Impact of advertising on retail brands: Tesco case study, Part 1

The turnaround of Tesco

The radical transformation of Tesco's fortunes from slumbering number two to Britain's largest supermarket chain, has been well documented in the UK.

Between 1990 and 1999, Tesco's turnover increased from 8 billion to 17 billion Pounds and its share rose from 9.1% to 15.4%, overtaking Sainsbury's to become market leader in 1995. (Institute of Grocery Distribution, Grocery Market Shares: Dec 1989 to June 1999.)

Whilst loyalty had risen in recent years, Tesco's ability to attract new shoppers was been essential to its success. Just over 2 million more households chose to shop at Tesco over this 9 year period. (TGI based on female housewives.)

But what convinced them to shop at Tesco?

Tesco did in fact make radical structural changes to its operation. However, a fundamental turnaround in Tesco's brand image was key in making these changes meaningful to consumers and other stakeholders alike.

This was in sharp contrast to Tesco's key competitor, Sainsbury's, whose image declined over the same period.

The transformation of Tesco's brand image

In the early 90's Tesco still had its unappealing reputation of ‘pile it high, sell it cheap and watch it fly.' A legacy of its shrewd and bargain driven founder Jack Cohen.

Incredulity would have met the suggestion that people might buy gourmet meals and fine French wines from Tesco or entrust this brand with their savings. From a company with declining credibility, today Tesco is one of the UK's most trusted brands, securing significant gains across a range of image criteria.

The role of advertising in transforming Tesco's brand image

Tesco's brief to its ad agency Lowe Lintas in 1989 was: “We are looking to smash away preconceptions about our business with advertising to develop an image campaign which will lift us out of the mould in our particular sector.”

Over time, advertising had been a consistent but relatively minor part of Tesco's total brand investment. However, strong evidence shows it has played a crucial role in transforming consumer's perceptions of Tesco. Particularly those consumers who could not experience Tesco's instore transformation (because, at the time, they did not shop there).

Through its impact on Tesco's image, the advertising has encouraged more people to shop at Tesco and, more recently, to stay loyal to it.

Thus, it has made a significant financial contribution to Tesco's business. Moreover, its transformed image has allowed Tesco to expand into a wide range of non-grocery sectors, where brand credibility is a critical.

The advertising has also helped improve Tesco's image in the minds of three further audiences:

1. Tesco store staff whose competent delivery of Tesco's initiatives was vital.
   
2. The Marketing community, which is an important source of new talent to drive Tesco's development.
   
3. City analysts who directly influence it's share price.
   

In 1997, its Chairman, Lord MacLaurin said that it's image change was helped enormously by Lowe Lintas, which thrived on the account, under the astute leadership of a as yet unknighted, yet highly talented Frank Lowe.

A tricky task:

How do you measure the impact of advertising on the fortunes of an organisation with over 160,000 employees in more than 600 stores, each with around 20,000 lines, which regularly introduces new products and initiatives?

The task is made more difficult by specific evaluation difficulties:

1. In many cases, the advertising worked hand in glove with Tesco's operational changes.
   
2. Tesco advertises nationwide and operates predominantly in the UK.
   
3. As soon as someone sets foot into Tesco, the instore experience will obviously affect their perceptions of the brand.
   

Nonetheless, the evidence which exists clearly shows the effect of the advertising on image, behaviour and, ultimately, sales. Econometric modeling is a key component of this evidence. Unusually, in this case it has been used to understand the effect of advertising on image as well as sales.

There are two phases to Tesco's transformation:

1. Pursuing and achieving market leadership (1990 to 1995).
   
2. Consolidating this position (1995 onwards).
   

There are interesting conclusions about the role of advertising during phase one, though the bulk of available evidence covers the period from 1995 onwards.

For simplicity, the study is concentrated on the effects of TV brand advertising only.