Tesco Could Be Onto Something

Two things struck me as a sat at my desk listening to the radio on a damp Tuesday morning in London. Firstly, what on earth were Tesco doing launching a smartphone? Chief Executive Philip Clarke told BBC Radio 5 live programme the device would be pre-installed with Tesco services. 

The smartphone plans follow the launch of a Tesco's tablet, the Hudl which has shifted around half a million units so far. The Hudl tablet entered the lower end of the market, priced at £119 and competing with devices that had a relatively low spec. However, the smartphone is expected to be comparable to the higher-end of the market but would also be aggressively priced. Hmm, interesting stuff but were there not a few easier things that could be integrated into their mobile strategy first, I mumbled grumpily to myself.

Secondly, I grumpily noted the latest Forrester report which claims that a large proportion of CEOs are failing to grasp the importance of integrating digital into their business strategies from the ground up, with many still favouring a ‘bolt-on’ approach.

In its State of Digital Business 2014 report, which polled 1,591 senior business leaders in the UK and US during November 2013 to January 2014, Forrester revealed some major disconnects between the marketing and technology sides of businesses, with responses signalling a “digital strategy execution crisis”. Although 74% of executives report that their company has a digital strategy there is a “wide disparity” between strategies according to the report.

So does this Tesco innovation fall under that category? Is this a ‘bolt on approach’?

In my grumpy state, this idea initially reminded me of the trend for the MVNO craze of 2005-06 which was highlighted by high-profile failures like ESPN Mobile and Disney Mobile. Big brands found that just because you put a name on something, it doesn’t always work. They over estimated the value of their brand to work in an environment where consumers didn’t expect them to be.

Let’s put things in context. Tesco’s imminent smartphone is being prepared for launch as the retailer comes under increasing media as they struggle to turn around the business. Last month, it was revealed that Tesco’s annual trading profits dropped 6% to £3.3bn as like-for-like sales dropped by 1.3% in the UK.

In the results statement, CEO Clarke discussed how the supermarket was trialling a digital version of the Clubcard and focusing on a social network in an effort to turn around the company’s performance. The announcement of the Tesco own-brand smartphone has already been met with scepticism by many retail analysts, who believe such initiatives are proving a distraction to the business. And why would you try and launch a social network? When Google keep failing to nail that particular problem, why does a bricks-and-mortar retailer think it has the answers?

And then I told myself to stop being so grumpy. And that Forrester aren’t always right. It looks to me that Tesco are modelling themselves increasingly on Amazon rather than simply competing with other supermarkets. Whether this is a clever strategy or simply copying Amazon, who are also launching a handset, is up for debate.

It doesn’t take an analyst to tell you that the next big thing in smartphone adoption is mass market, low-cost Android devices — and it makes sense for Tesco to want to grab a share of this market. A nice device launched at the right price with Tesco branding will probably sell well (Hudl proved that) and will give Tesco a definite advantage over rivals when implementing iBeacon-type technology. I’ve written before that retailers need to take more risks. This is a risk but they should be applauded for trying something new.

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