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UK Retail Grocery Market

TASK 1:
A market system pertains to any organized process that allows several
market players to operate. In general, this is a system that enables both bidders
and sellers to communicate and conduct business deals. In the field of economics,
this can be clearly explained through various market forms. Some of the most
common examples of these market forms include perfect competition, imperfect
competition, oligopoly and monopoly. Basically, these market forms have distinct
features based on the amount of consumers and producers in the market, the types
of goods or services offered as the level at which information can freely flow. These
market systems, though different from each other, have the ability to contribute to
efficient resource allocation.
For instance, for monopolistic market systems, producers are able to provide
the consumers specific needs. In a competitive market system, better resource
allocation is observed. In one article (OECD Economic Outlook, 2002), it was
indicated that increased competition within the market can result to one-time as
well as ongoing gains within the MFP or multi-factor productivity.
This can be obtained by the combined productivity of the workforce and the
allocation of capital. As more companies are competing with one another, business
organizations are more efficient in responding to various performance pressures;
moreover, they tend to work extra hard in preventing slack in inputs. In turn,
resource allocation becomes more efficient; specifically, companies are more after
cost-effective strategies that will allow efficient capital allocation.
In addition to this, resource allocation is also enhanced to competitive market forms
as business organizations become more innovative. The objective of the companies
within a competitive market environment is to provide the best to the consumers;
this in turn is achieved through innovation. With this strategy, companies will be
able to make their products stand out in the market and eventually overcome
threats of rivalry. Consumers are given with quality goods, resulting to efficient
resource allocation (OECD Economic Outlook, 2002). In addition to innovativeness,
efficient resource allocation is also achieved through competitive market reform by
means of diverse products and services that consumer can benefit from.
Although, these market systems enable the efficient allocation of resources,
market failure is a related concept that is inevitable. One of the causes of market
failure is externalities. Although externalities can be beneficial in some cases,
external costs can cause adverse effects to people, leading to market failure. One
example is the external costs of production, which include the adverse effects
caused by the manufacturing firms during production.

This can occur when for instance, chemicals are dumped into the river or given off
into the air by the manufacturing plant. In this case, the marginal social cost of
chemical production goes over the marginal private cost. Other examples of this
cause of market failure is the production of acid rain due to smoke produced by
firms powered by coal, destruction of wildlife due to extensive farming as well as
nuclear wastes given off by nuclear plants. This problem causes market failure
mainly because natural resources are not placed under any legal ownership. The
lack of control then initiates the failure of the market.
People or the consumers can also be the cause of market failure due to
externalities; specifically, this is through the external costs of consumption. One
good example is the noise and pollution caused by using motor vehicles for
transportation. Other examples can be the use of radios that causes noise pollution,
smoking cigarettes that leads to pollution and diseases as well as the use of
packaging materials that results to garbage problems. In this form of externality,
market failure happens as the marginal social benefit is less than the marginal
private benefit.
Aside from the externalities, the power of the market form may also a cause
for market failure. This is the case especially if the existing markets are imperfect
such as pure monopoly or imperfect competition. This is because despite the lack of
externalities, the market will not be able to equate the marginal social benefit and
the marginal social cost. If the monopolistic environment will be considered, the
production of less efficient social output due to lack of competition is the main
cause for the equation failure. Market failure may also be caused by the uncertainty
and ignorance of both the producers and the buyers.
In the perfect competition for instance, the consumers and the producers both
assume that they are knowledgeable about benefits and costs; but in reality, both
are unable to equate marginal benefit with marginal cost. For instance, consumers
can be easily misled by advertisements due to ignorance. Producers on the other
hand are uncertain of what the future may bring to the industry; thus, strategies
and decision may not effectively support the business success.
In spite of the multiple causes of market failure, certain steps and options
can be done in order to address these imperfections. For this purpose, the
government and the development of policies play important roles. Subsidies and
taxes are examples of policies that are useful for resolving market failures.
Subsidies are useful policies as it encourages desirable activities to occur within the
market. These are often placed on goods that are not produced in mass volumes. In
energy consumption for example, subsidy schemes may come in the form of tax
credits for energy-conserving practices and solar energy use. Subsidies may also be
given to unproven technology through warrantees rather than price subsidies. In
this way, consumers will be more attracted to buy these new technologies. Buyback
programs, lease programs as well as performance guarantees are also similar
examples of subsidies (Bjornstad, 2003).
Taxes are the opposite of subsidies. If subsidies are policies that help in
encouraging desirable activities to happen in the market, taxes on the other hand is

used to address market failure by preventing undesirable activities from happening.

