CONSUMER BEHAVIOR 21
ExternalFactor Affecting Consumer Behavior
[Nameof the Writer]
[Nameof the Institution]
ExternalFactor Affecting Consumer BehaviorExecutivSumExexcddsmaryReferences
Theconsumer remains to be the most significant asset of anyorganization. Research has indicated that there are a number offactors that affect consumer’s buying. Every organization keeps aneye on those factors and always tries to minimize them or have a goodimpact on its consumer purchase. These factors can be of any type,social, non-social, cultural and religious factors.In this respect, marketers and producers are forced to conductintensive market research in order to identify the various externalfactors that are likely to influence the decision making process orbuying behaviour of consumers in regard to a particular product. Likeother products, Tesco company sales are also highly affected by theseexternal factors. This paper focuses on the internal and mainly onexternal factors that affect consumer purchase. Later sections of thepaper will focus on personal, cultural and psychological factors ofTesco purchase. Since Tesco consumer’s purchasing behavior is highly affected bysocial and non-social factors, the paper discusses these factors inits later parts.
Executive Summary 2
Cultural Factors 8
Psychological Factors 10
Personal Factors 11
TescoCorporation is one of the most prominent supplier and manufacturer oftop drives and contractors. The company has a diversified presenceacross the globe. Tesco has a product line specially targeted todifferent needs of different types of the customers. Here, we willattempt to investigate the external environment for Tesco PLC, wheredifferent forces present in the external environment would beevaluated.
FactorsAffecting Consumer Behavior
Astandout amongst the most discriminating outer business elements isrivalry. Whether you work in a concentrated industry with a couple ofreal contenders or a substantial industry with numerous contenders,you have to know the opposition. Numerous organizations do focusedexamination to contrast their offerings and costs with those ofcontenders.
Theregular outer components fall into a few classes, includingsocio-investment, legitimate or moral, political and mechanical.Socio-monetary components identify with the qualities, state of mindand concerns of your target clients and their financial capabilitiesto manage the cost of your items. The lawful, moral and politicalsituations for the most part identify with your need to keep businesslaws and to meet the moral or social obligation benchmarks of yourclients and groups. In a few commercial ventures, mechanicaldevelopment drives the requirement for organizations to adjust andcontinually examine for upgrades.
Familyand each individual role in the family impact the consumer behaviorto a large degree. Tesco is also affected by changes in differentsocial patterns. A societal change can induce a large impact on theoverall shopping pattern and business of Tesco. For example, Tesconeeds to differentiate between the actual purchaser and a decisionmaker. In the US and the UK, mostly it is the children who are thedecision makers, whereas the parents are only the purchasers. That isthe reason why Tesco also targets the children in their promotion andadvertising activities. However, to the disadvantage of Tesco, thepromotion and advertising activities were viewed as just publicrelations activities for the moment. The findings tentatively suggestthat a one-off PR campaign for its own stake, in the context ofintense consolidation pressures, will not be positively interpretedby the financial markets. Instead, it was interpreted as a coded pleato re-rate the shares and put the retail multinational in a strongerposition to take part in the international acquisition-drivenconsolidation process, rather than an open and meaningful ongoingdialogue between the financial institutions and Tesco. Tesco`smessage was not being effectively relayed to investors – in part,because analysts were placing excessive weight on the company`s pastinternational (in)experience and this concealed the prospects forpotential earning power from future international investments.
Clubcardis undoubtedly one of Tesco`s crown jewels. True to form, theretailer has gone further than others whose loyalty schemes simplyoffer the customer a reduction of the price paid at the checkout.Analysts have been quick to point out that in such basic form,schemes are easily copied with the results being lower profits forall.
WithClubcard, Tesco (Alexander & Quinn, 2002): Collects data fromeach purchase. The data is then used to tweak the product range onoffer in each store. This encourages customers to return to the storeafter voachers are mailed to them. The coupons are individuallytailored, based on prior purchase behaviour. And that is not all,analysis of the database has enabled many significant developments tooccur. For instance, when data showed that customers were not buyingnappies, further investigation revealed the products were beingpurchased at Boots pharmacies, despite being 20 present higher inprice. The result? Tesco created a baby club offering advice onpregnancy and motherhood. Within two years the company had corneredalmost one-fourth of the mother and baby market.
Tescohas realized that the cases and rates of obesity in the United Statesare extremely high. As a consequence, Tesco intends to offer varioustypes of additive-free ready foods to the American population. It isimperative to note that these types of foods are common in the UK,but are rare in a vast majority of American states. Tesco also wantedto compete with the established retailers such as Wal-Mart and Costcoin foods that were considered healthy. Reducing costs in the supplychain has proved the best way for supermarkets to compete, but thishas usually meant a concentration on stocking canned or frozen foodor that prepared on site from raw ingredients (Dawson, 2001).
