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To help you see what else is covered in the report, we have also
included the report's complete Executive Summary and Table of
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From chapter 20 - Supermarket & Grocery Loyalty
20.2 Case studies
20.2.1.7 Case study: Tesco & Dunnhumby (Clubcard)
Tesco [www.tesco.com] launched its Clubcard nationally in 1995. It was the first major supermarket loyalty
programme in the UK, so it was a calculated risk. Up until the launch, Sainsbury's had led Tesco in terms
of UK market share. The month after the launch, Tesco passed Sainsbury's, and has been ahead ever
since. Tesco calculated that a sales uplift of 1.6% would cover the £10 million cost of launch and the cost
of issuing cards and reward vouchers. In fact, at first the uplift was more like 4%, settling at well over 2%.
Some stores saw double-digit increases in like-for-like sales. So far, Tesco has handed out well over £1
billion in Clubcard vouchers.
In the book 'Scoring Points', the circumstances surrounding the inception, launch and later development of
the Clubcard are discussed frankly and in detail. According to the book's authors, the factors that led to
the success of the launch included: speed to market (the only option for competitors was to react); a
simple uncomplicated message; trust in the team to act decisively; involvement of front-line staff; careful
testing; confidence; and commitment.
A programme with some 16 million members generates a tremendous amount of data - enough to
significantly slow down any useful analysis. Tesco overcame this by deciding not to try to answer every
question about every customer, but to answer some of the biggest questions about most customers.
Marketing analysts, Dunnhumby [www.Dunnhumby.com], who had worked with Tesco on the Clubcard
project since 1994, came up with some innovative ideas that significantly reduced the amount of data that
had to be processed in order to make valid, useful decisions. Some of these are detailed in the book
Scoring Points. (In May 2003, the US-based retail grocery chain, Kroger, partnered with Dunnhumby for
the analysis of its customer data. This analysis offers Kroger new insight into its customers' needs, and
improves their shopping experience.)
Clubcard holders can collect points across the entire Tesco group (1 point for every £1 they spend in-
store, on petrol, or online at Tesco.com), and they can also collect points from Tesco Telecoms and
Tesco Personal Finance as well as Clubcard partners such as E.ON, Avis, and National Tyres, and
through bonus point coupons and various special offers. Points are collected and sent to customers with
their quarterly loyalty statements, in the form of Clubcard Vouchers. Customers can redeem their
Vouchers in store at face value or they can exchange them for 'Clubcard Deals Tokens' and get up to four
times their face value. Clubcard has signed up over 300 Deals partners including Eurotunnel, selected
hotels, magazines and holiday companies.
Every quarter (13 weeks) Tesco sends a magazine to each of its Clubcard members. This contains
coupons to the value of the reward earned over the three months - these can be used to pay for goods at
the checkout, can be used to 'buy' Air Miles, or can be redeemed at a range of partners too extensive to
list, but including theme parks and restaurants, museums and other attractions, hotels, holidays and travel,
motoring organisations, magazines and beauty consultations, sport and leisure, and flights. The magazine
also contains product specific discount vouchers, selected for each customer on the basis of previous
purchases. When the magazine is posted each quarter it is said to account for some 6% of the total
volume of mail handled by the Royal Mail at that time (see also 2.3.13).
Tesco signed up with Air Miles [www.avios.com] in March 2002; previously Sainsbury's customers could
redeem their Reward Points for them. At the time of the change, Tesco.com saw a surge of 450% in
searches for store maps as customers looked online for their nearest Tesco store, and enquiries about
home shopping rose by 300%. The Royal Bank of Scotland Group, Tesco's partner in the Tesco Personal
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Finance arm was, at the time, already the biggest originator of Air Miles in the UK through its credit card
business.
In September 2002, after a trial in Wales, Tesco rolled out targeted electronic coupons at the checkout for
its Clubcard members. At the time, a Tesco spokesman said that these coupons were not intended to
replace the mailings but to supplement them. The coupons are automatically printed by the tills at the
time of purchase. Unlike some similar systems, they are not triggered by the purchase of a specific
product at the time but by the customer's recent purchase history. One hundred different offers -
changed every two weeks - are available at any one time. The system selects which of these offers are
most relevant to the customer in real time.
In November 2002 Tesco added an "online Clubcard" - its online rewards scheme - to its web site,
Tesco.com. Tesco had been under pressure from rival supermarket Sainsbury's since the launch of the
Nectar programme in September (of which Sainsbury's is a founding partner). Industry analysts,
Datamonitor, called the move "clever marketing and deft online touch".
Customers earn reward points that are converted into e-coupons and vouchers, which can then be
redeemed online. All of the then 10 million existing customers were being encouraged to request
vouchers and log on to the web site to redeem their new points.
Essentially, the new e-coupons and vouchers extended the existing Clubcard scheme into the Tesco.com
virtual store, which by then was handling some 85,000 visitors each day.
The company made good use of the customer data gleaned from its Clubcard programme, allowing it to
target customers based on their known spending and shopping habits, offering an array of customised
mailshots highlighting different offers and advantages to well-segmented groups of consumers.
When the Nectar programme was launched in September 2002, Tesco countered with a short-term
programme offering its customers the chance to win £1 million. However, the customers first had several
hurdles to overcome. Shoppers were given a game card for every £25 they spent. Each card contained a
multiple choice question, with four possible answers. Any Clubcard customer who answered four of these
game card questions correctly could enter the draw for one of 200 seats for an exclusive filming of a
special episode of the hit television show, 'Who Wants To Be a Millionaire?'. There, they were given the
option to compete in a 'fastest finger first' contest, the winners of which were invited to answer fifteen
questions for a million pound prize. According to Tesco marketing director, Tim Mason, the multiple-
stage game approach was chosen because customers had previously indicated that "they want added
excitement for their shopping trips as autumn closes in, before the run-up to Christmas." Five other
shoppers won one million Air Miles each and another five won one million Clubcard points each.
In March 2003, Tesco, bought out the online women's community, iVillage [www.ivillage.co.uk].
Following the sale, iVillage became a wholly-owned subsidiary of Tesco, subject to a 20-year licensing
agreement for content and intellectual property, including trademarks and copyrights.
The deal followed Tesco's launch of the MeTime women's reward category as part of its Clubcard loyalty
programme. Tesco's MeTime programme is aimed at helping women to pamper themselves by using
Clubcard points for luxury treats such as hair styling and make-overs.
iVillage is an online community for women, with a variety of information and activities to take part in,
including discussion groups, job seeking, health advice, and even a baby name chooser. The online
community focuses on issues that matter to women, and offers interactive services, expert advice, and a
support network.
Other content channels include: diet and fitness, relationships, parenting, pregnancy, health, beauty, food
and drink, money, news and entertainment, work and careers, astrology, computers and the internet,
shopping, games, and motoring.
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Under the terms of the agreement, the iVillage online community will continue to operate under the
iVillage UK name, and will continue to provide its 1.2 million visitors each month with information,
articles, and offerings.
The expansion of the relationship between the two companies also gives Tesco the ability to use iVillage
to cross-market and interact with its other communication channels, including the Tesco.net internet
service provider (ISP) as well as its bricks-and-mortar stores.
Although iVillage continues to operate under its own branding, the online entity is expected to receive
significant marketing and promotional support from Tesco to help drive qualified traffic, and to promote
itself within the UK. The license agreement is structured so that the site's existing operator, iVillage UK
Ltd, receives either a set monthly fee or a percentage of gross revenue, whichever is greater.
In March 2005, iVillage Inc. The Internet For Women, a women's media company and women's community
online, announced that, through a subsidiary, the company has signed a definitive agreement to acquire
the iVillage.co.uk website and certain related assets from a subsidiary of Tesco Stores Limited. iVillage
expected to close the deal in May.
In September, 2003, Tesco launched its new Tesco Mobile telephone service offering, beginning with a
range of 'pay as you go' handsets. Users earn two Tesco Clubcard points for each £2.00 spent on airtime
top-ups in-store, or one point for each £2.00 when topping up elsewhere.
In November 2004, retail technology supplier Conchango observed that creating value for customers in
order to earn their lifetime loyalty is a strategic vision for Tesco, and two important elements of that
vision are customer-centricity and reducing queue times (both at the checkout and at in-store food
counters). So, when the time came to upgrade the ageing weighing scale infrastructure, Tesco's service
productivity team recognised the potential benefit of introducing a more intelligent weighing scale
application that would improve the customer experience at in-store food counters like the delicatessen,
butcher, fish counter, bakery and hot chicken counter.
Using Microsoft's .NET technology, Tesco and Conchango developed a counter scale application that
not only makes shopping easier, but also automates routines at the point of service, simplifies pricing
integrity, centralises system support and provides real-time purchase information to other systems and
timely summarised data to headquarters.
Within twelve weeks, Tesco, Conchango and Herbert Retail (the scale supplier) were preparing the system
for an in-store trial. This successful trial led to an extended trial in 17 stores. The system was then
deployed to all UK stores. As a result, transaction speeds increased by 42% and staff are able to answer a
wide range of enquiries with greater confidence, including an item's country of origin, whether it is
organic or not, and provide suggestions for cooking methods and recipes.