In general, when the market produces too much of a particular commodity, taxes
are placed for control. Taxes and subsidies are advantageous policies as they force
companies to be fully responsible of the social cost and benefits of their actions. It
also allows firms and the government to address market failures depending on their
severity.
For instance, if a production resulted to greater external costs, bigger taxes can
then be given. Furthermore, these policies make firms more resourceful and
innovative particularly in terms of the processes they use in manufacturing. For
example if taxes are placed for pollution, firms try to find alternative means of
production that will not cause as much pollution (Sloman & Sutcliffe, 2001).
The use of these policies on the other hand can also be disadvantageous. For
instance, it will be administratively difficult to charge every offending firm with
taxes due to the number of operating firms under multiple industries. In addition, if
the government uses the concept of charging taxes to offending firms based on
marginal external costs, it will be very difficult to accurately measure the right
amount of taxes depending on each offense. This is particularly true if taxes are
charged for pollution when the cost or damage by pollution is difficult to assess.
Though marginal external costs may be difficult to measure, tax and subsidy
policies are useful especially in promoting control in production and consumption of
various goods (Sloman & Sutcliffe, 2001).
Direct regulation or implementation of laws that can control undesirable
behavior or structures in the market may also be used to resolve market failure.
Laws had long been used in addressing market imperfections, which in general can
be used to prevent firms from giving misleading information, to prevent of control
behavior that inflicts external costs and to prevent or regulate monopolies or
oligopolies. Restrictive laws that address market failures are beneficial mainly
because in general, they can be developed and implemented easily; compliance can
also be ensured easily as well. Moreover, the production of harmful pollutants for
instance can be controlled by laws that will prohibit or ban all similar activities,
which is far simpler than charging taxes based on damages caused by different
pollutants.
Kahn (1995) noted that the use of restrictive laws or policies for market failure is
also more effective especially if monitoring costs are costly as well as during the
occurrence of emergencies where restrictive laws can lead to faster and more
efficient outcomes. A good example of this is the case of Athens wherein during a
chemical smog emergency, the government found it easier to control the situation
by banning the use of private cars rather than charge taxes to the users (Sloman &
Sutcliffe, 2001).
Information dissemination is also one good way of controlling market failure.
For instance, by informing the people of certain job openings or opportunities,
increase in elasticity in labor supply can be achieved and labor market problems will
be prevented. Informing the public about the health effects of inhaling smoke from
cigarettes or throwing wastes in rivers can also be used to control the effects of