Likeelsewhere, the US market is typified by extremes with luxury goods atone end and cheap products at the other. Pressure from both sides hasalmost resulted in the disappearance of the midmarket specialist.This implies that targeting on this sector would proof unsuccessful.But if anyone can succeed, Tesco can. After all, the company hasproved itself unique among UK supermarkets by its ability to attractcustomers from different social groups.
Theforeign policy for Tesco has always been to align its stores to meetthe demands of the locals. However, the organization decided to takea different approach this time where seeks to ensure that otherorganizations dance to its tune. It is imperative to note that thecompany has done its research and considers itself as the leader inthis sector. Tesco`s innovative powers face their sternestexamination yet as the company aims to venture where other Europeansalmost fear to tread – the US grocery market. Some have tried, ofcourse, but the result has invariably been a hasty retreat poorer andwiser for the experience.
Researchhas indicated that a majority of the people in America live inproximity to supermarkets. In this regards, Tesco wants to capitalizeon the benefits of small stores, which offer convenience tocustomers. Although the Tesco stores might be small, it is evidentthat they will be large enough to accommodate a variety of products.The step forward Tesco Fresh and Easy stores will compete with themain outlets in the United States.
Tescois largely concerned with the legal environment as well. Theenergy industryis subject to widespreadpublicpolicy,rules and regulations. These laws and regulations curtailthe explorationand developmentdrillingforoil and gas foreconomic,environmental,and other policy reasons.This will have a negative effect towards the operations of thecompany. This is for reason that customerswouldthen havelimited drillingand other opportunitiesin the oil and gas explorationand production industry.Thelaws and regulations by the federal and state governments also affectthe customers and their properties.Thelawsrelatetoenvironmentalprotection,includinglawsandregulationsgoverningairemissions,waterdischarges,wastemanagement,andworkplacesafety.Theselawsand regulations are complexand change frequently and havealso becomemorestringentovertime.Suchregulationscouldnegativelyimpactthecompany’sfinancialcondition.
Culturalfactors affects consumer buying Example
Tescois involvedin the design, manufacture,and servicedeliveryof technology-based solutions forthe upstream energy industryacross the world.Approximately65.5% of its consolidated sales fromcontinuingoperationsforFY2010weremadeintomarketsoutsidetheUS,includingAsiaPacific,Europe,Africa,and the Middle East.
Operationsoutside the US are potentially subject to a numberof risksand limitations that are not present in domestic operations,including traderestrictions,investmentregulations,governmentalinstability,and other potentially detrimentalgovernmentalpracticesor policies affectingcompanies doingbusinessabroad.OperationsoutsidetheUSarealsosubjecttofluctuationsincurrencyvalues.Thefunctionalcurrencyofeachofthecompany’snon-USoperationsisgenerallythelocalcurrency.
Inaddition,thepoliticalandeconomicchangesinthesecountries,includingciviluprisings,unrests,andterroristattackscouldaffecttherevenueinflowofthecompany.Further,inthesecountriestherecouldbechangesinregulations,restrictionsonrepatriationofearningsorexpropriationofpropertywithoutfaircompensation, governmentalsanctions,and governmentalactions that could result in the deprivationof contractor proprietaryrights.Suchinstabilities could negativelyimpact the revenuegrowthof the company.
Operationalhazards and uninsured risks
Tesco’sproducts are used in hazardous drillingand production applications where an accident or a failureof a product can havecatastrophic consequences.Forexample,an unexpectedfailureof a top driveto rotate a drillstringduringdrillingoperationscould result in the loss of control overa well,leadingtoblowoutandthedischargeofpollutantsintotheenvironment.Damagesarisingfromanoccurrenceatalocationwhereitsproductsareusedhaveinthepastandmayinthefutureresultin the assertionof potentially large claims against the company.
Whilethecompanyattemptstolimititsexposuretosuchrisksthroughcontractswithitscustomers,thesemeasuresmaynotprotectTescoagainstliabilityforcertainkindsofevents,includingblowouts,cratering,explosions,fires,loss of wellcontrol, loss of hole,damaged or lost drillingequipment, damage or loss from inclement weatheror naturaldisasters,and losses resulting from businessinterruption.Thecompany’sinsurancecoveragegenerallyprovidesthatitassumesaportionoftheriskintheformofaself-insuredretention,andmaynotbeadequateinriskcoverageorpolicylimitsto coverall losses or liabilities that the companymayincur.Eventswhich could occur while not insured would lead to huge losses sincethe company would be directly liable for the loss. Products andservices that belonged to Tesco and were not covered by insurancecould lead to huge financial costs, if they caused any damage. Thiswould adversely affect the cash available to the company for normaloperations.