In August 2004, the signing of an exclusive 3-year agreement ago saw car rental company Avis Europe
[www.avis-europe.com] establish itself as a Tesco Clubcard and Clubcard Deals partner. Clubcard
cardholders earned points when renting a car with Avis and could pay for their Avis car rental by
redeeming Clubcard vouchers at four times their face value.
In February 2005, Tesco Ireland partnered with the points-based travel and leisure reward programme
Buy and Fly! to offer flights, travel and leisure rewards to its Clubcard loyalty programme members. The
partnership extended only to Clubcard members in the Republic of Ireland, who could choose to have
their Tesco Clubcard points automatically converted into Buy and Fly! points. These points were then
redeemable for a range of travel and leisure rewards including flights with eighteen airlines around the
world.
At the same time, Tesco UK began its involvement with self-checkout technology, freeing up extra staff
time and improving customer satisfaction. Tesco installed 285 NCR [www.ncr.com] FastLane self-service
checkout units, which enable customers to scan, bag and pay for their purchases themselves, in 96 Tesco
Metro (High Street stores), Superstores and Extra stores (hypermarkets) in England, Wales, Scotland and
Northern Ireland. Customers could scan, bag and pay for their purchases themselves. According to
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Tesco, shoppers of all ages took to the technology, scanning all sorts of goods ranging from food and
clothes to pharmaceuticals and electronics. Self-checkout also enabled Tesco to free up more staff time to
help other areas of the store or open more checkouts. According to NCR, Tesco's experience with self-
checkout was backed by research from IDC that showed that consumers see real value in the technology,
and that UK consumers cited shorter queues (68%), faster check out times (68%), and having a choice of
how to check out (66%) as the main benefits of self-checkout.
By May 2005, an analysis of the UK supermarkets' market share from TNS Superpanel [www.tns-
global.com], revealed that a recovery in Sainsbury's market was building (with its share lifting from 15.5%
a year before to 15.9%, representing real turnover growth of 5%) - but the clear leader in the field was still
Tesco, with an ever-widening lead. Indeed, Tesco had continued its recent run of double-digit turnover
growth to post a share of 29.8% (up from 27.5% a year before). All told, the UK supermarket share
figures from 2004 to 2005 showed that Tesco continued to build on its impressive market lead while its
closest rivals, Asda and Sainsbury's, continue to fight for second place. Against this competitive
background, TNS said that Asda had suffered a small loss of share (from 16.6% to 16.5%), underlining
the fact that the EDLP supermarket's growth had slowed from the levels seen in 2004.
But by the end of June 2005, Tesco reached its anticipated market share breakthrough, passing the 30%
mark in the UK market, according to the June 2005 figures from TNS Superpanel. It had actually reached
an all-time UK record market share of 30.3% (up from 27.9% for the same period one year before). This
represented annual growth of some 11%, continuing the supermarket's consistent double-digit growth
noted by TNS throughout 2005.
According to the figures for the 12 weeks ending 19th June 2005, Sainsbury still held on to its share of
15.9% (up from 15.6% one year before). Asda, which is part of the Wal-Mart family, remained flat with a
share of 16.4%, almost unchanged from the same time the year before. The combined Morrisons-Safeway
share, however, slipped to 11.7%, marking the group's first time below 12%. Somerfield continued its
strong run with its share having increased from 3.5% one year before to 4.0% in June 2005. However this
share gain is balanced by the loss at Kwik Save so that the combined Somerfield/Kwik Save share actually
remained relatively unchanged. Waitrose enjoyed another period of strong year-on-year growth (up 20%),
holding on to the share gains it made earlier in 2005.
In August 2005, in the UK and Ireland, Tesco Diets [www.tescodiets.com] implemented e-mail marketing
technology from e-marketing technology firm e-Dialog [www.e-dialog.com] to deliver customised
messages to its community of subscribers. The e-Dialog Precision Central software platform helps Tesco
Diets to provide sound, relevant, and helpful advice to its members about maintaining a healthy weight.
Among the platform's features that Tesco Diets is using are: custom publishing, live proofing, conversion
tracking, management of unsubscribe templates, selection of audience lists from multiple sources, mail
metering management, spam reporting, and reporting and analytics.
In February 2006, Tesco announced its intention to enter the US market through the development of a
new convenience format, beginning with stores on the West Coast in 2007. The new C-store format was
designed for the American market, following extensive consumer research. The format was also modelled
on Tesco's existing Express concept which already operates in five countries (including the UK) with over
800 stores serving around 8 million customers per week. Through the US operation, Tesco hoped to
build up its position in the world's largest markets. The expansion will bring the global population of the
company's combined markets to some 2.1 billion people.
The development of the business will be through organic growth, with initial planned capital expenditure
of up to £250 million per year funded from existing resources. Break-even was expected by the end of the
second full year of operation. Tesco then traded in 12 countries outside the UK (mainly in Asia and
Central Europe), and more than half of the company's selling space was outside the UK. But the
announcement of a US-based initiative represented a strategic move into a highly developed market,
which followed the company's entry into the emerging Chinese market in July 2004.
At the same time, Tesco announced that up to 49,000 of its UK staff would share in a multi-million
pound pay-out as two of its Save As You Earn (SAYE) share schemes matured. Under the SAYE scheme,
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staff can set aside a fixed sum between £5 and £50 from their salary every month for a three or five year
period. When the scheme matures they have the option to buy Tesco shares at a price set when they
joined the scheme. Top savers, including checkout assistants, internet shopping delivery drivers, and store
managers, stood to gain some £5,300 (a 59% return on their initial investment in company shares).
In June 2006, the Lean Enterprise Institute [www.lean.org] reported that one of the many keys to the success
of Tesco's Clubcard loyalty programme is the retailer's 'lean provision' system that efficiently delivers
exactly what customers really want, when they want it, and where they want it. According to James
Womack, chairman of the non-profit Lean Enterprise Institute, the retailer's lean provision system allows
it to respond rapidly to the wealth of data collected from its 12 million+ Clubcard users, giving
appropriate discounts to loyal (frequent) shoppers.
Tesco's lean provision system combines point-of-sale data, cross-dock distribution centres, and frequent
deliveries to many stores along 'milk-runs' to stock the right items in a range of retail formats, including
Tesco Express convenience stores, Tesco Metro (small supermarkets), traditional Tesco supermarkets,
Tesco Extra stores (big box superstores), and the Tesco.com online shop. The range of retail formats the
company has established, combined with detailed knowledge about specific consumers and the rapid
replenishment of each store, allows Tesco to offer households convenient variety at a low total cost. The
strategy has worked brilliantly, allowing Tesco to establish the lowest cost position among British retailers
(including the Wal-Mart owned Asda chain) while posting progressively higher margins and steadily
increasing its share in every format.
In August 2006, Tesco offered Clubcard members special Green loyalty points for not using carrier bags,
and bringing their own with them to the store instead. Consumers earn points for each carrier bag they
bring in and reuse at the checkout, whether they are Tesco bags or those of competing supermarkets.
Checkout staff ask customers how many bags they are reusing and agree the number of points to be
awarded. Larger re-usable trolley bags may earn more than one point. Staff have received training but also
use their discretion when awarding points.
According to Tesco CEO, Sir Terry Leahy, "We had a team looking at carrier bags, trialling different ideas
in our stores and talking to customers about what we could do to encourage them to use fewer bags and
to recycle the ones they do use." The aim of the programme, according to Tesco, was to reward
customers for using fewer new bags. The company said at the time that it aimed to cut the number of
new bags given out by 25% over the following two years - a potential saving of 1 billion bags per year.
Tesco also introduced bigger, thicker bags in many of its stores so that customers can fit their shopping
into fewer bags. All Tesco carrier bags have been bio-degradable since October 2006. Another smart
move for Tesco Clubcard members is that the company has issued coupons entitling members to a free
reusable Bag for Life, making it easier to reuse and reduce bag consumption. All of Tesco's staff also
received personal letters introducing them to the scheme, providing them with coupons for Bags for Life.
At the same time, ComScore Networks [www.comscore.com] reported that Tesco had become by far the
most popular online grocery shopping web site in the UK, capturing some 66% of all online grocery
orders nationwide. From January to July 2006, Tesco gathered an average of 30,000 orders per day,
representing total online sales of some £2.5 million per day. Tesco.com's closest online competitor was
Asda, which captured 16% of all orders, followed by Sainsbury's with 14%. Despite its third-place
standing in terms of order volume, Sainsbury's customers actually spent the most when they ordered,
averaging almost £90 compared to £80 for both Tesco and Asda. In addition, Asda and Sainsbury's
customers typically ordered more items, both averaging 69 units per order, compared to Tesco's 58.
ComScore also tracked the delivery costs charged by each, and found that Sainsbury's online customers
incurred the lowest delivery charges during the period (at just over £3 per delivery on average). Tesco's
online customers paid over £4 per delivery, and Asda's online customers paid the most at nearly £5.50.
