Making the same mistake twice...?

Readers of my blog will know that last March I wrote a post about Tesco's adventures in Japan and how the foray into the land of the rising sun resulted in Tesco departing with a £250 million loss for its efforts. In case you didn't see this blog post you can read it here.....


There were many reasons which can be attributed to Tesco not making a success of its Japanese operation, but the main one was in my view failing to understand the Japanese consumer and their different needs, when compared to Western consumers. Tesco could be excused for this mistake as many British companies had tried and failed to crack this tough market.


Given this very rare public 'failure' for Tesco's expansion in Japan I was surprised to read before Christmas the retail giant seemed to have made the same mistake again. This time with its attempted expansion into the largest retail market of them all America. The cost wasn't £250m as it was in Japan, but this time a much larger loss of £1.5 billion in just 5 years. To give Tesco credit they seemed to do everything right and appeared to have learned from their mistakes. For example:


  • Tesco spent more than 20 years carefully researching and evaluating a move into America. Then spent 2 years further researching the market and living with American families and understanding their needs and purchasing habits.

  • Tesco build secret 'test' stores under 'dummy brands' to further test the market and better understand American market.


What a fantastic example of 'flying under the radar' and understanding the market without potential competitors realising or responding to it.


Despite all the knowledge and insight which had been built up about the American market during the 20 years of research and then during the 2 years of the 'intensive research' phase there were still a number of mistakes, which appear to have been made:


  • American customers did not warm to the self serve check-outs, preferring human contact and excellent customer service rather than a speed and convenience of an automated checkout.

  • British style ready meals were unfamiliar to US shoppers and didn’t sell as well as first thought.

  • American consumers like a bargain and prefer cutting out money saving coupons rather than collecting points.

  • Finally US shoppers prefer to buy in bulk and save money rather than buy products in small pack sizes.


There were other factors too, retail experts seem to think Tesco purchased or leased stores which were too expensive, with rivals already claiming the best areas or buying / leasing stores and keeping them unoccupied just to prevent Tesco or any other competitor occupying them. Tesco was faced with a strategic nightmare, it needed to expand fast to around 500 stores to ensure its centralised distribution centre and warehousing could pay for themselves in terms of generating the critical economies of scale needed to drive prices low. As a result of some of the more desirable stores already being taken, Tesco expanded to stores which might not have been the most suitable, opening 'high class' stores in low income, high unemployment areas.


This isn't the only example of a British retailer having to exit the American market. M&S, Dixons and HMV all failed. WH Smith seemed to have a business model which might have worked, basing itself mainly in airports and railway stations. However the unfortunate events of 9/11 meant the travel market contracted virtually overnight and with the UK arm struggling from increased competition it was decided to close the operation and focus on turning around the UK operation. ?


At this point you might be wondering why I'm highlighting Tesco failure in an overseas market again? Well I'm very pro Tesco and admire enormously their ability to predict trends and fashions and the speed they can respond to market changes caused by competitions (a matter of hours in some cases). An organisation which can implement and respond to change that quickly, you can't help but admire.


I'm a huge fan of listening to and designing services around the needs of our customers. Reading about Tesco made me think back about the CLG funded Assisted Bin Collection project, which I project managed. One of the key and in my view most important lessons which came out of that project was "Customers know what and how government should deliver services, so ask them!"


From the customer insight gathered during the project, customers told us:

  • They were receptive to, additional services based on their needs being offered by telephone and didn’t see their local authority contacting them and offering these services as intrusive.

  • The types of services customers wanted us to offer them. This was identified by the customer selecting services from a list which was presented to them.

  • Services which they didn’t want to be offered to them. These were mainly services they already knew about or thought were of little use or value.

  • Customers didn’t mind us contacting them to offer them additional services and were happy to share their data with other government departments and agencies providing they were informed first and had the chance to opt out.


Imagine what would have happened if the process was designed without asking our customers what we thought? It would have meant:


  • The wrong channel would have been used. Early thinking from some project team members was to undertake a mail shot exercise and rely on the customer to contact us if they wanted to take up the services offered, rather than us proactively contact them.

  • The completely wrong services would have been offered to the customer, resulting in poor take up.

  • The services would have been exclusively those offered by a district council and not ones offered by a County Council or other government departments such as the Fire and Rescue Service, Local Pharmacy or Warm Front. This was down to thinking customer's would refuse to share their personal data with other government departments.


I also can't help but wonder if the £137,540 in additional benefits payments, (and other project outcomes) paid out each year to some of the most deprived areas in Lancashire would have been achieved if we had designed the project without consulting with our customers. My guess is the amount of benefit payments paid out would have been a fraction of the amount achieved......



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