Launching a new smartphone in a crowded market may seem daunting, but Tesco has form. Tesco Mobile holds over 6 per cent of the market, and boasts the joint highest customer satisfaction rating of any UK network. Tesco has also had success with its Hudl tablet, which has sold over 500,000 units since its launch late last year. The logistics, manufacturing and supply management now in place from the development of Hudl will be a huge asset to Tesco when launching its smartphone. Tesco will undoubtedly back its own-brand smartphone, hosted on its own network, with some bold promotions which will appeal to price-savvy customers in a similar vein to its popular low-cost tariff offers. The smartphone will most likely be Android operated, which will play to Tesco’s existing strengths – appealing to typical Android customers, who tend to be more influenced by price than those on other operating systems. Fiona Keenan is strategic insight director at Kantar Worldpanel.
The consumer electronics market is incredibly challenging, even for the established players. To win, companies need to build a critical mass of users, as well as a way to differentiate the product from the other options on the market, including Apple’s brand – an ecosystem of devices, apps and content that the iPhone is a part of. Tesco has the advantage of having an established customer base and brand recognition, even though the brand image and message are more relevant to retailing than consumer electronics. Its plans to offer the phone pre-configured with Tesco services may be an attempt to differentiate the product and avoid commoditisation. But it is getting into a fight with the big boys, and the synergies with its existing core business are not obvious. Diversification tends to be more beneficial if it takes place in related products and services. Tesco has successfully diversified into financial services, but that market is not as fast-moving or cut-throat as smartphones. Loizos Heracleous is professor of strategy at Warwick Business School.