In October 2006, Tesco launched a non-food direct retail operation called Tesco Direct, while at the same
time bringing order fulfilment in-house to improve customer service and supply chain control. Tesco
Direct is the retail web site that offers UK consumers a choice of over 8,000 non-food lines. In
conjunction with the existing Tesco.com food retail service, Tesco Direct means that customers can not
only do grocery shopping online but also buy a range of non-food goods such as furniture, kitchenware,
gifts, toys and sporting goods. While the delivery of some lines was previously outsourced to logistics
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partners, Tesco has brought all fulfilment in-house with the aim of providing an improved service for its
customers.
In February 2007, Tesco announced its plans for a new chain of supermarkets in the US market. Tesco
said that its new chain of grocery stores in the US would be called Fresh & Easy Neighborhood Market.
Tesco veteran marketer Tim Mason (who joined the company in 1982) was named as the US operation's
CEO. The company initially focused on the Greater Phoenix area, Las Vegas, Los Angeles and San
Diego, with the first stores opening in late 2007. Tesco chose the Greater Phoenix area for its high
population growth and the strong potential of its expanding market. Each of the stores are roughly
10,000 square feet in size, intentionally smaller than the usual supermarket in order to give customers a
faster, easier shopping experience.
The Fresh & Easy Neighborhood Market format was a result of extensive customer research in local US
markets combined with the learning from Tesco's existing Express format which it operates in more than
1,000 stores in seven countries, serving approximately 10 million customers every week. At the time, Tim
Mason said that he thought that the Clubcard programme would follow Tesco around the world, but that
it was really a question of timing.
At the same time, a new partnership between the UK's Open University (OU) and Tesco allowed Clubcard
members to pay for all or part of their OU courses using Clubcard vouchers. The OU was the first
university to add the Clubcard scheme to its marketing activities. Members can swap vouchers for
Clubcard Deals and receive up to four times their value, so for every £10 worth of Clubcard vouchers
shoppers can generate up to £40 toward the OU course of their choice.
And, following its earlier Green promotion in which customers were rewarded for reusing plastic carrier
bags, Clubcard members were again rewarded (with double Clubcard points) when they bought products
from the supermarket chain's popular green and organic ranges. Those purchasing products such as
organic fruit and vegetables, energy-efficient light bulbs, and environment-friendly brands earned double
the number of Clubcard points for an eight-week period from 15th February 2007. According to Tesco's
marketing director, Ian Crook, the previous bag reuse scheme had already helped save some 300 million
carrier bags by changing consumer behaviour.
At the time, the bag re-use scheme had put Tesco well on track to meet its goal of cutting carrier bags
issued by 25% by 2008, and that some 4 million customers had already collected Green Clubcard points
through the programme.
Members can also earn Green Clubcard points for recycling their old mobile phone handsets and inkjet
printer cartridges. Customers collect 500 points or £5 to charity for each working phone recycled, and
100 points or £1 to charity for non-working phones. For recycled inkjet printer cartridges, customers
receive 100 Clubcard Points or £1 to charity. Freepost envelopes are available in store for this.
In March 2007, TNS Global [www.tnsglobal.com] identified Tesco as the UK's favourite retailer. Some
15,000 TNS Worldpanel consumer panellists were asked to nominate their favourite retailer in each key
retail sector as well as their overall favourite. A significant 16.7% of respondents voted for Tesco as their
overall favourite retailer, with Asda and Marks & Spencer (M&S) coming second and third respectively.
At the same time, Tesco Direct announced that it would be installing up to 200 desks in stores across the
country during 2007, allowing customers to order and collect non-food products from a store of their
choice. The move followed positive feedback from customers who had used the desks at the handful of
pilot stores since the in-store service launched in August 2006. Shoppers said that they liked the
convenience of being able to collect or order products at the same time as they do their weekly shopping.
According to a report in Retail Week magazine, Tesco does indeed plan to launch the Clubcard in every
country where the company operates. Being such a powerful tool for gathering customer insight,
Clubcard has already been introduced to the Republic of Ireland and South Korea. But other countries
are expected to follow soon, including the US.
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In August 2007, marketing consultancy Dunnhumby announced the relaunch of Tesco TV, the in-store
media system used in Tesco supermarkets, under the new name 'Tesco Screens'. First installed in 2004,
the network consists of 5,000 LCD and plasma screens spread throughout 100 Tesco Superstores and
Tesco Extra outlets. Advertising spots can be designed to fit within the store's own in-store promotional
format or, for more product- and company-specific campaigns, brands can chose a new 'brand sting'
format that uses Flash animations for eye-catching messages around the store. Tesco TV proved
successful at driving brand sales, with average sales uplift on new and promo campaigns of 5% to 8%,
rising to 18% for seasonal activity. The new brand stings have already achieved sales increases of up to
25%.
In September 2007, Epsilon, the loyalty marketing arm of Alliance Data Systems [www.alliancedata.com],
signed a multi-year agreement to provide permission-based email marketing solutions and services to
Tesco.com, an online business of Tesco. Tesco.com deployed Epsilon's proprietary e-mail
communications and campaign management platform, and Epsilon is providing additional professional
services to help Tesco.com develop more highly targeted e-mail campaigns to acquire and retain
customers and generate increased sales through up-selling and cross-selling.
In November 2007, the first of the long-awaited Fresh & Easy Neighborhood Market stores opened its doors
in the US. In addition to offering a range of national brand name products at low prices, Fresh & Easy
has gone to great lengths to ensure all its own brand products contain no added trans-fats, artificial
colours or flavours, and only use preservatives where absolutely necessary. The stores also offer a range
of prepared meals (made fresh in the company's own kitchens at Riverside, California). Food is sourced
locally wherever possible and deliveries are made daily to each store to ensure all products are as fresh as
possible. A team of researchers spent time in the homes of US consumers looking at shopping and
cooking patterns. They discovered shoppers wanted fresh, wholesome foods that were affordable and
available in their local area.
According to US CEO, Tim Mason, "We literally went into their kitchens and looked in their
refrigerators. Based on our research, we are confident our stores will be a hit in every neighbourhood we
open in." Around 50 Fresh & Easy Neighborhood Market stores were expected to be opened by
February 2008 in all kinds of neighbourhoods, including those traditionally underserved by modern food
stores. The first six stores in California were closely followed by five in and around Las Vegas, Nevada.
San Diego and Phoenix were also included in the store openings schedule by the end of 2007.
As part of Fresh & Easy's promise to be a good neighbour and a responsible company, it intends to keep
all stores and car parks clean and tidy, and deliveries are scheduled to minimise noise and disruption.
Each store will also help support local charities and projects. In addition, the company has committed to
build LEED (Leadership in Energy and Environmental Design) certified buildings, recycle or reuse all
shipping and display materials and use environmentally friendly trailers to transport food.
Including the US, Tesco then operated stores in 12 markets outside the UK. Tesco's portfolio spans 13
countries (11 in Europe and Asia) making it the third largest retailer in the world. More than half the
company's retailing space is outside the UK, and Tesco has been cited as the market leader within the
UK, Ireland, Poland, Hungary, Slovakia and Thailand. Tesco operates over 3,400 stores worldwide,
including over 670 in Europe (in the Czech Republic, Ireland, Hungary, Poland, Slovakia and Turkey) and
over 700 in Asia (in China, Malaysia, Korea, Japan, and Thailand).
In January 2008, Tesco decided to expand its price checking programme to include 2,000 lines sold at
discount outlets such as Aldi and Lidl, and to offer more than 400 food and non-food items at half price
throughout the month of January. Tesco reports that it is now focusing on the growing discount retail
sector in a bid to ensure that customers do not have to compromise on quality or service to enjoy the
lowest prices.
In June 2008, Tesco announced a voucher collection scheme that offers schools and clubs a range of free
products. By merging its two existing voucher schemes ('Computers for Schools' and 'Sport for Schools
and Clubs') into one catalogue, the supermarket is offering schools and clubs a wider choice as well as the
freedom to decide where their priorities lie. To give schools and clubs longer to save up for big ticket
items, Tesco offered the vouchers in-store for an extended period of 15 weeks. All equipment was
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delivered during the autumn term, getting the school year off to a good start. Computers for Schools was
launched in 1992, and the supermarket gave 13,000 items to UK schools in that year alone. Sport for
Schools and Clubs followed in 2005. By the end of 2009, Tesco had given away more than 3 million items
of computing and sports equipment, with a value of over £150 million. Nearly 40,000 schools and clubs
take part in these annual voucher collection schemes.
In April 2009, Tesco announced the £150 million relaunch of the Clubcard programme in a bid to
maintain its leading market share. According to a press comment by chief executive Sir Terry Leahy, while
price and value matter more to many customers in hard times, the company aimed to improve all aspects
of the shopping trip including service and product availability. Tesco Clubcard holders are now able to
double the value of their vouchers against a wide range of popular products in Tesco stores and online.
