Tesco to Seek Advantage with Next Gen Loyalty Card

Discussion
Apr 24, 2009

By George Anderson

Tesco plans to launch
the next generation of its Tesco Clubcard, making greater use of shopper
behavior data and perhaps testing a contactless radio frequency identification
system with cell phones that would eliminate the need for plastic membership
cards. Aside from that, there was little of substance about Tesco’s plans
for its loyalty program in news reports.

Customers
who use Tesco’s Clubcard earn five points toward rewards for every £5 spent
in one of the company’s store or on its website. Points are also given
for expenditures made with other merchants.

The U.K.’s largest retailer
is looking to upgrade the Clubcard program at a time when competitors,
including Aldi, Asda and others, are picking up market share.

Sir
Terry Leahy, Tesco’s chief executive, told The Herald, "In
a recession, particularly a recession where food prices spiked up for a
short period of time, people have been shopping around…If you can convince
the consumers, particularly as they come out of recession, that they can
trust that the prices are right and you can be rewarded for shopping with
a retailer, it benefits you."

Carolyn
Bradley, U.K. marketing director at Tesco, told The Times of London, "We
think that in this market, loyalty is critical."

Discussion Questions:
What are the keys to a successful loyalty program? Do the basic tenets
change during a recession? Which retailer(s) have the best program(s) from
your vantage point?

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12 Comments on "Tesco to Seek Advantage with Next Gen Loyalty Card"


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Ben Sprecher
Guest
Ben Sprecher
13 years 27 days ago

It is unsurprising that Tesco is continuing to innovate with its Clubcard program; after all, they have been the gold standard for years.

What will be interesting is to watch for similar changes at Kroger, since dunnhumby is the driving force behind both retailers’ programs. In general, Kroger has been evolving to be more “Tesco-like,” especially with regard to their shift towards private-label offerings. The main difference between the two in my mind (at least as it relates to their positioning against their respective competitors) is that Tesco’s market share has already peaked, while Kroger’s is still on the rise. So, when we see similar changes in Kroger’s loyalty program, it may be a signal that their growth spurt is slowing.

Doron Levy
Guest
Doron Levy
13 years 27 days ago

Loyalty is a great way to reach out to your customers when spending slows. Using the data collected, you can really tailor promotions to zip or postal codes, income and buying habits. Shoppers Optimum does a great job of targeting their email and paper campaigns to the actual shopper’s habits. Loblaws actually has their own President’s Choice Bank and ties in points collection at the store level through their banking clientele. Loblaws excels at telling you how many points you could have had. Canadian Tire, probably the creator of the ‘loyalty program’ with their cash back Canadian Tire money ties programs into their own MasterCard. I’m really seeing good redemption bonuses from Airmiles, especially with their retail gasoline partners. Obviously, this is the channel to reach out to customers.

Kevin Graff
Guest
13 years 27 days ago

The highlight in Tesco’s new approach to their loyalty program is the possibility of finally scrapping that annoying membership card you need to have with you. For the most part I’ve given up any loyalty card that requires me to carry a piece of plastic with me, including key fobs.

When you look at trying to appeal to Gen Y’s (unfortunately, I’m too old to be one of them) you have to recognize how they view ‘plastic’ as pre-historic. Leveraging technology is the only step forward for loyalty programs.

Max Goldberg
Guest
13 years 27 days ago

A good loyalty program allows retailers to gather data about consumer purchases and then use that data to get consumers to shop more at their store, with a larger, more diverse market basket. For consumers, a good loyalty programs allows them to have a more customized shopping experience and rewards them for shopping consistently at one merchant over another.

Tesco is the master at this game and has been for years. They are not afraid to innovate. The success of their loyalty program has allowed them to have manufacturers pay for many of its costs by directing promotions into the program.

Loyalty programs come under stress during a recession, as consumers shop for the lowest prices, regardless of rewards. It will be interesting to see how Tesco uses its loyalty program as the recession drags on.

