Tesco Homeplus : Virtual Store

By Risa Hemtasilpa

Marketing strategy nowadays has changed significantly. In the past there are not many producers so that what marketers need to do is just inform people about new products. Then more competition forces marketers to utilize various tactics so as to promote their products such as coupons, price –offs, samples and premium. Today’s marketing strategy is complex since customers can find information faster, easier and more inclusive. In addition, the number of clusters weakens customers’ attention from particular ads. Subsequently, 360 degree integration and innovative communication /service tactics are a must to apply.

Talking about this reminds me about Tesco-Homeplus in Korea, creating an innovation to boost its online shopping sales. Homeplus combined concept of physical store, QR code, mobile device and online marketing in order to increase sales without increase in numbers of physical store. It launched a new concept of shopping experience called “virtual store” in Seoul subways where commuters can purchase groceries out of a virtual wall with all 3D products, which look exactly same as those in a real supermarkets(Celentano 2011; Martina 2011). What customers need to do is scanning the QR codes on the pictures and the orders will be transmitted to Homeplus(Cardinal 2011). After setting up a delivery time and location, they can just relax and wait for the delivery at home.

Homeplus Background

Homeplus Co Ltd was called Samsung Tesco Co Ltd before 2011, which is the joint venture under Samsung Corp and Tesco Holdings BV. It operates from hypermarket, supermarket to online grocery retailing. In terms of market position, it is the second largest discount store in Korea with 34% of market share and it is regarded as the only foreign hypermarket retailer which has successfully localized its strategies to suit the Korean market (Euromonitor 2012b).

Situation Analysis ( SWOT and Modified Ansoff Matrix )

Retail Industry in Korea Analysis

Retailing competition is intense in Korea nowadays. Large retail companies have tried to expand their business horizontally(Oh 2011). Each retailer response to customers demand by increased more amounts and variety of products, online and delivery service. As a result, 190 percent of online shopping sale grew in past five years. Moreover varieties of new innovations are applied to Korean retail stores so as to differentiate and provide convenience to customers (Chennell & Ridley 2009). From the Table 1, the highest second sale growth was online retailers, this implies that Koreans are getting use to online shopping and this trend seems to be continued.

Table 1: Breakdown of Retail Market Sales in Korea

(Source: Oh, 2011)

Tesco Homeplus is the second major hypermarket in Korea. The strength of the company is its home grocery delivery service efficiency. Tesco employed the satellite navigational software to help drivers deliver products in the most efficient route and end up with outstanding shopping experiences for customer (Microsoft 2006). The excellent delivery service is supported by 123 out of 182 customer review in UK gave Tesco delivery service as 4 and 5 stars(Ciao n.d.) so the author infers that Tesco would transfer that ability to Korean market as well. In terms of weakness, Homeplus has lower numbers of stores than E-Mart. From the customer trend which indicates that people will go for the closest store means larger location coverage the company get, higher possibility to win the market the company gain.

Table 2: Profile of Major Hypermarket Chains (2009)(Oh, 2011)

Opportunity:

By analysing consumer trend in Korea could shape how the company should act and see as opportunities.

Consumer trends in Korea

There are four main factors affecting consumers’ behaviour and marketing strategy in Korea. First, Korean consumers as well as many other countries become convenience-concern in shopping decision making. This is supported by research from Nielsen company claiming that EEMEA (Eastern Europe, Middle East and Africa) and Asia Pacific countries choose the closest store to shop their grocery (figure 1)(Neilson 2008).

Figure 1: Importance of closest store in grocery shopping 

(Source: Neilsen, 2008)

There are a few factors explaining why Korean considered more on convenience, according to Euromonitor’s research(2010),Korean busier household lifestyle and longer commuting time bit away their spare time. Consequently, internet retailing is increased significantly. In addition, Koreans are more cost-concern, since they perceived effect of economic downturn(Euromonitor 2012a). Transportation cost becomes one of factors that impact on shopping decision making.

Second, there is a considerable change in Korean household size. Park, Kim & Ko 2002 project that the average size of household in Korea will drop from 3.12 persons in 2000 to 2.73 persons in 2020. Resulting people prefer to shop daily and small size package since limit in storage and fridge space(Kim 2008).