market failure. Information about prices, employment, sales trends and costs can
also be used to help companies develop better business strategies and plans
(Sloman & Sutcliffe, 2001).
TASK 2:
It is difficult to describe the market form existing within the UK grocery retail
industry as there are different features observed in its market environment. Perfect
competition, imperfect competition, oligopoly and monopoly are some of the most
common market forms. Perfect competition is a market form where there are
several firms competing within an industry. In this type of market structure, firms
are price takers, free to enter the industry and produce identical products (Sloman
& Sutcliffe, 2001). With these features, the UK grocery retailer industry cannot be
considered as a perfect competition. This is because while there are a number of
firms operating within the industry, there are major companies that dominate the
sector. In addition, the grocer stores offer different products and brands, though
they have similarities. As products offered vary among individual grocery stores, the
companies then have control of the product prices. This is one of the main features
of the imperfect competition.
Imperfect competition is in some ways similar to perfect competition as it is
also characterized by several operating firms and freedom of entry. However, the
firms in an imperfect competition offer differentiated products; this feature then
allows each firm to set the prices of their products. Oligopoly on the other hand is
very different from the two mentioned market forms. Oligopoly is one of the
prevalent market structures in the business industry. In this structure, a few firms
dominate a specific industry (Cabral, 2000; Sloman, 1999).
Businesses within an oligopolistic structure may either produce an identical or
differentiated product. When the competing firms produce identical goods or
services, the competition is only limited to the price aspect. However, when
differentiated products are involved, rival firms would have to compete on product
quality, price and marketing strategies (Parkin, 2004). In oligopoly, each member is
subjected to sufficient inter-company rivalry, which in turn prevents others from
owning the market demand curve. Oligopoly is usually the dominating market
structure in modern economies (Chrystal & Lipsey, 1997).
The members of an oligopoly are referred to as oligopolists. Since there are a few
members or participants in this market form, each member is interdependent of the
actions of other members. This type of market is mainly characterized by
interactivity. In this market structure, all the members decision is mainly influenced
by other members in an oligopoly. Moreover, in this type of market form, the
responses of other members towards strategic planning are always taken into
consideration so as not to create internal conflict. Sufficient barriers are also erected
within this market form, hindering new firms from entering the industry easily
(Sloman & Sutcliffe, 2001).
Based from these mentioned features, the market environment of the UK grocery
retailer industry is more patterned after oligopoly. For instance, the presence of a
few major firms in the industry such as Morrisons, Tesco Sainsbury, Asda and

Safeway, is a distinct feature of an oligopoly. In a research done by John Bridgeman,

the director general of Fair Trading, the results showed that significant barriers had
already been put up in British grocery retailing, preventing new competitors from
entering the industry. This finding had been supported by the fact that sites for new
stores are becoming less; this in turn, is advantageous for existing grocery stores.
Another barrier for new grocery operators is the development cost of the sites; due
to the amount, larger stores often outbid the smaller competitors. Bridgeman noted
that while this cannot be considered as a problem on planning policy, he stated that
the presence of these major barriers significantly limit the effect of new business
entrants to the behavior of the existing major grocery operators (M2 Presswire,
1999).
In its purest form monopoly is defined as a market structure where there is a lone
producer of a product that has no close alternate producer and that is protected by
consequential, if not prohibitive, barriers to entry. Accordingly, the pure monopolist
faces the market demand for its good and is capable of choosing among the various
price-quantity combinations on its demand curve with the single-minded goal of
maximizing firm profits. A profit-maximizing monopolist will, of course, invariably
price above marginal cost (McKenzie, 2004). This market structure is very different
from the competition types as these market structures not only have a number of
competing firms but barriers of entry are not present. Compared to other forms, the
monopolistic market structure is the least apparent market structure in the UK
grocery retailing industry.
However, the takeover that occurred between Safeway and Morrisons placed the UK
grocery retail sector closer to a monopolistic environment. The acquisition struggle
for Safeway lasted for years until Morrisons was able to won over the bid battle with
2.9 billion pounds offer for the company. Tesco, Sainsbury and Asda, major grocery
retailers in UK had all made offers for Safeway; as Morrison won over the bidding,
the company will then have a greater access on the market located in southern
England. This in turn threatens Sainsbury in terms of the UK grocery rankings. The
joint grocery business planned to operate with 550 retail stores and change
Safeway brands into Morrisons. Moreover, the company also intends to transform
Safeways 180 medium-sized stores as Morrisons, which will rival the stores of
Sainsbury and Tesco that typically operate is smaller outlets (BBC News, 2004).
In one article (BBC News, 2003), several analysts had been curious as to why
several grocery companies, even American-based retailer, Wal-Mart, had been
interested in taking over Safeway. Analysts revealed that the fight over Safeway is a
fight for a very tempting opportunity that no retailer giant will pass. In addition, the
permission for planning new supermarkets had been difficult; vacant lots in the city
had been rare as well. In addition, out of town shopping stores had been spreading
rapidly. Due to these difficulties, retailers will grab opportunities that will provide
them with existing retail space, such as the one offered by Safeway. As this is a very
rare business opportunity, it is a common reaction for retailers to join the bidding.
Aside from business opportunity, giant retailers also fought over Safeway as it will
be a great loss for them should they lose the bidding. The great loss is connected to