Tesco’sresearch seemed to only focus on Americans’ buying behaviour andignores other variables (e.g. aesthetics, shopping experience, storeatmosphere, value and quality) from which substantial correctiveinvestments had been made in response to complaints associating withthose marketing aspects (Tesco Plc., 2012a). For example, Tesco sellspre-packaged fruits as opposed to American’s expectations ofselecting their own fresh fruits 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 fullyunderstand or appreciate its US customer base. It can be implied thatTesco had treated its US operations as a business extension of itsdomestic UK market. At the time of entry, Tesco may have been mainlyattracted by US’s booming economy and raising property value, whichmay also have encouraged Tesco to opt for GI at the time. Yet, itfailed to account the deeper financial dynamics, which could havesaved Tesco from the financial crisis in 2009 (Arino & Torre,1998). Low customer loyalty and switching costs in the GRM emphasisethe importance of marketing activities. Essentially, the ability tounderstand customer values and attract them is vital in both domesticand international GRM. Accordingly, the contemporary marketing scopefor GRM involves market- and customer-oriented strategies with focuson customer intimacy. Evidently, in international markets, localmanagement are more suitable to make such strategic decisions.Furthermore, employing locals may also save substantial costs ofintensive market research in foreign markets. In both UK andinternational markets, Tesco should also be more proactive in itsmarketing innovations, for instance, in identifying new consumersegments. Tesco could also rejuvenate its internationalisationprocess to ensure sustainable competitive advantage, for example, byincorporating stakeholder-marketing-oriented approach.
Individuallife cycle and his believes and attitude, also do get an impact onthe consumer behavior. Technology is the most sensitive factor thatinfluence the individual factor. Tesco find a new way of combininginternational marketing in their conventional model. As Tescoaccumulates knowledge while internationalizing, important insightsand lessons have been learned from stimuli internal and external tothe company. By reflecting on these different learning experiences,particularly when contextualised within detailed single case-levelresearch, various dimensions of retailer internationalisation haveemerged. In spatial terms, it appears that Tesco concentrated theirefforts with more experienced on dissimilar markets in key regions orclusters aiming to achieve a market leading position. One explanationfor this activity may be that as Tesco accumulated more experience,they recognized the importance of local and regional scale economiesfor achieving profitability. This implies that Tesco concentratedtheir efforts in gaining market experience, rather than rushing tothe opportunities that opened up. According to Tesco, theattractiveness of a particular market matters, just as the potentialof the sellers present does, and they both affect market selectiondecisions (Dawson, 2001). It is therefore evident that the method ofentering into a new market and the market selected were knotted inthe view of Tesco. The market selection decisions chosen by Tescoreflected this behavior, which was viewed as being driven byopportunity. In business, sudden and unexpected opportunities maycome up, and this has been a major lesson for Tesco. The company mustbe ready to take advantage of such opportunities. In order to succeedin the international operations, Tesco had to realize that theapproach adopted for dealing with unexpected events such as mistakesand opportunities was significant. The previsions operations of Tescohave proved that acquisitions are also a critical base for learning.Tesco has used small scale acquisitions when there is marketuncertainty due to political and economic shakeups. Theseacquisitions have been vital in reducing the capital and humanresources costs, as well as understanding the local market. Notableis the fact that the acquisitions that Tesco was involved in aided inoffering experimental chances of the marketplace. According to thecase evidence, the readiness to experiment and inquire feedback onthe results from local store managers and expatriate managers is asignificant lesson (Clarke & Rimmer, 1997).
Thecase of Tesco also indicates that the internationalisation process ofretail multinationals is not always a progressive and straightforwardprocess (Alexander and Quinn, 2002 Burt et al., 2002, 2003 Mellahiet al., 2002). The findings incorporate new views into the depthnessof the international retail divestment process. It seems that Tescohad gained rather valuable lessons from their own divestmentexperiences, while other retailers` international market stepped backprovided an opportunity to observe overt behaviour. From the Catteauexperience, Tesco became locked into an inappropriate acquisitionthrough various acquisition-related contractual (earn-out) clauseswith Catteau`s management which in turn prohibited a swift and timelyexit. A lack of experience as an internationalist was visible in theRepublic of Ireland when faced with the task rejuvenating,re-branding and re-launching relatively weak store operations aswell. While it is true that such operations offer undeniableopportunities to improve the operations, Tesco later recognised that,in reality, these "turnaround" acquisitions weredisproportionately demanding of critical management`s time andresources.