Third, mobile retailing becomes main trend since a retail outlet is decreased in popularity (Euromonitor 2012c) and a typical online service is not competitive and differentiates anymore.

Finally, Korean prefers festive atmosphere of outdoor market as Chung Yong-Jin, executive vice president of Shinsegae Cooperation states “Koreans hate warehouse format” (Ramstad 2012). This does not mean only physical cue but also other surrounding environments. Create virtual store give customers experience more like they are shopping in physical store rather than a typical online one.

In general, opportunities that Homeplus can see from Korean market are as following:

1.  Korean becomes convenience-concern shopper.
2. Small household size force them to shop frequently.
3. Doing typical online shopping, consumers need to do it at home through the Internet connection.
4. Whether consumers can do online shopping via mobile phone, they face distraction by alphabet searching and small screen
5. People familiar with online shopping.
6.  It is projected that 20 millions of Korean use smartphone (Euromonitor 2012d).
7. Korean faces busier lifestyle and more women go out for work. This also infers that they need to use public transportation.

Solution:
Home Plus improved its online service by make it available on mobile and decrease distraction by using virtual store for both its online and offline shoppers.  In other words, combination between Virtual store, QR code and online site is accounted on an improved product since it offers better solution to old market. In general, Homeplus uses market penetration strategy to gain more market share by both mobile availability and location coverage without new physical stores.

Table 3: Modified Ansoff Matrix

Modified Ansoff Matrix

Threats:

1. Copy cats
2. Contagion diffusion effect which means people might withdraw this technology if they perceive value of virtual store decrease. For example, customers feel they have to put more effort to buy products since the virtual store layout is not welled-organised.
3. It is costly to make online application available in different types of mobile phone, due to different software requirement.

        Whether or not this tactic works in the long term is a question that Homeplus need to think about and also marketers who are interested in this tactic should review their particular market situation.  
     

      References: 

Cardinal, D 2011, Virtual stores help shoppers save real time EXTREME TECH, <http://www.extremetech.com/mobile/99033-virtual-stores-help-shoppers-save-real-time>.

Chennell, A & Ridley, L 2009, South Korea Food Market Overview November 2009, viewed 23 May 2012,<http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/korea/south-korea-food-market-overview-november-2009>.

Ciao n.d., Tesco.com, Ciao, <http://www.ciao.co.uk/Reviews/Tesco_com__5303013/SortOrder/1>.

Euromonitor 2010, South Korean consumers in 2020: A look into the future Euromonitor International

—— 2012a, Global Shoppers Using Technology in the Recession Euromonitor International

—— 2012b, Homeplus co ltd retailing (South Korea) Euromonitor International.

—— 2012c, Retailing in South Korea, Euromonitor International.

—— 2012d, South Korea and Japan Among the World’s Most Developed Telecom Markets Euromonitor International

Kim, RB 2008, 'Wal-Mart Korea: Challenges of Entering a Foreign Market', Journal of Asia-Pacific Business, vol. 9, no. 4, pp. 344-57.

Martina 2011, Tesco's Subyway Virtual Store ADVERBLOG, viewed 21 May 2012, <http://www.adverblog.com/2011/06/23/tescos-subway-virtual-store/>.

Microsoft 2006, Tesco.com Ensures Accurate Delivery Schedules Across U.K. Capital with Versatile Software Environment, Microsoft Mobile <download.microsoft.com/download/1/9/1/.../101_ALK_Tesco.pdf>.

Nielsen 2008, Grocery Store Choice & Value for Money A Global Nielsen Consumer Report, Nielsen, viewed 25 May 2012, <http://hu.nielsen.com/site/documents/Nielsen_StoreChoice_ValueReport_Dec07.pdf>.

Oh, S 2011, Korea - Republic of Retail Foods, Global Agricultural Information Network, viewed 22 May 2012, <http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Retail%20Foods_Seoul%20ATO_Korea%20-%20Republic%20of_2011-02-15.pdf>.

Ramstad, E 2012, South Korea's E-Mart is no Wal-Mart, which is why locals love it, The Wall Street Journal viewed 19 May 2012, <http://www.post-gazette.com/stories/business/news/south-koreas-e-mart-is-no-wal-mart-which-is-why-locals-love-it-445705/>.