Until then, customers could spend their Clubcard vouchers at face value in-store and online, or increase
the value by up to four times by trading them for a range of deals with Tesco Clubcard partners (ranging
from restaurants and theme parks to Air Miles and driving lessons). New in-store features include
Clubcard desks where customers can instantly exchange their vouchers for double the value in
participating categories. The double-up vouchers must be spent in full in a single transaction in the
chosen department, and they can't be exchanged in Tesco Express stores. Vouchers exchanged online are
sent by post within five working days. Categories participating in the 'double up' promotion include:
· Clothing - including footwear, nightwear, underwear, accessories, and jewellery purchased in-
store;
· Baby and toddler - including nappies, wipes, clothing, nursery, feeding accessories, toys, food and
baby toiletries, but excluding infant formula milk;
· Toys - including all children's toys, outdoor toys and children's bikes, but excluding games
consoles and software;
· Cosmetics, skincare and fragrance - including skincare, sun cream, bath care, make-up and
fragrances, but excluding all other toiletries;
· Tesco Mobile network top ups - excluding other network top-ups;
· Tesco instant travel and breakdown insurance;
· Wine and Champagne - including wine, Champagne, and fortified wines (for a limited period
only);
· Flowers, plants and gardening - including fresh cut flowers, plants, gardening accessories, garden
furniture and barbecue equipment.
In May 2009, Tesco urged its customers to hunt through their wallets, bookshelves and kitchen drawers
to dig out forgotten Clubcard vouchers because they were collectively missing out on £40 million every
year. Each quarterly mailing provides vouchers worth approximately £100 million, and the company's
data showed that around 10% of this is never redeemed.
In October 2009, Clubcard holders were offered double Clubcard points both in-store and online. This
followed the successful 'Double Up' promotion, which doubled the reward for customers on selected
categories and which attracted almost half a million new Clubcard members in three months. In the same
period, more than 1.5 million customers doubled up their vouchers, with the most popular categories
being clothing and wine.
By January 2010, sales were increasing and the company's overseas businesses also saw continued growth
over the Christmas and New Year period. Like-for-like sales in Asia, Europe and the US also continued
the improving trend seen in Q3 2009. In the US, Fresh & Easy had a stronger Christmas and New Year
period in 2009 than in 2008, with a total sales growth of 35%. As a result of Double Clubcard Points and
the additional Clubcard voucher mailing in December, over the Christmas and New Year period
customers redeemed £34 million more Clubcard vouchers than in the same period in 2008.
The statistics of the Clubcard programme are impressive, with 16 million members (at the end of 2009),
and some £100 million being handed back to customers in vouchers every three months when around 9
million different versions of the Clubcard quarterly statement are mailed out. Amazingly, 95% of the
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vouchers issued are actually redeemed. Similarly, 35% of coupons issued by Tesco are redeemed, and
10,000 customers per week take the trouble to advise Tesco that they are moving house.
Since its launch in 1995, Clubcard has returned approximately £3 billion pounds to loyal customers. Sister
schemes operate in several of Tesco's markets outside Britain. The programme operates as Familycard in
Korea (3.8 million members), Membercard in China (3+ million), and Clubcard/Biz Clubcard in Malaysia
(1+ million). Tesco also has trial schemes operating in Thailand and Turkey. The schemes differ in
structure and benefits from market to market. For example, the Korean scheme includes opportunities
for customers to collect points when they shop at the retail tenants of malls owned by Tesco, as well as a
Kids Club and Baby Club operated under the programme. In Malaysia, Tesco recently launched the Biz
Clubcard to cater for the needs of the small business customer. Biz Clubcard holders enjoy additional
services such as special counters for bulk purchase, pay & reserve and phone/fax ordering facilities. They
are served by a special team in every Tesco Extra store in the country.
In February 2010, Tesco celebrated the 15th birthday of Clubcard with over £120 million worth of
rewards sent out to more than 14 million customers. It also announced that it would continue to give
double points instore and online. More than one million new customers had signed up to Clubcard since
its relaunch the previous year. Tesco had recently launched an iPhone app that turns the phone into an
electronic Clubcard. As well as the vouchers, the mailing sent out also included a range of special birthday
offers including: cut price deals at Hilton hotels; free entry into theme parks and other Merlin attractions;
half price on popular magazine subscriptions; and hundreds of pounds off Virgin Holidays. And in a
draw, five Clubcard customers became ‘Clubcard millionaires' worth £10,000 in shopping or up to
£40,000 if used for other rewards from holidays to restaurants.
At the time, Clubcard had more than 400 partners. In 2009, Tesco issued vouchers worth £529 million to
customers. To ensure that customers receive relevant rewards, there were 9 million variations of the
Clubcard statement. No three customers got the same statement. At the time, Tesco had national loyalty
card schemes based on Clubcard in Ireland, Poland, Malaysia, South Korea and China and pilot schemes
in Slovakia, Thailand and Turkey.
In early 2010, Tesco Mobile launched the iPhone with what it claimed to be the shortest and cheapest
tariffs in the market. Customers could choose Pay as you go or Pay monthly with a £20 a month 12
month contract or a £60 a month 24 month contract with a free iPhone. Tesco Mobile iPhone customers
also benefited from double Clubcard points on handset purchase and triple Clubcard points on top ups or
with their monthly bill. Three iPhone apps have been launched by Tesco: Tesco Finder uses GPS to help
customers find their nearest Tesco and can provide the exact aisle and shelf location of any product in a
given store. Tesco Wine Finder uses advanced technology to recognise the labels on bottles of wine.
Customers can take a photo of a bottle, and if Tesco stock it, they will be provided with tasting notes and
the opportunity to buy it from Tesco online. The Clubcard App turns an iPhone into a Clubcard. All
members do is open the app, type in their Clubcard number, and the app generates their Clubcard's
barcode on the phone. This can then be scanned at the checkout.
In September 2010, Just Food [ www.just-food.com ] reported that Tesco was about to launch Clubcard in
the Czech Republic and expected to enrol some 1m households in the first year. In Poland and Slovakia,
the Clubcard was launched the previous autumn and had 1.5m and 850,000 cardholders, respectively.
In November 2010, Tesco announced a "double the value of your Clubcard vouchers", if they were spent
on a range of non-food items in its supermarkets. The closing date for the exchange of vouchers into Big
Clubcard Vouchers was December 5th. Tesco expected that some £50 million in Clubcard vouchers
would be doubled by shoppers into £100 million in value. Every £5 in Clubcard vouchers could be
exchanged for a £10 rewards token to spend on toys; clothing; baby and toddler; opticians; selected
electrical goods, beauty and fragrance; flowers and plants. Every £10 in Clubcard vouchers could be
exchanged for a £20 rewards token to spend on: artificial Christmas trees and Christmas lights; Finest
wine and Finest Champagne; beds, bedroom furniture and bedding; DIY; computers; phones and
accessories.
However, in December 2010, This Is Money [www.thisismoney.co.uk] reported that thousands of people
faced long queues on the final day for conversion of Clubcard vouchers and both the Tesco website and
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the telephone call centre were clogged. Tesco later said that it was "doing everything we can at our
customer service centres to help those customers affected."
Also in December 2010, Tesco Direct announced the launch of its new mobile website, designed to
facilitate easy shopping for non-food and household items, directly from mobile phones. This launch was
the first step in Tesco's strategy to expand and develop mobile websites for core Tesco sites, with others
set to follow. It followed closely on the heels of the Tesco's grocery app launch, featuring barcode
scanning for iPhone - the first ever by a UK supermarket.
Using the new site, Tesco Direct customers can search and buy everything from televisions to tables to
toys using any smartphone. The initiative forms part of a wider commitment to make Tesco Direct
available to everyone, anywhere, at anytime - whether that be through the Tesco Direct catalogue, in-
store, online, or by phone. Traffic to the Tesco Direct website via mobile telephones has grown steadily,
with a 300% growth in mobile visitors between 2009 and 2010. At that stage, over half a million visitors a
month were using their mobile phones to search and shop on the website.
In April 2011, according to an article in Computer Weekly [www.computerweekly.com] Sir Terry Leahy told
delegates at Teradata's user conference that collecting, analysing and acting on the insights revealed by
customer behaviour, both at the till and online, allowed Tesco to find the truth. He said that customers
were the best guide. "They have no axe to grind. You have to follow the customers, but learn from the
competition, preferably before they do." According to Leahy, businesses change slowly, but customers
change quickly. He said a better understanding of customer data helped Tesco to improve the
productivity of its promotional budget tenfold, and its budget for retaining wavering customers three-
fold.
In April 2011, online travel retailer, Redspottedhanky.com, began accepting Tesco Clubcard points, with
the result that households could simultaneously receive Clubcard discounts on their train tickets, and earn
loyalty points from redspottedhanky.com to put toward future travel. A return journey by train to
London from Birmingham for a family of four could cost up to £203.50 if booked on the day of travel.
But if booked in advance through redspottedhanky.com for an advance fare, the cost could be 93% less.
In May 2011, in the UK, power and gas company E.ON and Tesco began piloting an initiative that allows
E.ON customers to use Tesco Clubcard vouchers toward paying their energy bills. To reward customers
for being with E.ON and Tesco, 50% is added to the face value of any Tesco Clubcard vouchers used.
(For every £10 worth of Clubcard vouchers exchanged, £15 is deducted from the customer's energy bill).
This follows a 13-year partnership between E.ON and Tesco Clubcard that already allowed eligible E.ON
customers to earn Tesco Clubcard points for money spent on energy. The smallest amount redeemable is
£5 worth of Clubcard vouchers which equates to £7.50 off an E.ON energy bill. The trial scheme was to
run until 5 August.