the intensive competition observed within the grocery retail sector. If other retailers
will lose the chance of taking over Safeway, companies that lost will be under great
pressure and competition. Naturally, the winner of the bidding will almost double in
size in terms of market access, sales and number of stores. With these important
business elements, the winner of the bidding will be at a great advantage while the
other retailers will be placed under constant threat. As no retailer wanted to be in
an uncertain business position, every giant retailer then joined the fight for the
Safeway takeover (BBC News, 2003).
The takeover for Safeway had been under debate due to a number of factors. One
of which is the anti-competitive policy in UK; this means that a 25% market share is
the only range allowed for companies so as to comply with the policy. The analysis
of the government revealed that most of the bidders will violate this legislation
should they takeover Safeway.
For instance, Sainsbury already had 17% total market share while Safeway is at
11%. Sainsbury then claimed that it will not affect the market as it plans to sell 90
of Safeways total stores once it had taken over the company. Wal-Mart also has the
same problem; should the company takes Safeway, Wal-Mart will have a total
market share of 26%. The same matter also applies to Asda that already has a
strong market share within northern UK and Scotland. Tesco already had a market
share that is more than 25%; the company then tried to convince the competition
authorities that taking 75% of Safeway will not cause any market distortion (BBC
News, 2003).
Competition authorities in UK are concerned about this matter considering the
nature of the current grocery industry in the country. According to analysts UKs
grocery sector is highly competitive and concentrated on price. If this is the case,
there will be a thin margin between success and failure among similar businesses.
With this kind of business environment, it is very likely that only the largest
companies will succeed. If this will continue, a monopolistic environment can take
place. Moreover, this tight market environment will make all retailers edgy over
slight business or economic changes, making competition even more cutthroat.
Basically, the central point of worry among competition authorities over the
Safeway takeover is the possibility of sudden transition of the market form.
Probably, the authorities do not want to significantly reduce the level of competition
among organizations operating in the grocery industry. As indicated by Bridgeman,
the diversity of stores and products offered by grocery retailers had given the
buyers tremendous amount of power, which in turn motivated the companies to
deliver goods at their best quality and at lower prices.
UK also recognizes the vitality of the retailers role not only for the consumers but
also to the national economy (M2 Presswire, 1999). Should the sector be controlled
by a single large grocery retailer, competition will no longer be observed, diverse
product choices will no longer be available and control for product prices will not be
accessible anymore. These possible outcomes of the takeover are the main reasons
why fair trading authorities are concerned about this business matter.

