Value chain is the link between key value adding activities and interface with support activities (Lynch 2003). According to Audretsch (1995), value chain is a useful evaluation tool to make a distinction between advantages and disadvantages during value adding processes. The main purpose of applying the value chain framework is to maximize value creation, while minimizing total costs. Many financial users may prefer acquiring information about the value of Tesco’s costs. In some circumstances, many essential data could be hidden and may not be able be presented in financial statements. As a result, by applying this method it can analyse strategic planning of Tesco from previous years.
Porter (1985) said that business activities could be divided into two main parts，supportive activities and primary activities. The former includes firm infrastructure, human resource management, technology development and procurement. The later includes inbound logistics, operations, marketing, sales and service.
Primary activities:
Operation: The operation within Tesco before 8 April 2013 was in fact only had one way that products sent to local stores and customers buy it in store, however after that day, Tesco has launched its online grocery shopping service for all customers in Bangkok (Tesco2013). “With our wide product range and great service proposition we are confident that Tesco Lotus online shopping will receive an overwhelming response from customers”, said Tesco Lotus CEO John Christie. By increasing another shopping approach, increase the supply to meet demand; what's more, Tesco can achieve economic-scale in the future, which can lower the costs. Keeping the price unchanged, lower costs can get higher profit margin, which is a competitive advantage. In order to obtain more future competitive advantage, Tesco has an attempt to grow by exploring outside Britain. For instance, Tesco had eyes on China as world's biggest grocery market, by acquisition and investment that make Tesco paid less attention to food, and thus had a huge failure in expansion in China.
Marketing & sales: Tesco focus on proving lowest price and same quality goods that attract customers, therefore Tesco had launched several ‘price campaign’ to boost demands. For example, Tesco conveyed the new message about a value for money in 1993. At the same year, Tesco introduced “the price is dropping on your weekly shopping” campaign (Tesco 1993). Customers got price-oriented message at once, by launching this campaign; Tesco had an image for lower price supermarkets, and became a competitive retailer. In 1998, Tesco replaced the ‘Unbeatable Value’ campaign with its ‘Unbeatable offer’ and ‘Low Price’ campaigns (Tesco 1998). It represented that customers were really interested in those kind of campaign and also indicated that Tesco was capable of proving lower price groceries. What’s more, in order to reduce costs of living, Tesco is committed to helping families in these tough times and the Big Price Drop into 2012 in September (Tesco 2012), but this time, all the attention went on them being about price, which accentuated the negative perceptions of the quality of products, whereas Tesco didn't convince people it was cheaper but drummed in a message that it was not about quality but about cheapness. By using ‘price campaign’ this approach to catch customers’ attention, in fact, Tesco accomplished not successful this time compared with past.
Service: Tesco is the first retail in the UK to start on-line shopping service (Tesco 2013), where people can buy groceries, clothes and electronics online that are a timesaving and environmental method to develop domestic markets.
Outbound logistics: For Tesco on-line service, customers can purchase necessaries on line so that the goods can be distributed directly from warehouse, don’t need to distribute to local store, customer buy it from store, which saved al lot of time and money of distribution. Not only provide convenience for customers but also improve efficiency of updating stock.
Inbound logistics: This mainly referred to strong bond between Tesco and suppliers, after negation suppliers are capable of providing high quality products, suitable amounts and lowest costs, and then Tesco enables to put goods in right stores in time. Therefore Tesco can meet customers’ demands greatly. The inbound logistics is one of Tesco’s competitive advantages and deals with selection of products, staff scheduling, and facilities planning to keep leading market position.
Support Activities:
Technology development: Technology development plays an essential role in an organization’s development. Firstly, it can be used at launching new produces and improving services to satisfy customers and keep the leader position in retail industry. For instance, Tesco has opened online shopping channel, customers can order at home then products are delivered to them. Secondly it can hence relationship between company and suppliers, with the rapid development of technology, Tesco is capable of selling more products, as a result, suppliers need to provide more goods, they can lower costs, and build a strong relationship.
Human resource management: Tesco is aware that if company wants a huge process, cannot without excellent staff, as result, company paid a lot of attention to attracting talents people to join in and training them to be a qualified staff. They know their roles in management level and operational level in a wide range of departments.
Infrastructure: Tesco has introduced single vehicle and warehouse system and changed distribution centres into just-in-time system, which contribute to a time-saving and cost-saving situation. In addition, Tesco has developed many stores as warehouses; customers can order online and collect at nearest store, which means that the infrastructure cost has been reduced dramatically.