In June 2011, Tesco Clubcard's web site began allowing members to exchange their Clubcard vouchers
for limited-time offers or limited-availability goods for up to three times the face-value. Tesco worked
with multi-channel firm IVIS Group, which built and implemented the technology running the new 'flash
sales' promotions, through which a simple count-down shows customers how long an offer has to run, or
how many products there are left to claim. Customers can see stock levels counting down in real-time as
the products are being sold. This helps to create a 'me too' effect, with others rushing to take advantage
of the special deals. At the time, Clubcard had some 32 million active Clubcard holders globally in nine
markets, with over 16 million of those being in the UK itself. It has more than 600 reward partners
offering deals on a range of days out, experiences and other essentials.
Also in June 2011, the UK's The Financial Times [www.ft.com] reported that Tesco was to trial a loyalty
card called the 'Friends of Fresh & Easy' card, based on the UK's Clubcard, at its 176 US Fresh & Easy
stores. According to Fresh & Easy's CEO, Tim Mason, the card could replace the coupons that Fresh &
Easy has been using to help drive sales. It will be able to personalise offers and distribute them cheaply
via e-mail.
In August 2011, Malaysian newspaper, The Star Online [http://biz.thestar.com.my] reported that Tesco
was launching Clubcard in Malaysia. Dunnhumby Malaysia general manager, Michael Hawkins, says that
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the 'average' shopper spends about RM80 on a wide range of products on every visit - but there is no
such thing as an average customer. All customers are unique in their own buying patterns, and Tesco's
most loyal customers constitute about 6% of its local customer base but represent nearly 30-35% of its
total sales combined. He says that one loyal customer is equal to 12 newly acquired customers. Tesco
Malaysia sends about a million cash vouchers and product coupons to its two million-strong membership
base, of which 455,000 different unique combinations of coupons are used, with 55% of the customers
getting a completely unique set of rewards.
In October 2011, following a successful trial of the Friends of Fresh & Easy card in the US, Tesco
decided to roll it out nationwide. Membership of the pre-existing Friends of Fresh & Easy email
programme had more than doubled soon after the card was introduced. Friends of Fresh & Easy is a
digital points-based programme through which customers can earn 1 point for every US$1 they spend
with Fresh & Easy. Members ('Friends') can then exchange their points for cash-back rewards, and they
also receive personalised bi-weekly emails containing targeted bonus point coupons and real-time updates
on points earned so far.
In January 2012, Tesco launched its online grocery shopping service for customers in Prague, the first in
its Central European business. The service offers Czech customers over 20,000 lines of fresh and frozen
food and groceries, as well as non-food items such as toys, stationery and accessories. The launch
followed a successful trial with customers and staff in November and is part of Tesco Group strategy to
be an outstanding international retailer in-store and online. Tesco had entered the Czech Republic in 1996
through the purchase of K-Mart stores, and operates some 210 stores there.
20.2.1.7.1 Case study: Dunnhumby
Dunnhumby's [www.dunnhumby.com] role in Tesco's success is significant, as it carries out the data
processing and analysis for the entire group. In April 2006, Dunnhumby expanded its operations in
Ireland with the opening of a new office in central Dublin, aimed at better serving the Irish market.
Dunnhumby has been working with a number of FMCG brands such as Colgate Palmolive, Unilever,
P&G, Masterfoods and Coca Cola to help develop their brands in the Irish market. This work has
included customer insight and marketing programmes (including collaborative marketing with Tesco).
The Dublin office is expected to expand to house thirty staff within two years. The Irish office will be led
by Carla Brooks (commercial director), who was initially based at Dunnhumby's head office in London.
In August 2006, Dunnhumby announced that it was also taking responsibility for Tesco TV. At the same
time, Tesco and JC Decaux (which previously managed Tesco TV) said they were in full agreement over
the future of the in-store channel, and JC Decaux's existing ten-year partnership with Tesco remains
unaffected. Dunnhumby said it would provide information to advertisers about the effectiveness of in-
store TV through detailed analysis of customer purchasing behaviour, with the ultimate aim of enhancing
the customer experience and using that information to help drive brand awareness. Tesco believes that its
in-store TV channel is a good way for brand owners to reach and influence shoppers at the point of
decision, and that the partnership with Dunnhumby would allow the channel to "shift to a new level" as
part of its overall media offering.
In June 2007, Dunnhumby USA [www.us.dunnhumby.com] established a new office in Atlanta, Georgia, to
serve its retail and manufacturing clients in the region, and plans to further expand its client base there.
Within weeks, a staff of 10 were based there and, by late summer, this grew into a team of 25 and office
space more than doubled. A number of employees relocated from the company's Cincinnati office to
Atlanta, with remaining staff for the new office being newly recruited. In addition to the new hires for the
Atlanta office, Dunnhumby USA planned to add 35 more staff at its Cincinnati headquarters during 2007,
bringing the total there to 215. The company employs more than 700 people worldwide in nine countries.
Dunnhumby USA's Atlanta and Southeast-based clients include The Home Depot, The Kroger Company
and Coca Cola.
In April 2008, Tesco and Dunnhumby extended their customer insight and analysis to almost all of the
countries in which Tesco operates, including (in some areas) the Clubcard programme's data. Analysts
from Dunnhumby now work locally with Tesco in South Korea, China, Turkey, Malaysia, Thailand,
Slovakia, the Czech Republic, Poland and Hungary. Using data that customers voluntarily share with
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Tesco about their shopping habits, or anonymous data gathered at the point of sale, Dunnhumby
provides Tesco with insights to help it continue offering optimum product ranges, prices and services for
local markets.
20.2.1.7.1.1 Who is Dunnhumby?
Editor's note: This case study of Dunnhumby's development, operations and involvement with Tesco was specially prepared
for The Loyalty Guide by Dunnhumby. The authors of this report thank the team for providing so much insight.
Dunnhumby is the global loyalty expert behind the Tesco Clubcard. Dunnhumby is now based in 24
countries around the world impacting over 350 million customers worldwide. If you wondered where the
name came from the company was started by Edwina Dunn and Clive Humby. We started working with
Tesco in 1995 just after the Clubcard was launched.
When Clive and Edwina presented the first results to the Tesco board, the then chairman Sir (now Lord)
Ian MacLaurin remarked that we had found out more about Tesco customers in 3 months than he had
discovered in 30 years. Then we recognised how the data would be useful to suppliers and we partnered
with companies like P&G and Nestle.
We then took our model to other international retailers like Kroger in the USA and Casino in France.
Now as Tesco grows internationally we follow them everywhere they go, we've just announced that we
will support the Tesco Fresh & Easy business in America.
Dunnhumby partners with several other leading retailers outside of the UK - including Kroger in the
USA, Casino in France and Brazil and Metro in Canada. Dunnhumby supports Tesco in every one of its
international markets and works with global manufacturers like Coca-Cola, Heinz, P&G, Unilever and
Kelloggs, using insight from the retail environment to better understand customer loyalty towards brands.
It is, however, the work with Tesco that Dunnhumby is most famous for and this case study will explore
this special relationship a bit further.
20.2.1.7.1.2 About Tesco
Tesco is one of the world's largest retailers with operations in 14 countries, employing over 492,000
people and serving millions of customers every week. Since the company first used the trading name of
Tesco, in the mid 1920s, the group has expanded into different markets, different formats and different
sectors. Jack Cohen opened the first Tesco store in 1929 in Burnt Oak North London. He was a retail
innovator, introducing ideas of central headquarters and distribution and own label products - the first
was Tesco tea. Tesco floated on the Stock Exchange in 1947 and now has 5,380 stores worldwide, 2,715
are in the UK.
Back in Jack's day the shopping experience was a very personal one. No doubt he knew his regular
customers by name, what they purchased and the preferences of their children and grandchildren. The
customer might try something new on Jack's recommendation, Jack might give them a discount on their
regular items.
Cultivating this personal, intimate engagement with customers was something a good business would do.
As supermarket chains have grown you could argue that this personalisation of the shopping experience
has disappeared but actually this is where data can help. By starting with the data, large retailers and
brands are now able to look into their customers shopping baskets and understand what drives their
behaviour.
Data-driven insights are shifting how businesses see their future and therefore, how they understand and
communicate with their customers. Knowing how, when and where to communicate with customers and
delivering a personalised experience is now a priority. To put it simply, smart businesses, empowered with
granular sophistication, are working their way back to the customer relationship of the corner store.
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20.2.1.7.1.3 About Tesco Clubcard
Tesco has been working with Dunnhumby since the launch of Clubcard in 1995. The two companies
have been collaborating to put the customer at the heart of the business enabling Tesco to create a strong
brand identity and fulfil its core purpose: To create value for customers to earn their lifetime loyalty.
Clubcard is often referred to as the ‘original' loyalty scheme and is now one of the biggest in the world.
There are more Clubcard members internationally than in the UK. Since Clubcard launched, the scheme
has centred around rewarding customers, every Clubcard statement offers rewards that reflect what each
individual, as a customer, wants to buy. Clubcard is Tesco's way of saying thank you to customers for their
loyalty,
In 16 years, this core objective has not changed. Tesco is continually looking at improving the Clubcard
scheme for customers. For example, in the UK Clubcard now offers more than 600 Clubcard Rewards
for customers to choose from which have helped broaden the choice and appeal of the scheme.