John Bridgeman of UKs fair trading committee showed that with the data gathered
from the countrys major grocery retailers (Tesco, Asda, Sainsbury, Safeway), there
is indeed a possibility that major companies will overthrow new and smaller
retailers. Aside from the significant reduction of new grocery establishment, records
show that these major retailers often outbid smaller stores on various business
elements. In addition, cost of vacant sites are far too expensive for the smaller
companies that major retailers are the ones who are able to but this sites for
additional stores or business expansion.
With this present competition between small and large retailers, the fair trading
committee must really act on the matter so as not to completely remove new
entrants from the industry. In line with this problem, Bridgeman then suggested that
it is imperative to investigate further on the different barriers observed in the
industry, the cost of land for business establishment, the price competition and its
intensity in various market levels as well as the relation of the companies with the
suppliers (M2 Presswire, 1999).
TASK 3:
In the article written by Schifferes (2002), the Monetary Policy Committee
(MPC) of the Bank of England had played a significant role in the success of the UKs
economy for the past five years. In particular its fiscal and monetary policies had
resulted on the independent setting of the countrys interest rates. It has been said
that the development of the MPC was attributable to UKs economic success. One of
the evidences of this success was the countrys inflation rate, which has remained
stable at 2.5%. This in turn increased MPCs credibility. In comparison to the
European Central Bank and the US Central Bank that regulate the interest rates, the
MPC promotes the establishment of interest rate through independent means. The
efficacy of the MPC is also said to be attributable to the ability of the organization to
discuss its policy decisions.
The economic success of UK for the past five years was characterized by low
unemployment levels; the establishment of the MPC contributed much to this
important outcome. With the presence of the MPC, wage demands had been less
compared to previous reports. Because of this, the prices of the products had not
been increased drastically to cover the employees higher wages. This in turn
enabled the bank to maintain lower interest rates even with low rates of
unemployment. Despite the recognized efficacy of the MPC, the success of the
countrys economy is still unpredicted. In particular, reports had revealed that the
forecasting model used by the Bank of England had been slightly inaccurate; thus,
unexpected changes in house prices and exchange rates will put the interest rate
system out of balance Schifferes (2002).
In spite of this, it has been noted that other options must be done; otherwise, the
policies themselves will be the cause of UKs economic downfall. In a more recent
analysis for instance (Riley, 2004), it was indicated that the UK economy looks
unbalanced due to the rapid rise of output, which will result to increased inflation
rate. The deterioration of the current account is expected and the borrowing of the
government has significantly risen. The imbalance has also been attributed to the

increased spending of the government for the past two years; the administration
even has plans of increasing this further. This is a problem considering that taxes
are not being increased.
Although there are identified problems that could affect the countrys economy, the
economic success of UK had resulted to a number of benefits for the grocery
retailers. For instance, the stability of the inflation rate allowed the retailers to sell
their products at regular prices. This then helped in generating sales for the
companies as well as in positioning their businesses in the market. As a result of
sales opportunities, businesses are able to enhance their services for the
customers. In 2000, the success of the economy has been clear in the UK grocery
market as it was on a 96 billion pounds sterling value; a total retail market of more
than forty-seven percent was generated at that same time (Grocer, 2000).
The rise of sales and market opportunities brought about by economic success was
also followed by the rise of communication technology utilization or online shopping
sites among grocery retailers in the country. This in turn paved the way for various
business opportunities. According to Ghosh (1998), the use of information and
communication technology in the business has led to a number of advantages. For
instance, the firms are able to develop a direct relation with its consumers. The rise
of technology also allowed the companies to overcome their competitors within the
value chain. Online access also enables the businesses to create and distribute
products to new markets. The use of technology has also led to other companies to
become major players in business through digital business channels.
Aside from the rise of technology, UK businesses had also become more aware of
the importance of having the best people in the operations. The UK retailers in
particular, had noted that employees are becoming more selective in the nature of
their jobs as well as the opportunities related to it. Thus, it has been a common
occurrence for employees to transfer from one job to another after being trained
intensively by others.
With this trend, the UK retailers had become more active in improving the career
direction and trainings that their employees receive. In addition, companies had
become more conscious of their recruitment practices; thus, information
technologies that could improve this aspect of the human resource had also been
employed by the businesses (Grocer, 2000). From this perspective, the UK retailers
had been able to relate economic success and business with workforce efficacy.

From these significant business developments, it can be said that the success of the
UK economy had a positive impact to the UK grocery retailers. In general, the
impact of the economic success in UK for the grocery retailers led to the
improvement of their operations, both in the technical and human aspect. With
these improvements, the industry was able to achieve other important benefits
including greater market opportunities, increased sales and better market positions.
TASK 4:

The creation of the single European currency also known as the European
Monetary Union (EMU) has been an important element of the Maastricht Treaty of
1992. This particular transition of the regions economic and monetary union
primarily aims to designate euro as the single currency for the entire European
Union. This policy change was led by the European Central Bank; the main
objectives of this monetary policy include the elimination of exchange rate
uncertainty as well as the allowance of easier investment and convergence of
interest rates. In order to become part of the EMU, each country in the European
Union must meet certain economic criteria. In particular, the members must
converge substantially with specific economic targets such as interest rates,
exchange rate stability, inflation as well as general government debt and deficit
(Hart, 1998).
The implementation of the EMU has caused great impacts to the UK retail
grocery industry; some of which are advantageous while others are not. The
benefits of the EMU are concentrated primarily to retail stores that depend heavily
on import and export activities. This is because the employment of the single
European currency has a direct impact on the countrys interest and exchange
rates. As supermarkets and retail stores import and export their goods to other
members of the EU, the use of the single currency helped in creating a more
stabilized macro environment. Negative effects of international trade to profit
margins has been significantly reduced by the single currency, encouraging other
UK companies to conduct trade and business deals to other members of the EU.
As UK retailers begin to operate in other countries, the industry is also exposed to
greater competition. This in turn helps individual companies to develop effective
business strategies as well as access diverse target markets. Standardizing products
is also an easier activity for some product manufacturers with the single European
currency, which help in eliminating more supply chain expenses (Hart, 1998).
The use of the single currency in the EU however, also has some downsides.
For instance, as the use of pounds will have to be changed into euros, the cash
systems of the grocery retail sector need to be renovated completely. As this
change will require financial support, the transition costs had then resulted to
significant effects to UK businesses. Naturally, business organizations and the
consumers need to make the necessary adjustments by paying the cost incurred by
the changeover through higher taxes and product prices. It is also a natural reaction
from the customers to question the differentials observed on euro-based prices.
Specifically, UK retailers changed its cash systems into metric. Customers then
started to become suspicious whether the familiar price points would totally
disappear, giving the retailers the opportunity round up prices for extra profit (Hart,
1998).
In addition to possible negative reaction of the consumers due to pricing
changes, individual UK retailers also had to make various significant operational
changes, which will require financial allocation. For example, the companies human
resource departments would have to inform their staff regarding the possible effect
of the single European currency to their salaries. Employment contracts had to be
renewed while pension details would have recomputed. The staff also went through

trainings so as to answer typical questions of the customers regarding the new

monetary policy as well as to operate the new cash systems. In general, the
awareness about euro had to be increased in order to handle important business
activities such as financial reporting, supplier negotiations and pricing (Hart, 1998).
In addition to training the staff, the UK retailers also need to install new
hardware. During the transition process, the retailers must have the cash handling
facilities that can accommodate both currencies. Computer programs, automatic
vending and telling machines as well as systems for forgery detection also require
changes. As the transition stage resulted to a greater number of queries and slower
transaction times, extra staff members have to be employed (Hart, 1998). All of
these requirements would have to be done in order to prevent the change from
affecting the normal busy trading operations.
From these identified effects, it is clear that the disadvantage of the single
European currency is mainly on the business side. In order to ensure that the new
monetary policy works, the retailers would have to make the initial changes in its
operations. The main downside of these changes is clearly the need of making
substantial financial allocations. The impact of the single European currency to the
companies IT and cash handling systems is also an important consideration.
Furthermore, the customers need to be educated properly and sufficiently in order
to prevent negative reactions towards the policy. It is also important that the
retailers support customer education with the provision of quality products and
services.
Nonetheless, if the cited effects will be analyzed, the disadvantages of the single
European currency are concentrated on implementation costs. On the other hand,
the monetary policy indicates clear long term and significant benefits for the
retailers including market growth, increased sales opportunities and reduced
sourcing costs. As retailers become more adjusted to the new system, the costs
incurred during the implementation phase will eventually be covered through fast
return of investment. Once investments had been regained, retailers will be
prepared to take on new opportunities that will help them overcome future business
challenges. From this perspective, it is apparent that the single European currency
can provide more benefits to the retailers than disadvantages.
While the EMU has certain effects to the UK retail grocery industry, this has also
lead to significant effects to the UK economy. There are actually four main sources
of economic benefits from EMU to the UK economy. One of which is the decrease of
exchange risk, which in turn resulted to greater foreign investment and trade all
throughout the European region. The transaction costs of changing currency have
also been reduced through the EMU. Price comparisons had become more
transparent as well. Finally, the EMU had provided certain political gains which
encouraged the establishment of a more established cooperative relations among
the members of the EU. With a single or common market, the countries in the
region were able to develop a union that promotes economic stability.
Similar to the case of the retailers, the EMU also resulted to certain downsides for
the UK economy. One of these problems is the difficulty of handling shocks in the

