Just before his dismissal, ex Tesco Chief Executive Officer Philip Clarke was drilled over Tescos’ profit reduction the second year running.
He gave three reasons for the reduction in Tesco’s profit:
Hearing excuses for poor performance from the CEO of Tesco was a bit disappointing because for years Tesco symbolised retail excellence.
In his book “The One Thing You Need To Know” author Marcus Buckingham said when he interviewed former CEO Sir Terry Leahy, he asked him what was the secret behind Tesco’s transformation into a global retail power house.
Sir Terry responded that when he became the CEO of Tesco, the first thing he did was to ask the question ‘who do we serve?’
When you found the answer to that question, he went about restructuring Tesco to serve Tesco’s target market.
One of the things he did when he discovered that Tesco’s core audience was the “Ordinary Joe” was to increase the number of checkout counters in every Tesco store.
When asked the significance of increasing checkout counters.
He responded that Tesco customers did not want to be patronised, they wanted to be shown respect.
And what other better way of showing respect for someone than showing respect for their time.
He understood that the typical Tesco customer at the time was the person who might want to quickly sneak out of his office at lunch time to grab a quick bite.
His customers did not want to spend half an hour of his lunch break in a supermarket queue.
Recently Next profit overtook Marks & Spencer for the first time in its 32 years history.
Next’s success stemmed from its Home Directory and online division.
But what is really responsible for Nexts’ success according to retail experts is its knowledge of its customers.
Next according to a fashion consultant know its customers better than any other fashion retailer in the UK.
What is the connection between Tesco and NEXT success and increasing retail sales?
Tesco and Next success were the result of extensive customer knowledge prompting the retailers to deliberately engineer their business model to appeal to their target audience.
When Tesco answered the question ‘who do we serve?’ it redesigned it stores to appeal directly to those people.
Next knowing the majority of its customers are “credit customers” introduced its Next Directory Card to appeal to them and make it easy for them to buy from Next.
There is a very important lesson all retailers can learn from Tesco and Next success.
The lesson is this; increasing retail sales requires retailers answering the following three questions:
The myth in retail is that customers only respond to price reduction.
This is a very wrong misconception that is responsible for the failure of many retail ventures.
Mr. Clarke moaned about the fact that low price retailers Aldi and Lidl and high end retailer Waitrose were stealing customers from Tesco.
If price was the only reason Tesco customers were deserting her for Aldi and Lidl, they would have gone to poundland or 99p stores.
Tesco customers who desert Tesco for Aldi and Lidl did not do so because of the price but because Aldi and Lidl sell low price merchandise made in Germany.
It is the “made in Germany” they are buying.
And Germans are renowned for quality products.
Those who desert Tesco for Waitrose did so to buy the experience of buying in Waitrose.
Customers do not go into a retail store to buy the merchandise neither do they go there because of price.
They go into retail stores to buy the experience of buying the merchandise.
As a retailer, you will not know the experience your customers seek from your store if you cannot answer the below three questions.
You cannot increase your store sales by starting with what you want to sell to your customers.
The starting point always has to be asking the questions:
Who you want to sell to?
What you are going to sell to them?
And finally how you are going to sell it to them?
If Mr. Clarke had started with the question ‘who do we serve’, the question his predecessor started with, Tesco would have been able to retain its leadership position in the retail industry.
And he would still have a job…Marketing 101 lesson for other retail CEOs.
Remember: shoppers go into your retail store to buy experience not your crappy made in China merchandise.
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