20.2.1.7.1.4 Personalisation - the value of customer insight
Clubcard data enables the folks at Dunnhumby to understand current customer trends, the products that
are most important to Tesco customers and products that may appeal to them. Using this insight we can
make judgements as to which products customers would like to see in store and the kind of promotions
that are most likely to benefit them.
Over the years, the more data we have gained from Clubcard, the stronger the picture we get of
customers, which means we are getting better and better at helping Tesco personalise offers to customers.
For example, if a customer purchases nappies we know that they might be interested in a coupon for
baby food.
Tesco sends out millions of variations of the Clubcard statement to ensure customers get extra rewards
that are relevant to them.
Together, Dunnhumby and Tesco are using this insightful data to put customers at the heart of all our
business decisions, from new product development to how we manage stores, and most importantly, how
we serve customers.
Ultimately, the more we can give customers what they want, the more they will choose to shop at Tesco.
This makes good customer service and good business sense.
Our knowledge of customers has also enabled Tesco to expand their business in other areas. For
example, their online offering could not have been developed without the knowledge gained from
Clubcard and the introduction of Tesco premium label Tesco Finest was based on customer insight.
Similarly, Clubcard fuelled the growth of Tesco's non-food sector by identifying possible customers and
communicating the new product areas through Clubcard mailings.
In addition, despite being the longest running loyalty scheme around, Clubcard is up to date with the
latest technology. In a UK first, Tesco launched a smartphone app in 2010 that turns a mobile phone into
a Clubcard. In 2011 Tesco launched My Clubcard Account , which enables customers to make changes to
their account online such as personal details and also view their used and unused vouchers. Customers
love this - it's a good way to keep track of vouchers and offers.
In the UK, Clubcard goes from strength to strength. It is by far the most rewarding loyalty scheme in the
market and the number one reason customers prefer to shop at Tesco.
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20.2.1.7.1.5 Tesco & Dunnhumby: the partnership
A greater understanding of customer behaviour enables Tesco to personalise the shopping experience and
ensures that Tesco can create a brand that consumers return to time and time again. In the current
climate of shopping around for the best deals it is more important than ever that the customer believes
Tesco is worth a visit.
The Dunnhumby strategy is similar to that at Tesco, assisting companies to put the customer at the centre
of each business. In Figure 1.1 the additional layers that surround "customer" highlight how the business
must change in order to accommodate for the consumer.
In essence, Dunnhumby helps Tesco by analysing item-level data for over 15 million households in the
UK. This helps Tesco to drive sales through specific promotions, save money through removing
unnecessary advertising and identify trends in sales data. Both Dunnhumby and Tesco firmly believe that
by understanding the customer, the business can grow.
Dunnhumby has four core beliefs and four core values depicted here. The four phrases in the central grey
area are Dunnhumby's core beliefs which form the foundation on which our work is based and underpin
our ways of working with clients and retailers.. The coloured areas on the outside of the model depict
our values which inform our approach to our work and our culture and make Dunnhumby a unique and
great place to work!
Values
Curiosity: we have an endless appetite to
understand, challenge, innovate and learn
Passion: we are relentless in our positive
enthusiasm
Courage: we take the right route, not
always the easy one
Collaboration: we work best when we
work together
Beliefs
Start with data: customers tell us the
right thing to do through the data
Our great people:
great people are what sets us apart
Genius of simplicity: true
genius comes from making
the complex simple
Customer first: if you're loyal to
customers, they'll be loyal to you
20.2.1.7.1.6 Learning across borders
Through working in partnership with major retailers around the world Dunnhumby is in the unique
position of being able to share learning and best practice to help grow the businesses of our major retail
and manufacturer partners and to benefit customers everywhere.
Following the success of the Loyal Customer Mailing (LCM) in the United States the principles of the
LCM have been tested and now delivered to Tesco customers in the UK.
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20.2.1.7.1.7 The Loyal Customer Mailing
In the United States Dunnhumby works with Kroger, a giant supermarket chain, who has for several
years sent a Loyal Customer Mailing (LCM) to its most loyal and therefore valued customers. Kroger says
thank you to these special and valuable customers by giving them money-off coupons on products that
they frequently buy. Customers in the United States love the LCM, they appreciate the value of the
coupons and that Kroger takes the time and invests the resource to understand what they buy. This has
had a measurable impact on sales with an increase of 64% since its introduction.
Since beginning its relationship with Dunnhumby in 2003, Kroger has seen 31 consecutive quarters of
same store sales increases. Dave Dillon, CEO of Kroger often describes Dunnhumby as his secret weapon!
Well we may not be that secret anymore but what we do really can change a business.
In the UK in December 2011 2.5 million customers received money-off coupons for products they
already buy from Tesco, plus extra or double points coupons. This was based on the level and frequency
of spend over the previous eight weeks, and it proved very popular. So just before Christmas the most
loyal Tesco customers received special offers relevant to them. Every Little Helps!
Mark Wilmot, head of UK Communications and Media at Dunnhumby worked very closely with Kroger
in developing the LCM several years ago. Now bringing this learning to the UK he says: "As we have learnt
from Kroger, this targeted approach and providing relevant offers drives customer loyalty to the retailer and brands.
Customers are similar the world over so there is no reason why it won't work in the UK."
20.2.1.7.1.8 Innovating to better serve customers
As part of our commitment to deliver measurable value for a billion people Dunnhumby is dedicated to
putting the insight at the heart of business decisions. We were challenged by Tesco to make insight
available and affordable to all types and sizes of suppliers. This is to enable all kinds of businesses not just
the big manufacturers like Unilever and P&G to really put the customer at the heart of their decision
making.
In response to this challenge we launched a new solution the Shopper KPI report which is delivered
quarterly. Following an initial trial at the end of September, feedback from suppliers has been really
positive. Simon Day from Winterbotham Darby, a supplier of continental meats & pate said: "The solution
is simple to use and gave us a really good understanding of the category we work in. We felt we were at a real advantage
when going into our meetings with Tesco as we were able to talk in their customer language."
We are also innovating in the challenging area of digital measurement - helping brands understand the real
value of online loyalty schemes by tracking the behaviour of loyal customers in store. We can now
measure the effectiveness of a digital campaign by comparing the shopping behaviour of Tesco Clubcard
customers who use brands' online loyalty campaigns and those who do not.
This means we can quantify the effect of online loyalty campaigns on brand trial, loyalty, sales uplifts and
return on investment so that brands can improve the relationship between online and offline activity.
Danone's Activia and Actimel brands, Reckitt Benckiser's Air Wick brand and Pfizer's SMA baby milk
brand have all used the application to shape digital and in-store marketing.
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Halla Ragi, Air Wick's senior brand manager, says the Dunnhumby data has been "invaluable" to
developing its Air Wick Fresher Homes Club eCRM programme and optimising its targeting strategy to
drive both online and offline loyalty to the brand.
20.2.1.7.1.9 Where next for Clubcard?
Since the launch of Clubcard, Tesco has evolved a customer contact strategy incorporating multi-channels
across the various parts of the business as it has expanded. In addition to the core Clubcard
communications of Statement and Loyal Customer Mailing, there are targeted customer mailings designed
to drive sales and drive customers up the loyalty ladder at key trading periods through direct mail, e-mail
and coupon at till in support of stores, online and Retail Services. Central to all activity is a consistent
focus on staying true to the brand and surprising and delighting customers through personalised offers.
The focus of Clubcard remains the same - to reward customers. Tesco listens to customers about how
they are changing and looks at how their behaviours are changing so that it can give them what they want.
The retailer will continue to bring more choice to customers and ensure that customers continue to find it
exciting, rewarding and convenient.
At a conference hosted for Tesco and manufacturers in 2011, Tesco's UK CEO, Richard Brasher, ended
on this note: "If you want to go fast go on your own. If you want to go far go together". Collaboration is
at the heart of Dunnhumby and it is only when we work together with the retailer and the brands that can
we serve the customer best and, in doing so, be successful in the long term.
NOTE:
The Loyalty Guide's numerous case studies are carefully constructed to provide full
background, history, and current-day detail, along with partnership developments, points
structures, redemption options, and the latest facts and figures concerning each
programme.
For details and online ordering information, visit: www.theloyaltyguide.com
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1 Executive Summary
1.1 Introduction
The Loyalty Guide 5 [www.theloyaltyguide.com] is the world's only complete, comprehensive report
covering every aspect of customer loyalty marketing, customer engagement, customer acquisition,
customer retention, best customer marketing, customer relationship management (CRM), social media
marketing, customer data-driven business intelligence (BI), loyalty metrics, measurement, reporting and
predictive analytics.
The report provides not only detailed case studies, best practices, marketing theory, and all the latest
research, but also the kind of practical know-how, up to date facts and figures, market trends, forecasts,
best practices, expert opinions, practical advice, and sheer hard data that are needed for well informed
and forward-looking business decisions.