Apartfrom underestimating the level of effort required for these"turnaround" operations, Tesco painfully learned fromemploying an inappropriate corporate model in the French market.According to Alexander and Myers (2000), the gaps between centralizedand decentralized operating items affects the international procedureof learning. Tesco viewed their early international moves abroad as abusiness extension and a redirection of free cash flow – effectivelylimiting organisational learning opportunities. From the mid-1990sonwards however, publicly-listed retailers had come under intensepressure from their shareholders to demonstrate where and how valuecould be added to the international operations. This had a catalysingeffect. A lack of clarity in this respect would have severelyundermined the strategic integrity of the retail multinationalcompany, as well as affect the cost of capital by placingrestrictions (Palmer, 2002). Tesco were initially unclear and lessconfident about the most appropriate corporate model with which toproceed. Effectively, Tesco passed through a number of iterations oforganisational structure before finally adopting a hybrid structurebetween centralised and decentralised operations, before ultimatelyadopting an aggressively industrial model. Perhaps more importantly,the initial experiences of Tesco`s control capabilities have provedthat it is impossible to successfully adopt both corporate modelssimultaneously.
Whatis clear from an analysis of the findings regarding learningstructures and processes is that an organisational-led learningmultinational goes beyond the "official corporate line"that executives may use to justify minority entry positions orfailures in new markets and deliberately establishes systematicinternal learning processes to support international learning. Withinthe context of international retail expansion in Europe, Alexander(1997) suggested that retailers have lacked systematic internalprocesses to support their decisions with respect to appropriate hostmarket strategies. The present study would largely support hisfindings at least as far as the development of internal learningstructures is concerned. It is proposed that innovations andcontinuous improvements are more successfully attained by theproactive formalisation and development of internal learningmechanisms. The formalisation and development processes for learningwere seemingly rather fortuitous insofar as market expansion intoEastern Europe coincided with their ambition to broaden the non-foodmerchandise in the UK. The impetus was then on the diffusion of whatthe company had learned from developing a new format whichaccommodated non-food items in the overseas markets.
Byconsidering Tesco`s competitive behavioural dynamics within thecontext of the strategic international moves it was apparent thatretail multinationals are frequently engaged in exchange of threatsat the corporate spatial level. At the corporate level, learningtakes place at a much faster pace, often precipitated by a catalysingevent in the retail environment which could fundamentally alter thestrategic authority of the company and ultimately investors`evaluation of the company`s worth. An illustration of a catalysingevent was Wal-Mart`s entry into Germany which dramatically changedthe status quo and the structural competitive dynamics for Europeanretailers and Tesco in particular (see Palmer, 2000 Arnold andFernie, 2000 Burt and Sparks, 2001 Fernie and Arnold, 2002). At thelocal spatial level, intense competitive rivalry for securingregional market share also existed. At this interface, retailerslearned from each other, particularly with respect to competitiveresponses from in-store and supply-chain initiatives. It is proposedthat much of this learning takes place as the expansion unfolds andthe competitive situation evolves. This learning-by-doing activityindicates that learning at the local spatial level will be a gradualand reiterative process. Experience has taught Tesco to adjust to thederegulatory/regulatory related spatial pressures, but also covertlyshape rather than respond to regulatory frameworks to obtain theirdesired spatial outcomes in international markets. A regulatorylesson, particularly in emerging markets, was the importance ofinvestment in developing and maintaining good politicalrelationships, while embarking on PR campaigns to facilitate theexpansion efforts in new markets among stakeholders (Chang, 1995).
Itis evident from the findings that from the mid-1990s onwards,publicly-listed retailers have come under intense pressure from theirshareholders to internationalise. On the institutional front, thefindings appear to suggest that shareholders insist that retailmultinationals deliver not just instant sales growth from theirforeign ventures but also substantial cross-border synergies and thusmore profits. By definition, these synergies can only flow through anindustrial or "global category killer" model (see Wrigley,2002). It is concluded, therefore, that those employing a federalstructure model will realise the economic benefits ofinternationalisation immediately, while the industrially aggressivemultinationals will take longer to realise tangible cross-bordereconomies, although such synergies will be higher in the long-term.Higher integration risks therefore exist and serious miscalculationsor mistakes may weaken the retail multinational`s confidence andgenerate negative press commentary which, in turn, may eventuallyundermine the strategic credibility of the expansion effortselsewhere (Arnold,2002).