absence of independent exchange and interest rates. As UK joined in the EMU, its
interest rate is then established by the European Central Bank, which will be based
on the needs of the entire EU. This can be disadvantageous especially in times
when the economic status of UK is not the same as the rest of the euro-zone. For
example, if UK is in economic recession for example while other countries are not,
the depression period can take a longer time or result to even worst outcomes as
interest rates cannot be adjusted. With this possible effect, UK is then likely to
encounter greater inconsistencies with its output, prices and unemployment rates.

Others also argue that that the employment of the single European currency in
order to harmonize countries within the EU can just be a cover up. Analysts raised
the possibility that while EMU was implemented for harmonization, the development
of union among countries will be done for the purpose of establishing central federal
institutions that would control all revenues. This then suggest of the possibility of
using the EMU as a stepping stone for achieving state authorities. The problems on
state pension deficits are also likely downsides of the EMU for the UK economy. This
is mainly because other countries may be used to bail neighboring regions out of
their financial problems.
The problem is then directed to the likelihood of placing the financial liabilities of
others to the British taxpayers. With the pressures of the political and economic
union, UK has no choice but to respond to these financial needs. Otherwise,
economic fallout can result to indirect losses of trade, contamination of ones debt
status and other negative effects due to the establishment of coordinated activities.
The implementation of the single European currency has a number of benefits for
the UK economy as a whole. In particular, this monetary policy will enable UK
businesses to offer its goods to other neighboring nations with less hassles and
risks. Moreover, the political and economic union developed by the EMU also helps
in strengthening the stability of the macro environment of the UK economy.
Nonetheless, the major drawback of this monetary policy is the lack of control over
revenues as well as exchange and interest rates at times when economic crisis
occurs. The lack of control over these important economic elements can result to
major problems for the UK economy. From this point of view, it is difficult to say
whether UK will truly benefit from the utilization of the single European currency. In
a way, it can be said that UK and its businesses can do without the EMU considering
that there are a number of other methods or strategies to achieve the benefits this
policy can provide.
TASK 5:
Tesco is a UK retail giant operating in the grocery industry. It is known for its
mission, which stresses that the purpose of the company is to create value for its
customers so as to earn their lifetime loyalty. In its official website (Tesco plc, 2006),
the companys corporate responsibility is focused on the value of giving the best for
the customers and treating them the way the company wants to be treated.
Through this popular slogan, Tesco clearly positions itself as UK retailer that
provides everything the customer needs so as to gain their patronage. The

company believes that by means of working together, the company will be able to
achieve its goals and make a difference.
As the objectives of the company are customer-oriented, their conflict with
the shareholders, employees and customers is not as extensive. As Tesco provides
quality goods to the consumers, the buyers then become more loyal to the retailer.
With a greater hold on the market, sales opportunities for the company become
higher while market share become stronger. The objectives of Tesco are then
beneficial to its shareholders due to these important outcomes. Perhaps, the
customers are the ones who are to find Tescos objectives as beneficial. The
company had been applying various business strategies and programs that will
promote effective customer relations so as to fulfill its objectives. In addition, the
provision of quality products and services directly benefits the consumers as they
are able to get the worth of their money.

