create a banking division, Tesco Bank.
Its aggressive expansion into nonfood items was a departure from Tesco’s core focus on groceries. That, and its determination to expand in Asia, India, and the United States, led to troubled times during the recession and a 20 percent slide in its stock price in 2010. Quality within the supermarkets slipped significantly, and customers were turned off by the abundance of nonfood items in their stores during a poor economy. Tim Green, retail analyst at Brewin Dolphin Ltd., explained, “Tesco got a little bit distracted by thinking of China, the U.S., wider Asia, Central Europe, Tesco Bank, Tesco Telephony. But that is not acceptable, because U.K. food is the main profit generator.”
In 2011, Tesco came under the leadership of a new CEO, Philip Clarke, who set out to turn the company around immediately and revive its focus on supermarkets and customer service. First, he cut back on expansion programs, pulling out of Japan completely and slowing growth in the United States, India, and the rest of Europe. Next, he announced a major overhaul of the supermarket chains. Tesco hired and trained tens of thousands of employees who were dedicated to serving customers in the produce and meat departments, which had recently been deprived of sufficient staff.
The company relaunched its Tesco Value brand as Everyday Value and invested significantly to improve the quality and appearance of hundreds of Tesco products without raising the price. It renovated many of its brick-and-mortar stores to give them a homier feeling through better lighting, cleaner shelves, new fixtures and signs, warmer colors, and more spacious produce areas. Tony Hoggett, managing director of Tesco Superstores, explained how small things added up to make a big difference. “It really isn’t rocket science. We’ve improved the look and feel of our stores to make them a much warmer, friendlier place for our customers to shop in.”
In 2012, Tesco’s revenues topped $108 billion and before-tax profits reached $5.7 billion. Today, Tesco is the largest British retailer measured by both sales and market share (31 percent) and the third-biggest company in the world after Walmart and Carrefour.
Sources: Tesco Annual Report 2012; Richard Fletcher, “Leahy Shrugs Off Talk of a ‘Brain Drain,’” Sunday Times (London), January 29, 2006; Elizabeth Rigby, “Prosperous Tesco Takes Retailing to a New Level,” Financial Times, September 21, 2005, p. 23; Hamish Pringle and Marjorie Thompson, Brand Spirit (New York: John Wiley & Sons, 1999); Paul Sonne, “Tesco Loses Its Appetite for Growth,” Wall Street Journal, November 10, 2012, B.3; Renee Schultes, “U.K. Grocers Locked in Coupon Warfare,” Wall Street Journal, August 29, 2012; Harry Wallop, “Tesco Ditches 1bn Value Range,” BST, April 4, 2012; Peter Evans, “Britain’s Tesco Tries Out New Retail Recipe,” Wall Street Journal, July 9, 2012, B.8; Julia Werdigier, “Tesco to Invest Heavily in a Domestic Revival,” New York Times, April 19, 2012; Terry Leahy, “Lessons from a Retail Veteran,” Wall Street Journal, June 27, 2012.
Marketing Excellence Microsoft
Microsoft is the world’s most successful software company. Bill Gates and Paul Allen founded it in 1975 with the original mission of having “a computer on every desk and in every home, running Microsoft software.” Today, Microsoft is the fifth most valuable company in the world and has a brand value of $61.2 billion.
In the early 1980s, Microsoft developed the DOS operating system for IBM computers. The company leveraged this initial success to sell software to other manufacturers, quickly becoming a major player in the industry. Initial advertising efforts communicated the company’s range of products, from DOS to Excel and Windows, and unified them under the Microsoft brand.
Microsoft went public in 1986 and grew tremendously over the next decade as the Windows operating system and Microsoft Office took off. In 1990, Microsoft launched Windows 3.0, a completely revamped version of its operating system, including applications like File Manager and Program Manager that are still used today. It was an instant success; Microsoft sold more than 10 million copies of the software within two years, a phenomenal accomplishment in those days. In addition, Windows 3.0 became the first operating system to be preinstalled on certain PCs, marking another major milestone for the industry and for Microsoft.
Throughout the 1990s, Microsoft’s communication efforts convinced businesses not only that its software was the best choice but also that it should be upgraded frequently. Microsoft spent millions in magazine advertising and received endorsements from the top computer magazines in the industry, making Microsoft Windows and Office the must-have software of its time. The 1998 slogan “Where Do You Want to Go Today?” promoted not individual Microsoft products like Windows 98 but rather the company itself, communicating that Microsoft could help empower companies and consumers alike.
During the mid-1990s, Microsoft entered the notorious “browser wars” as companies struggled to find their place during the Internet boom. Realizing what a good product Netscape had in its 1995 Navigator browser, Microsoft launched its own, Internet Explorer later the same year. By 1997, Explorer had grabbed 18 percent of the market.