Alack of experience and of familiarity with conditions in foreignmarkets created considerable strain on Tesco`s human capitalresources. This situation is somewhat different from the largefast-moving consumer goods (fmcg) manufacturers such as Procter andGamble and Unilever where the management ethos has grown up as afunction, or by virtue of being international companies and overseasposts became important in the long run rather than a stepping stoneback to a more senior position at home. Within Tesco, theinternational division was highly affected by a tradition of a`stepping stone` to a higher position in the home market. Thus, whileTesco invested large amounts of financial capital in theirinternational operations, management underestimated the requirementof human resources. The established international retail literaturedoes not emphasise the importance of the human capital issue in theimplementation of an international retail strategy. According torecent research findings, the retail internationalization processleaves a huge gap of financial human capital. This research findingsare, however, an additional to previous findings in regard to thesame aspect. In the case of Tesco, it was evident that there wasshortage of human resources and an excess of financial capitalemployed by the company. This was aimed at ensuring that the companycompetes successfully in the international market. The disparityexplained above led to increased pressure for the company to recruitmore people. Lack of enough human resources leads a company torecruiting more than enough managers where the firm reduces thedemands of the managers significantly (Carson & Gronhaug, 2001).
Thefindings of this study also highlight some important lessonsconcerning international marketing and communication-related issues.The findings suggest that at both the investor-retailer and theconsumer-retailer interface, relationships were often strained due toineffectual and disjointed marketing communications efforts.Surprisingly there was a conspicuous lack of action addressingnegative rumours and this ineffectual and disjointed communicationundermined both investor and consumer confidence. As a result, Tescohas difficulties in trying to rebuild its credibility. It was alsoextremely hard for the company to influence and convince investors,as well as the seeking licenses from the government for furtherinvestments. According to the findings, it is evident that customersare easily swayed by changes in aspects such as pricing and storearrangements during the integration process (Shackleton, 1996a, b,1998). It is also evident that multinational companies may excludeclients who seem to deter the achievement of post integration plansand goals. This study has indicated that Tesco adopted strategies,which were aimed at reducing the differences in prices of the marketsthey sourced their products during the internationalization process.The findings suggest that the financial institutions and otherinvestors alleged that there were global-scale merits and demerits.Even under duress from the financial institutions, Tesco assumptionson global scale were similar to both Jackson`s (1976) and Williams`s(1992) studies who felt that local know-how could alleviatedeficiencies of a lack of scale and any other competitivesourcing-related disadvantages. However, it should be noted thatinvestment bankers may be over optimistic in estimating the powerasymmetries, while management may play down the scale of thisactivity for disclosure reasons. Therefore, in attempting toascertain the reality, it is possible to assume that the de factopower rests somewhere between these standpoints. It is concluded thatit is equally important to have scale at the local and global level(Burt & Dawson, 2003).
Thedomestic operations of Tesco, as well as the other internationaloperations could generate finances for the company while new marketscould bear the various organizational costs. According to thefindings of this study, it is increasingly becoming evident that bothlocal and global retailer and supplier partnerships were significantfor Tesco. This was for the reason that Tesco was operating invarying markets with different logistics and distribution aspects.According to the findings of the study, the producers had alignedtheir organizational structures to offer immense support for theleading brands. The retail internationalization of Tesco has hadvarious effects on the retail and supply dynamics. For instance, theprocess has strengthened the retailer-supplier relationships in somecircumstances and weakened or broke them in some instances.
Theaspect of international investment has been on the rise since the1990s. The process of internationalization has specifically grown andgained pace significantly. As a result, it is vital to note thevarious experiences that retailers have gained from this process. Themain objective of this paper was to critically analyze theexperiences of a single company in the process ofinternationalization. However, it is believed that the findings ofthe study will have a trickle effect on helping other companies andbusiness entities to understand this phenomena clearly. Learningprocess, as it has been discussed in the paper, indicates that thereis still more literature in regard to the process retailinternationalization. The preceding case study of Tesco illustrates anumber of different dimensions of the company`s internationalexperience. It is evident from the findings of the study that thereare numerous lessons that have been learned by Tesco Company in itsinternationalization process. The company has learned that art ofadaptability, as well as how to respond to emergencies. The shocksthat the company experienced in the new market ensured that it wasextremely watchful and also learnt the art of experimenting byenacting cheap acquisitions. The extent to which Tesco could or wouldapply the lessons learned in future expansion, is largely dependenton the ability and the capacity of the company to identify thesources of learning in various contexts. It is imperative to pointout that there are some instances where the company has beenidentified as having not learned from experience (Barwise, 1997).
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