This summary provides an overview of The Loyalty Guide 5, and aims to help you quickly identify the
aspects of loyalty marketing that are most relevant to you right now. Each section summarises the essence
of a complete chapter of the guide, making it simple to navigate the report's 1,300+ pages and its wealth
of illustrations, charts, tables and graphs. We, the authors, welcome you to what has built up over the past
ten years to become the world's fullest and most complete report on marketing techniques, practices,
strategies, measurement, management, and accountability.
1.2 The Business Case for Loyalty
There are two basic points of view to be considered when discussing the business case for introducing -
or keeping - a customer loyalty programme: Some industry observers have argued that a loyalty
programme is often unnecessary because it's just a way of spending money rewarding customers who
would probably have been loyal anyway.
Others, however, have recognised that the real benefit of a loyalty
programme is not necessarily felt first by the customer, and that it is the
merchant that gains the necessary insight (from detailed analysis of its
loyalty programme and transactional data, for example) to be able to
improve the way it communicates with and deals with its customers. The
customer is actually the secondary (but still the most important) recipient
of the benefits of a true loyalty programme.
To say that a loyalty programme is not useful, or is a waste of marketing budget, is to have misunderstood
the real purpose of the programme. Rather than offering a simplistic discount or rebate programme, a real
loyalty programme offers the customer any number of incentives to allow the programme operator to
collect accurate and useful data about their lifestyle, purchase choices, motivations, interests,
circumstances, and in many cases even about their household and immediate family.
The reason for gathering this data is not - as a very small minority of consumers seem to fear - to create
some kind of 'Big Brother' database of peoples' personal habits, but to gain practical insights into ways in
which the merchant could serve each customer more effectively, more easily, and more satisfyingly.
The best reasons for having a customer loyalty strategy...
In this chapter we explain in detail the different reasons, benefits, strategies and factors driving customer
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loyalty, including ideas about how to set up a new loyalty programme, what will be involved, and pointers
for the financial and operational implications of launching your own loyalty iniative, including:
· The business benefits of a loyalty strategy
· How customer loyalty pays back, both short term and long term
· Factors affecting and driving customer loyalty
· How a loyalty initiative grows and improves your customer base
· Financial and operational aspects of a loyalty strategy
· What you need to know to run a successful loyalty programme
· Viable alternatives to traditional loyalty offerings
1.3 Loyalty Coalitions
There are two main types of multi-partner programmes: true coalition programmes, and single operator
programmes that include other partners.
For example, Air Miles and Nectar are true coalition programmes. The programme management is
independent of any of the partners. The partners have contracts with the operators of the programme to
issue and/or redeem the currency of the programme, and only have access to data harvested by the
programme through its operator. Individual partners don't have direct access to other partners' data held
in the programme, although the operators of the programme will usually market to other partners'
customers on behalf of another member. For example, a supermarket member could ask for mailings to
be sent to the customers (or just certain segments of the customers) of a fuel retailer partner in an area
where a new supermarket is being opened.
Tesco's Clubcard is an example of a single operator programme that involves
other partners. The programme is owned and run by Tesco. However,
Clubcard holders can collect points when buying from various partners in
the programme, such as Alders, Beefeater, Marriott, and National Tyres.
Vidal Sassoon is an example of a redemption partner.
The best reasons for coalition-based loyalty initiatives...
This chapter examines the many essential goals that any coalition programme must achieve if it's going to
succeed, and why they're so important. Examples of these goals include:
1. Rapid market penetration
2. Delivery of attractive rewards
3. Being the first in the market
4. Building communication channels
The key benefits of joining a coalition programme...
Supported by statistics, illustrations and expert opinions, the advantages, disadvantages and structural
needs of coalition programmes (compared to, say, a non-partnered loyalty programme) are detailed,
covering critical factors such as:
· Greater interest in the programme · Lower costs of development
· Members have fewer cards to carry · Database run by professionals
· Members earn points more quickly · Sector exclusivity
· A greater variety of rewards · Coalition marketing campaigns
· Concentrated, coherent promotions · Higher penetration rates
· Time saved in development · Real cost benefits of coalition
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Detailed case studies of major coalition programmes...
This chapter also provides details and comprehensive case studies of the world's major coalition loyalty
programmes, including:
1. Avios, UK (aka Air Miles) 9. Fly Buys, New Zealand
2. Air Miles, Canada 10. FlyBuys, Australia
3. Air Miles, Spain (aka Travel Club) 11. iPoints & Maximiles, UK & Europe
4. Air Miles, Netherlands 12. Malina, Russia
5. Air Miles, Middle East 13. Nectar & Nectar Business, UK
6. Aeroplan, Canada 14. Nectar Italia, Italy
7. BonusLink, Malaysia 15. PayBack, Germany & Poland
8. eBucks, South Africa 16. PayBack India (aka i-Mint)
Other key topics covered in this chapter include:
· Why a coalition?
· The essentials of a coalition
· The advantages of a coalition
· The challenges of a coalition
· Typical application areas
· Expanding into a coalition
1.4 Loyalty Rewards & Incentives
The reward is a vital part of any loyalty programme. It is the bait on the end of the line: the bit that
actually convinces the customer to sign up. It is also a complex part of the programme and usually
presents a delicate juggling act: it must be worth enough to be attractive to the customer but not cost
enough to make the programme unprofitable. It must appeal to consumers of the right profile and it must
cater for wide variations in taste and desires among those customers.
All in all, the reward has many functions that we examine in detail in this
chapter. We also examine the properties of a good reward, and which of
these consumers think are the most important. We also look at the many
types of reward that can be offered: Discounts (both targeted and
untargeted), points-driven programmes, hard and soft rewards. Which do
customers prefer, and why?
We also look at how, in the eyes of an expert, one should go about planning a successful and appealing
reward catalogue - quite often a component that lets a reward programme down. And finally, we examine
some recent research into what motivates consumers when they are faced with a choice of rewards.
Reward drives behaviour. Experiments have revealed that, while a bigger reward reinforced the desired
behaviour better than a small reward, when the rewards were discontinued, those who had received the
big rewards were more likely to return to the unwanted pattern of behaviour than the group who had
received the small reward. So the warning is there. Never let your best customers feel that you are
withdrawing privileges from them, and try to ensure that customers become loyal to the product or
service, and not simply to the reward.
But, to have any effect at all, the reward must be desirable enough to actually stimulate a change in
behaviour among customers. It also has to be affordable, and balancing the two sides of the
desirability/affordability equation is tricky.
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Structuring your rewards for optimal redemptions and engagement...
In this chapter we explain all the necessary attributes and practical planning of loyalty rewards, including:
1. The value of the rewards offered
2. The function of the rewards offered
3. The properties of an attractive loyalty reward
4. How to profit from reward redemptions
5. Lowering the fulfilment budget without risking loyalty
6. How to extract maximum value from your rewards
7. Setting reward levels and tiers
8. Using different rewards to change customer behaviours
9. Types of rewards (goods, discounts, experiences or other benefits?)
10. Timing of rewards (now, soon, or much later?)
11. Rewards that consumers actually want (and what they think they want)
12. Redemption strategies (i.e. internal or outsourced)
13. How to plan a compelling rewards catalogue
14. Strategies to drive both redemptions and engagement
15. Matching rewards with different point levels
16. Insights into loyalty rewards and their effectiveness
17. Using coupons and vouchers as rewards
1.5 Customer Engagement and Loyalty
As time passes and more loyalty programmes are launched, it is becoming increasingly difficult to actually
engage the customer in the programme. Customers are now so used to handing over a card at the POS
that they feel little real involvement. If there is such a thing as a hot topic in loyalty, it is customer
engagement. Handing over a card when transacting and receiving a quarterly statement within a pile of
other mail is not engagement. Engagement grows little by little, each time the customer has to actively
think about and make a decision about the programme.
In fact, although nearly 90% of shoppers in the US participate in rewards programmes to earn points,
discounts or prizes, loyalty programmes alone are not yet fostering the kind of emotional connection that
is needed to develop long term customer engagement. Engagement is something that can only be built up
over time, and it usually stems from mutually beneficial relationships between customers and brands. It
could be argued that engagement comes not a result of a marketing campaign but from the full range of
interactions between the customer and the brand, as well as brand-related interactions between customers
and their peers. The key to building a real sense of engagement is to provide the consumer with
something of personal value that is timely, relevant, wanted, and preferably repeatable.
Insights for true customer engagement...
In this chapter we explain why customer engagement is now seen by
most marketing experts as the key to future survival, and how smart
marketers are already rethinking the idea of customer engagement.
Among the key topics covered in detail:
1. Insights into consumer engagement and its benefits
2. How incentives can drive customer engagement
3. Customer engagement strategies
4. How to engage the individual customer (the 'new CRM')
5. Why engagement strategy goes way beyond CRM
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6. How to drive engagement with loyalty rewards
7. Why loyalty without engagement is a dangerous trap
8. How to engage loyalty programme members for life
9. How social media is reshaping customer engagement
10. How to building customer engagement the social way
11. Gamification's effect on consumer/brand engagement
12. How e-mail can create customer engagement - or not
13. Ways to capture and engage online customers
14. How digital rewards can increase both engagement & loyalty
15. How mobile can drive cross-channel engagement
16. Recent innovations in customer engagement technique
1.6 Social Media and Loyalty
Social media marketing is a relatively new field, driven by the widespread popularisation among
consumers of social networking web sites and services such as Facebook, Google+, Twitter, Foursquare
and others. These services don't only hold true to the original vision of sites such as Facebook (i.e.
connecting people in a safe and personal way) but they now also include other services and technologies
that augment that goal, such as location-based services which allow people to 'check in' just about
anywhere - whether it be a popular club, restaurant, or their own home, or any other venue - usually
thanks to the GPS that's built into their mobile phone handset. This allows people to 'be seen' in all the
right places but, more importantly, it has important implications for brands that they choose to associate
with in their social network.