The employees of the company are perhaps the ones who will find conflict
with the identified objectives. Naturally, as Tesco is gearing towards quality
production and service, employees will have to go extensive trainings and
performance appraisals. Efforts to give the best performance are placed on the
employees responsibility. These pressures are the possible main causes of conflict
with the employees and Tescos objectives. Despite the conflict, the company can
conduct techniques or strategies that will prevent internal conflicts.
One way of doing so is by means of making the employees realize their role in the
companys success. It is also important that the employees competency and
confidence level in relation to their individual responsibilities are increased as well.
This can be done by recognizing their hard work for the company. Promotions,
monetary rewards and other relevant methods of employee recognition should be
done by the company.
Trainings and seminars are also possible ways of preventing internal
conflicts due to the companys objectives. This is mainly due to the ability of these
strategies to encourage the employees. If employees are able to gain something out
of the companys strategy, employees are naturally more satisfied with their jobs
and are more willing to handle their responsibilities. In turn, customers are provided
with products or services that are of quality and delivered in a timely fashion. With
motivated employees, product and service errors are also reduced significantly. This
in turn will help in obtaining higher customer satisfaction, the ultimate end result of
Tescos objectives.
The responsibility of Tesco to the customers is centered on the provision of
products and services that suit their needs. The company employed a number of
ways on how to meet this responsibility. One of which is the development of
Tesco.com. The company is aware of the increasing number of individuals going to
their respective workplaces, making it impossible for most people to allocate time
for grocery shopping. The online shopping site is then made to target busy
employees or working parents who are too busy to do actual grocery shopping.
Before carrying out this strategy, consumer studies are necessary. Surveys or

interviews can help in identifying the preferences and specific needs of the
consumers. This will help in optimizing the effects of the companys strategies.
For this purpose, Tesco designed a consumer research focusing on the
buyers of its health and beauty items. Through this effort, Tesco has successfully
created an environment that is different from other retail stores. In the consumer
research, customers are observed browsing and taking their time in choosing
product items as they enter the grocery aisle. By following this consumer-led route,
Tesco was able to ensure the delivery of exactly what the customer wants or needs;
thereby leading to increased sales at the counter. With the availability of the online
shopping site, consumers are now given more time to browse with the products
offered by Tesco during times that are most convenient for them (Stern, 2004).
As the company wanted to make shopping easier for the customers who are too
busy to shop, Tesco also allows consumers to access the Tesco.com portal and shop
online anywhere through Tesco Access. This feature enables users to access its
online shopping directory through Pocket PC devices and Smartphones. Through this
additional access, Tesco hopes to enhance the companys online experience by
means of attracting current customers as well as attract potential buyers. This
strategy of the company also intends to allow users to access the company who do
not have the access capability through other communication channels.

Potentially, the addition of mobile access to its online services enables Tesco.com to
extend its present base of one million users in the UK to over 90 percent of the
country's online population within one year. Tesco.com already commands 70,000
online orders per week in a marketplace that analysts expect will swell to over
GBP1.2 billion in Europe within two years (M2 Presswire, 2001).
Aside from the development of Tesco.com, the company also fulfilled its
responsibilities to the consumers through programs that generally strengthen
company-consumer relations. Specifically, these programs include the reward
program and the incentive program. Clive Humby differentiated these two programs
and explained how these can help in fulfilling the companys responsibilities to the
consumers (Bailey & Schulz, 2000).
With the reward program, the objective is to target customers to essentially
represent profit-sharing with the customers. Tescos reward program maintains an
even-handed balance with its very best consumers. In this case, no additional inputs
are expected on the part of the consumers. If these loyal customers do provide
additional inputs, such as recommending the store to other potential buyers, Tesco
recognizes this input and provides a fair value for advocacy in the form of rewards.
The incentive program on the other hand, works in the same way as the
reward programs. However, in this case, the program is more focused on giving
incentives so as to cause consumer behavioral changes. With this program, Tesco
motivates regular or potential customers to change what they are presently doing.
What should be kept in mind is that such incentives will continue to be necessary

until the customer experiences other value as a result of changing stores or

shopping behaviors and, thus, no longer requires the incentive to buy from Tesco.
The value exchange moves to the equilibrium state where both parties benefit from
the new behaviors (Bailey & Schulz, 2000). Despite the differences, both of the
programs help in causing positive effects both for the customers as well as for the
company. These are some of the ways how Tesco fulfill its responsibilities to the
customers.

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