The Tesco Loyalty Card Case Study
The Tesco Loyalty Card is one of the most exciting and interesting marketing tales of this generation. Tesco’s have gained the reputation as sophisticated loyalty scheme marketers.In 1995 Tesco introduced their Tesco Clubcard and since then Tesco have become the number one retailer in the UK market with annual revenues of over £32 billion. They have successfully entered new markets including home electronics, clothing and personal finance. Tesco’s is also the world’s most successful Internet supermarket, one of Europe’s fastest growing financial service companies and of interest to us, one of the world’s most successful exponents of Customer Relationship Management (CRM).
The Tesco Clubcard has become the world’s most successful retail loyalty scheme. Part of that success has been allocated to the expertise they have developed in managing their Clubcard and thus their personal relationships with individual customers. Just to give you an indication of the sheer size of the database Tesco tracks the shopping habits of up to 13 million British families and have done so for more than a decade.
Tesco had the vision to see that really understanding their customers was the key to customer loyalty and satisfaction. This loyalty card has transformed Tesco’s relationship with its customers and the information from the database guides all the key business decisions. The loyalty scheme allows for many benefits one of which is targeted communication. There are over four million variations of its quarterly customer mailing to ensure that its discounts and offers are tailored specifically for the customer.
In 1994 Tesco’s hired a company called DunnHumby to help them analysis their database and find the patterns in the data they would help them devise successful marketing programmes. It is interesting to note that within three months of hiring DunnHumby, Tesco realized the expertise they were bringing to their organization. As their then chairman Lord MacLaurin said “What scares me about this is that you know more about my customers after three months than I know after 30 years.”
DunnHumby translated the insight from the analysis of shopping patterns into actionable marketing and retailing programmes which encouraged customer satisfaction and loyalty to Tesco. The Tesco’s scheme
gives it an immediate advantage over competitors in 11 areas:
- Consumer trends;
- Targeted communications
- Accurately measured promotions;
- “Basket building”;
- Defense against competitor activity;
- Right product in right place;
- Negotiation power;
- Site locations;
- Seasonal peaks; and
- Global growth. (Benady’s, 2006:18)
There has been much publishing of the success story behind the Tesco Loyalty Card and the company which manages it, DunnHumby. An excellent book ‘Scoring Points’ is very insightful as it showcases the actual struggles, challenges and expense of this endeavor (cost incurred is £60 million per annum) and also the growing successes over time. This book will support students and companies struggling to use loyalty cards or to understand the gems contained in their databases or CRM systems. As Professor Don Schultz, Northwestern University, ‘If you’re in marketing and you don’t know the Tesco story, you’re using antiquated techniques and approaches. This is the future of marketing. Read it and profit.”The twelve chapter titles from the text show clearly the major issues that companies must overcome when launching a loyalty card and indicates how much understanding Tesco’s gained about their customers:
- Questions of loyalty,
- Making loyalty pay,
- Clubcard on trial,
- Because we can,
- Every little helped,
- Data, lovely data,
- Four Christmases a year,
- The quarterly me,
- You are what you eat,
- Lifestyles become habits,
- Launching a bank,
- Babies, beauty and wine,
- A bigger deal,
- From mouse to house,
- Five challenges for the future
Tesco Clubcard holders benefit when shopping at Tesco as receive 1 point for every £1 they spend, and double points on special offers. These points are stored and built up and 4 times a year the holder receives vouchers to the value of points they have saved (1p per point). Vouchers can be spent in store on shopping or used on Clubcard Deals where they are worth 4 times the value. They are also entitled to free access to the Clubcard clubs which include: wine, baby and toddler, healthy food, food and Christmas clubs. For Tesco the benefits they give to the customers ensures that they can micro-segment customers by lifestyle habits, including individual personality traits from analysis of the contents of each grocery cart. They can then target them with newsletters and other personalized information along with a variety of other marketing programmes.
There are over 150 loyalty schemes within the UK, which equates to the circulation of over 40 million cards so at some stage marketing professional will need the expertise to manage these schemes for maximum return. According to Nundes and Dreze (2006) the following are the five features of a good loyalty scheme:
- Keep customers from deflecting
- Win greater share of wallet
- Encourage more sales – prompt customers to make additional purchases
- Provide insights into customer behavior and preferences
- Make a profit
According to many Tesco has become world-wide experts in company loyalty scheme as witnessed by the following quote from Martin Glen, the President of PepsiCo.
‘Customer loyalty schemes are not a new idea, they have been around for more than 100 years, but what Tesco has done is to develop a contemporary version of the original concept which goes much further in developing an active relationship with its customers. Tesco’s marketing works because they combine insight with creativity, value and scale’.
LO I: Understand the importance of relationship marketing in a contemporary business context
- Explain the concept of knowledge management and its role in relationship marketing with reference to Tesco PLC.
(Criteria 1.1: Explain the concept of knowledge management and its role in relationship marketing)
2. Explain how Information and Communication Technology is being utilized and how it supports in implementing the CRM program at Tesco PLC.
(Criteria 1.2 Explain the ways that ICT can support the customer relationship management process in a particular organization.)
3. Describe the benefits of CRM program at Tesco PLC, in achieving its business goals and recommend activities to be undertaken for improving their CRM program.
(Criteria 1.3 Describe the benefits of customer relationship management in a selected organization)
(Criteria 1.4 Make justified recommendations for the improvement in customer relationship management for a selected organization)