One of the most common misconceptions among marketers is that social
marketing is as easy as putting up a page on Facebook, or setting up a Twitter
account. Of course those are the basic building blocks, but there's a whole
world of detail that needs to be considered first. As in any other marketing or
advertising discipline, you first need to identify and clarify a host of factors,
such as the brand identity, brand message, brand values, target audiences,
value proposition, referral and advocacy benefits, social gaming elements,
social commerce and currency, messaging strategy, creative elements and
imagery, and how it links up with your loyalty programme.
Turning social media into a loyalty driver, rather than a publicity risk...
Among the many topics examined in detail, and the down-to-earth practical advice found in this chapter:
1. Types of social media and their uses
2. Social customer loyalty & engagement best practices
3. Other social media marketing best practices
4. Does the marketer really have to lose control?
5. Planning and setting up a social marketing strategy
6. How social media can drive customer loyalty
7. How social media supports your loyalty strategy
8. The impact of social media on loyalty schemes
9. The impact of social media on brand reputation
10. Maximising social media's brand marketing value
11. The link between social media and customer engagement
12. Building customer engagement the social way
13. Gathering insights from social network profiles
14. Social media as a customer loyalty channel
15. Social media as a customer service channel ... continued
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16. Integrating the social channel into the marketing mix
17. Social media as seen from the marketer's side
18. Social media as seen from the consumer's side
19. The adoption of social media into corporate strategy
20. How to find the true ROI of a social media initiative
21. Getting board level buy-in for social media marketing
22. Which markets & sectors lead in social media usage
23. How consumers use different social media platforms
24. How to turn social customers into social advocates
25. How 'social shopping' has changed the retail landscape
26. How location-based marketing ties into customer loyalty
27. Bridging the real world/social media loyalty gap
28. Working with viral social marketing
29. The future of social & location-based marketing
1.7 Loyalty & Marketing Tools
A customer loyalty programme, despite having all the right rewards and engagement strategies in place,
can fail catastrophically if the tools and technologies that drive it are either insufficient for the task or
inadequately integrated. How could a large coalition loyalty programme ever function if the reward
fulfilment function wasn't tightly integrated with the web site, or if the marketing team had to refer to and
deduplicate information from several siloed data sources? The technology, the tools, and every functional
back-end system must be not only scalable enough to cope with the future success of the loyalty
programme but also to be adapted to every market-driven change that affects the programme's goals and
direction.
For example, the authors of this report conducted a survey of retail customer loyalty and commitment
strategy, and found that while 93% of retailers run a loyalty programme for their web site, stores, or
catalogue customers, 74% reported 'partial to no tangible improvement' in their programmes compared to
their competitors. This suggests a need to review current and future loyalty processes and solutions, and
that a wealth of very similar loyalty platforms may be the cause of
a degree of commoditisation of loyalty offerings.
Another example of the more interesting - and potentially game-
changing - technological developments has been that, in the US,
the nationwide rollout of EMV smart chips on debit and credit
cards has opened up a whole range of possibilities and opportunities for loyalty marketing via the
payment card platform. Particularly if combined with the mobile channel by means of smart phones and
NFC technology, the possibilities for loyalty applications are endless.
Independent advice about what matters most in a loyalty platform...
This highly practical chapter provides details of loyalty tools, technologies and innovations currently in
the market, offering advice on the advantages and disadvantages of these approaches. Among the
technologies and tools examined are:
1. Loyalty platforms & technologies
2. New loyalty card technologies & platforms
3. The potential for EMV-based loyalty
4. The rise of mobile & app-based loyalty technologies
5. Contactless loyalty technologies
6. The benefits of NFC & RFID technology
7. How mobile & NFC will impact loyalty strategy
8. Tools for loyalty metrics, analytics & insight
9. Loyalty platforms & technology innovations ... continued
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10. Benefits of loyalty scheme-enabled self-checkouts
11. Augmenting Reality for greater engagement & loyalty
12. Linking loyalty points with prepaid cards
13. Linking loyalty points with mobile payments
14. Integrating loyalty into smartphones and apps
15. Cloud-based loyalty innovations & platforms
16. Benefits of a virtual loyalty currency
17. Data pattern-spotting for competitive advantage
18. Developments in Retail 3.0 and resulting consumer insights
19. The benefits of intelligence-based marketing
20. Differentiation using new retail technologies
21. Better customer service with kiosks & self-service
22. Case study: how Points.com changed the loyalty landscape
1.8 Loyalty & Marketing Operations
The theory of customer loyalty is quite plain: a business that retains its customers for longer usually makes
more money from them at lower cost than one that is constantly paying to acquire new customers.
Actually doing that - the practice of customer loyalty - is not so straightforward. It's not a trick that can be
quickly learned and performed; creating loyal customers depends fundamentally on following good and
sound business and marketing practices right across the business all the time. It's a sad truth of business
that customers are hard to win but easy to lose. A loyalty programme is not a quick fix that can simply be
bolted on and produce measurable results immediately.
That said, the principles are quite simple: know your customers, reward
them for behaving in the way that you want, and don't reward them for
behaving in any other way. In order to know them, you need to collect
data and then use it intelligently to identify the valuable customers and to
reward them for generating more profit. Of course, there are many
refinements that can be made to this broadly stated principle. Enter the
loyalty programme.
But many of the so-called loyalty programmes in operation today are not really loyalty programmes at all.
Perhaps 'frequent customer programme' is a more accurate term. To be loyal to a business is one thing,
but to use it frequently is another (for example, it could be a result of circumstances that there is simply
no other choice). Clearly, if another choice becomes available, then the distinction becomes critical. This
means that most prudent businesses aim to create loyal customers, not just frequent customers. Of
course, not all customers are potentially loyal customers, for a variety of reasons. So the ideal loyalty
programme would be one in which already loyal and potentially loyal customers benefited, but other
customers didn't. This means that the customers have first to be sorted into groups, and different
approaches have to be made to each group. Or, more likely, a programme has to be designed so that it
will appeal to the desired group more than to the other group.
The 3 top reasons to have a loyalty programme...
A good point at which to start is at the very beginning - when acquiring the customers. In many typical
businesses, as many as 45% of direct, new, one-off purchasers do not go on to purchase a second time. In
order to grow and maintain a successful business, three simple rules should be followed:
1. Acquire customers that are likely to repurchase - even though this may be at the expense of initial
raw response;
2. Recognise which customers are unlikely to repurchase and limit your marketing spend for this
segment accordingly;
3. Focus the marketing budget on those who exhibit the same profile as existing repurchasers but
have yet to buy a second time.
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The main goals of a loyalty programme...
In this chapter we detail the workings of an effective customer loyalty programme, and how to achieve
several obvious goals:
· Retaining existing customers
· Acquiring new customers
· Moving customers up the RFM segments
· Deselecting or 'firing' unprofitable customers
· Win-back techniques (recovering lost customers)
· Increasing CLV (customer lifetime value)
· Best customer marketing (targeting the most worthwhile customers)
· Building long-lasting customer relationships
· Creating advocates from loyal customers
· Adjusting pricing strategy for greater profitability
· Responding to competitive challenges
· Selecting stock lines more effectively
· Planning merchandising optimally
· Cutting promotional and advertising costs
· Selecting new trading sites based on profitable customer profiles
Critical success factors for a loyalty programme...
We also go into depth on the 17 key factors that make a loyalty offering successful, both in the eyes of the
customer and in terms of bottom line business results:
1. Loyalty programmes are never a 'quick fix'
2. Targeting the right people at the right time
3. Gaining customer buy-in
4. Knowing your customers and gathering intelligence
5. Not rewarding the wrong behaviour
6. Rewarding versus recognising
7. Spotting defection patterns
8. Taking advantage of customer lifecycles and trends
9. Offering attainable & affordable rewards
10. Recovering the programme's cost
11. Keeping communications relevant and well-timed
12. Keeping it simple
13. Measuring the programme's results
14. Attracting new customers
15. Providing unique, hard-to-copy benefits
16. Empowering your customer-facing teams
17. Making things easier - for both you and the customer
Guidance for running a profitable loyalty programme...
Among the key topics covered in this chapter, we explain operational details including:
· Critical capabilities for customer loyalty
· Loyalty programme models & strategies
· The many structures of loyalty marketing
· Planning the 'grand design' of customer loyalty
· Forming the right customer loyalty strategy
· Best practices for loyalty management
· Research into the drivers of customer loyalty
· Loyalty tokens & identifiers, and choosing the right ones ... continued