Over the next five years, Microsoft took three major steps to overtake Netscape. First, it bundled Internet Explorer with its Office product, which included Excel, Word, and PowerPoint. This meant that consumers who wanted MS Office automatically became Internet Explorer users as well. Second, Microsoft partnered with AOL, which opened the doors to 5 million new consumers almost overnight. Third, Microsoft used its deep pockets to ensure that Internet Explorer was available free, essentially “cutting off Netscape’s air supply.” By 2002, Netscape’s market share had fallen to a meek 4 percent.
Microsoft’s fight to become the browser leader was not without controversy; some perceived that the company was monopolizing the industry. As a result, Microsoft faced antitrust charges in 1998 and numerous lawsuits based on its marketing tactics. Charges aside, the company’s stock took off, peaking in 1999 at $60 per share. Microsoft continued to release new products, including Windows 2000 in 2000 and Windows XP in 2001. It also launched Xbox in 2001, marking its entrance into the multibillion-dollar gaming industry.
Over the next several years, Microsoft’s stock price tumbled by more than $40 a share as consumers waited for the next operating system to be released. During this time, Apple made a strong comeback with consumer-friendly products like Mac computers, iPods, iPhones, and iTunes. Apple also launched a successful marketing campaign titled “Get a Mac” that featured a smart, creative, easygoing Mac character alongside a geeky, virus-prone, uptight PC character. Apple’s campaign successfully converted many consumers and tarnished Microsoft’s brand image.
In 2007, Microsoft launched the Vista operating system to great expectations; however, it was plagued by bugs and problems and the company’s stock and image continued to slide, helped by the worldwide recession of 2008–2009. In response, Microsoft created a campaign titled “Windows. Life Without Walls” to help turn its image around. Its new message—that computers with Microsoft software were more cost-effective than the competition—resonated well in the recession. Microsoft also launched a series of commercials that boasted, “I’m a PC” and featured a wide variety of individuals who prided themselves on being PC owners, hoping to improve employee morale and customer loyalty.
In 2009, Microsoft launched Windows 7, an improved operating system, with the campaign “Windows 7 was my idea.” Four years later, it was operating more than 30 stores like Apple’s across the United States and Canada. Jonathan Adashek, general manager of Communications Strategy, explained, “We’ve welcomed more than 15 million customers and counting so far, and have learned a lot from them. Having this direct connection to our customers has really helped us better understand their tech needs.” Travis Walter, general manager of Microsoft’s International and New Store Formats, agreed, “In person, you get a very different experience and it’s one we’ve been very delighted to provide. When you see our technology in person—when you can touch and feel it—a light goes off.”
After the recession came to an end, Microsoft’s image and stock started to recover, thanks to the success of its retail stores, effective marketing, and a wide range of new product launches. Microsoft went after Google’s dominant position in the search marketplace, for instance, with a search engine called Bing, and it entered the growing mobile industry with its Windows Phone mobile operating system. The company’s 2011 expansion into smart phones surprised many analysts, but Microsoft hoped the smart phone and Windows Phone mobile OS would forge a strong connection with its consumers around the world. It continued its innovation momentum in 2012 with the launch of Windows 8, Windows 8 Phone, and a computer called Surface Tablet. The tablet impressed consumers with a detachable keyboard that also served as its protective cover.
Today, Microsoft offers a wide range of software, mobile, and home entertainment products. Its most profitable products continue to be Microsoft Windows and Microsoft Office, which bring in approximately 80 percent of its $86 billion in annual revenue.
Sources: Interbrand, “2014 Best Global Brands Report,” www.interbrand.com; Stuart Elliot, “Microsoft Takes a User-Friendly Approach to Selling Its Image in a New Global Campaign,” New YorkTimes, November 11, 1994; “Todd Bishop, “The Rest of the Motto,” Seattle Post Intelligencer, September 23, 2004; Devin Leonard, “Hey PC, Who Taught You to Fight Back?” New York Times, August 30, 2009; Suzanne Vranica and Robert A. Guth, “Microsoft Enlists Jerry Seinfeld in Its Ad Battle Against Apple,” Wall Street Journal, August 21, 2008, p. A1; Stuart Elliott, “Echoing the Campaign of aRival, Microsoft Aims to Redefine ‘I’m a PC,’” New York Times, September 18, 2008, p. C4; John Furguson, “From Cola Wars to Computer Wars—Microsoft Misses Again,” BN Branding, April 4, 2009; Microsoft press release, “Microsoft Retail Stores Maturation: Going Behind the Scenes,” November 8, 2012.
Marketing Excellence IKEA
IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad who sold pens, Christmas cards, and seeds out of a shed on his family’s farm. The name IKEA was derived from Kamprad’s initials (IK) and the first letters of the Elmtaryd farm and the village of Agunnaryd where he grew up (EA). Over the years, the company grew into a retail titan in home furnishings and a global cultural phenomenon, inspiring BusinessWeek to call it a “one-stop sanctuary for coolness” and “the quintessential cult brand.”