Phil Rubin
Guest
Phil Rubin
13 years 27 days ago
In terms of retail “programs,” Tesco is in a class by itself, with the majority of UK residents members in its Clubcard program (hence why the “Herald” refers to the question of “Do you have a Clubcard?” as annoying). There is no program in the US that comes close to achieving the results that Tesco has achieved via Clubcard nor a program in the US that has the same level of customer insights. Tesco has followed a number of best practices, largely in terms of the use of data and consistently building to its program offering and deeply integrating Clubcard into its business, merchandising and marketing strategies. There are some other retail programs that have come close but I still maintain that Amazon has the best non-program program in the world. Not surprisingly, they reported very nice profits yesterday and continue to grow their business significantly even during a recession. There are many appropriate strategies and tactics for best leveraging a loyalty program during a recession and they all depend on the type of program… Read more »
Cathy Hotka
Guest
13 years 27 days ago

Retail companies institute loyalty programs because they want to enjoy the benefit of increased spending by customers. Ironically, many loyalty programs provide few insights, and drive down margins through discounting. Tesco is one of the companies leading the way to more meaningful interaction with customers, in an effort to drive service benefits over pricing. Retailers looking to get better insight into buying patterns will want to watch Tesco’s experiences here.

Steven Collinsworth
Guest
13 years 27 days ago
I am sure there are some retailers who understand their consumers quite well in terms of who they are, what they like, when they shop…the how they shop, why they shop are more complex. Are the results of these learnings too small to identify what changes the retailers have made? Maybe I am not seeing it because of the “clutter and noise” from all the promotions, etc in the industry. Personally, I have not seen the insights or implementations as a direct result of the huge amounts of data these purchases must add up to. I do know instances of the loyalty program in two retailers which began with the fanfare you would expect, but the expected information and resulting insights were elusive at best. Both retailers have scaled their loyalty analysis back from its beginning. Was it too much too soon? Investment in the program, but not the tools to mine the data? The wrong people in place to manage it all? I am not sure of the answers because I am not as… Read more »
Dave Carlson
Guest
13 years 27 days ago

The article doesn’t explain Tesco’s “greater use of behavioral data,” which would be interesting to learn.

Shopper Loyalty at FMCG retailers will be best served when all communication (offers, ads, reminders, nutritional content, etc.) is optimally aligned with each shopper’s needs and interests based both on behavioral insight and shopper input. It must also marry retail and vendor partner strategic interests.

Shopper-centric communication should be delivered from a common source across all available touch points, with form and content respecting each touch point’s unique value.

Replacing plastic, not just for identification, but also as a payment vehicle will be a real breakthrough. With many diverse experiments underway, I’d bet that cell phones, perhaps with NFC stickers or chips, will play a major role.

Jim Deveau
Guest
Jim Deveau
13 years 27 days ago
I think there is a distinction to be made on the mechanics of Loyalty programs and on where our industry stands. At the macro level, a retailer rewards shoppers with value based on a shopper’s total spending and loyalty to the chain. This generally comes in the form of rebates or discount credits, and this type of loyalty investment is generally a straightforward process funded primarily by the retailer. At a more granular level, a retailer can bring loyalty marketing to the individual shopper with individual product incentives. This is the more traditional “shopper offer” mechanism, and this area has received a great deal of recent focus. Here, the retailer can choose to either self-fund specific product offers, or enlist the CPG vendor as a shopper marketing partner. I believe this area of loyalty marketing offers the most significant potential gains for a grocer. Departments, categories and products can each be “marketed” by focusing on shopper behaviors and household requirements. Done properly, loyalty programs link with chain strategies, and vendor partners lend support in mutually-beneficial… Read more »
W. Frank Dell II, CMC
Guest
13 years 27 days ago

The key to Frequent Shopper programs is to give the customer what they want. S&H and Plaid stamps did this by letting the consumer redeem for items they would buy elsewhere or could not afford to purchase. The most common programs should be called discriminating pricing, not shopper programs.

Further, only a handful of retailers even look at, much less use the information these programs provide. Tesco has been in the using the right approach for years and it shows in their success even against Walmart. They have a 7 year head start on everyone else. No question, knowing the customer like Tesco does allows them to communicate with customers in both good and bad times.

William Dupre
Guest
13 years 26 days ago

Cell phones are perfect for this application. Using a text2join method for enrollment also opens an opportunity to recruit the un-banked, 40% of SoCal. All loyalty system allow for entry of a phone number to replace the card already, another big feature for a retailer. The phone also becomes an excellent tool to communicate offers to members. When a member is not scheduled to receive an offer they have the ability to pull the message through to the phone using the browser (on the way home on the train while planning what’s for dinner).

How the information is used is another question.

Joshua Herzig-Marx
Guest
Joshua Herzig-Marx
13 years 24 days ago

A small additional comment to those who think younger people are uninterested in carrying plastic cards: an unscientific survey of social networking users (my predominantly Gen-X and Gen-Y Twitter and Facebook friends) had over 80% of them using the grocery loyalty cards. For the most part, those who didn’t shop at stores without loyalty programs.

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