IKEA inspires remarkable levels of interest and devotion from its customers. Each year more than 650 million visitors walk through its stores all over the world. Most need to drive 50 miles round-trip but happily make the effort in order to experience IKEA’s unique value proposition: leading-edge design and functional home furnishings at extremely low prices.
IKEA’s Scandinavian-designed products are well made and appeal to the masses. To stay relevant and fashionable, the company replaces approximately one-third of its product lines each year. Most have Swedish names, such as HEKTAR lamps, BILLY bookcases, and LACK side tables. Kamprad, who was dyslexic, believed it was easier to remember product names rather than codes or numbers.
Besides featuring fashionable and good-quality products, IKEA stands out in the industry because of its bargain prices. The company’s vision is and always has been “to create a better everyday life for the many people.” As Kamprad said, “People have very thin wallets. We should take care of their interests.” A high percentage of its customers are college students and families with children.
IKEA continuously seeks out new ways to run its businesses more efficiently and pass those cost savings on to the customer. In fact, it reduces prices across its products by 1 percent to 3 percent annually. How can it do so? For starters, IKEA engages the consumer on many levels, including having the customer do all the shopping, shipping, and assembly.
IKEA’s floor plan is designed in a winding, one-way format featuring different inspirational room settings, so consumers experience the entire store. Next, they can grab a shopping cart, pay for the items, visit the warehouse, and pick up their purchases in flat boxes. Consumers load the items in their car, take them home, and completely assemble the products themselves. This strategy makes storage and transportation easier and cheaper for the store.
IKEA has also implemented several company-wide strategies to keep operational costs low. The company buys in bulk, controls the supply chain, uses lighter packaging materials, and saves on electricity through solar panels, low-wattage light bulbs, and energy from its own wind farms in six different countries. Its stores are located a good distance from most city centers, which helps keep land costs down and taxes low.
When IKEA develops new products, its designers and product developers start with a low price tag first and then work with one of their 1,350 suppliers around the world to develop the product within that price range. Designs are efficient, and waste is kept to a minimum. Most stores resemble a large box with few windows and doors and are painted bright yellow and blue—Sweden’s national colors.
Many of IKEA’s products are sold uniformly throughout the world, but the company also caters to local and regional tastes. For example, stores in China stock specific items for each New Year. During the Chinese Year of the Rooster, IKEA stocked 250,000 plastic placemats with rooster themes, which quickly sold out. When employees realized U.S. shoppers were buying vases as drinking glasses because they considered IKEA’s regular glasses too small, the company developed larger glasses for the U.S. market. After IKEA managers visited European and U.S. consumers in their homes, they learned that Europeans generally hang their clothes, whereas U.S. shoppers prefer to store them folded. As a result, IKEA designed wardrobes for the U.S. market with deeper drawers.
Showrooms in each country or region vary as well. For example, managers learned that many U.S. consumers thought IKEA sold only European-size beds. Beds are very important to U.S. consumers, so IKEA quickly changed its U.S. showrooms to feature king beds and a wide range of styles. After visiting Hispanic households in California, IKEA added more seating and dining space to its California stores, as well as brighter color palettes and more picture frames on the showroom walls. In China, IKEA set up its showrooms in small spaces to accurately reflect the small size of apartments in that country.
As the company expands globally, it is learning that attitudes towards its core DIY (do it yourself) delivery and assembly business model vary. In China, for example, consumers do not want to assemble products themselves and will pay a significant amount for home delivery and assembly. As a result, IKEA has added these services, and sales in Asia have taken off. The company plans to implement the same strategy in India, where DIY is also less common.
IKEA is known for its quirky marketing campaigns, which help generate excitement and awareness of its stores and brand. It ran a campaign inviting customers to be the “Ambassador of Kul” (Swedish for “fun”), but in order to collect the prize, the contestants had to live in an IKEA store for three full days before it opened, which they happily did.
Thousands of people will line up for a chance to win prizes and IKEA furniture. In Sweden, IKEA launched a Facebook page for the manager of a new store. Anyone who could tag his or her name to an IKEA product on the profile page won that item. The promotion generated thousands of tags.
IKEA has evolved into the largest furniture retailer in the world, with approximately 350 stores in 43 countries and revenues topping €27.9 billion, or $36 billion, in 2013. The majority of sales still come from Europe, but the company has aggressive plans to expand the $11 billion brand further into Asia, India, and the United States.
Sources: Kerry Capell, “IKEA: How the Swedish Retailer Became a Global Cult Brand,” BusinessWeek, November 14, 2005, p. 96; “Need a Home to Go with That Sofa?,” BusinessWeek, November 14, 2005, p. 106; Ellen Ruppel Shell, “Buy to Last,” Atlantic, July/August 2009; Jon Henley, “Do You Speak IKEA?,” Guardian, February 4, 2008; “Innovative Retailers: IKEA,” Retailinsider.com/PCMS, March 29, 2012; Jenna Goudreau, “How IKEA Leveraged the Art of Listening to Global Dominance,” Forbes, January 30, 2013; IKEA,