CRM AND THE CRITICAL ANALYSIS OF DATABASE MARKETING: A CASE STUDY OF TESCO CLUBCARD

by Ms. Promrawee V erasophon

A Final Report of the Six-Credit Course CE 6998-CE 6999 Project

Submitted in Partial Fulfillment of the Requirements for the Degree of

Master of Science in Computer and Engineering Management

Assumption University

July 2002

Project Title

Name

Project Advisor

Academic Year

CRM and the Critical Analysis of Database Marketing: A Case Study of Tesco Clubcard

Ms. Promrawee V erasophon

Dr. Thanatphong Pratheepthaweephon

July 2002

The Graduate School of Assumption University has approved this final report of the six­credit course, CE 6998 - CE 6999 PROJECT, submitted in partial fulfillment of the requirements for the degree of Master of Science in Computer and Engineering Management.

Approval Committee:

Dean and Co-advisor

July 2002

(ProfDr. Srisakdi Charmonman) Chairman

(Assoc.Prof. Somchai Th yamyong) MUA Representative

ABSTRACT

This project will look at the Customer Relationship Management (CRM) and the

database marketing approach as a tool for CRM. The project will critically analyse both

strengths and problems of implementing a database marketing approach in the fonn of

Tesco Clubcards which Tesco Plc uses as a practical case study of creating CRM.

The application of the Tesco Clubcard, how it works and why it is so important

will be focused. The study will also look at the application for database marketing for

Tesco Plc via data warehousing technology.

The percentage of customer loyalty of turnovers and the number of the

cardholders frequently using the card resulting from the effectiveness of the

implementation of the database marketing approach, are evaluated.

The evaluation is to indicate the success of the Tesco Clubcard m utilizing

customer database through the database marketing approach in order to gain CRM and a

competitive advantage by increasing market share and profitability.

ACKNOWLEDGEMENTS

I am indebted to many people for their contributions in the development of this

project and would like to acknowledge them here.

Firstly, I would like to thank Dr. Thanatphong Pratheepthaweephon, my advisor,

for his advice, guidance and suggestions in the preparation of this project.

I also thank all project committee members of the Graduate School of Computer

and Engineering Management at Assumption University for providing the course and

making it really amazing.

My appreciation also goes to all my friends for their help, support, encouragement

and inspiration extended to me during the entire course of this project especially Mr.

Kittipong T. for his encouragement and Mr. Kittipong N. for being there. Above all, I

would like to deliver my special thanks to Mr. Maka P. for his unconditional help and

support.

I would like to thank all my friends in the UK for the contribution of their time to

help me collect valuable information of Tesco Plc for this project.

Finally, my very special thanks are for my parents for their love and support and

to all the others who helped me complete this project successfully.

II

St. Gabriel's Librruj;·t\H

TABLE OF CONTENTS

Chapter

ABSTRA.CT

ACKNOWLEDGEMENTS 11

LIST OF FIGURES v

LIST OF TABLES Vl

L INTRODUCTION

1.1 Background l

1.2 Executive Summary 1

1.3 Objectives of the Project 2

1.4 Methodology 3

1.5 The Organization of the Project 5

IL LITER.A TURE REVIEW 7

2.1 The Concept of CRM 7

2.2 The Concept of Database Marketing 15

IL CRITICAL ANALYSIS OF CRM AND DATABASE MARKETING AS A TOOL FOR CRM 25

3.1 The Strengths and Weaknesses oflmplementing CRM

3.2 The Strengths and Weaknesses oflmplementing Database Marketing

3.3 The Problems and Solution to the Problems

IV. COMPAJ\<'Y ANALYSIS

4.1 An Overview of the Retail Market Industry in The U.K.

4.2 Company Background

4.3 Tesco's Growth Strategy

lll

25

26

31

35

35

41

42

Chapter

4.4 SWOT Analysis of Tesco Plc. 42

V. AN ANALYSIS OF IMPLEMENTING TESCO CLUBCARD AS A TOOL FOR CRM 49

5.1 What Is a Tesco Clubcard? 49

5.2 How Does the Clubcard Work? 50

5.3 Data Warehouse 51

VI. THE EVALUATION OF USING TESCO CLUBCARD 57

6.1 Why Is the Clubcard? 57

6.2 Benefits of the Clubcard to the Customers 58

6.3 Benefits of the Clubcard to Tesco 59

6.4 The Outcomes of Using Clubcard 61

VIL CONCLUSIONS AND RECOMMEND A TIO NS 72

7 .1 Conclusions 72

7 .2 Recommendations 73

7.3 Future Research 75

APPENDIX A FIVE-YEAR RECORD OF FINANCIAL ANALYSIS 80

APPENDIX B SUMMARY CASH FLOW STATEMENT 83

APPENDIX C SUMMARY BALANCE SHEET 85

APPENDIX D FINANCIAL CHANGE(%) 87

BIBLIOGRAPHY 89

IV

LIST OF FIGURES

Figure Pages

2.1 The Evolutionary Path to CRM 9

2.2 The Three Phases of CRM 11

2.3 The Steps of Implementation of Database Marketing 19

4.1 SWOT Analysis of Tesco Plc. 42

5.1 The Clubcard 47

5.2 The Data Warehousing Technology of Tesco Plc. 50

5.3 The Two Levels of Tesco's Data Warehouse 51

6.1 Customer Loyalty% of Turnover from Loyal Shoppers 60

6.2 The Implication of Database Marketing to Enhance Tesco's Marketing Strategies 65

6.3 A 10-year Review of market shares for the Major Multiples 66

v

LIST OF TABLES

Table Page

4.1 The Supermarket and Superstore Food Sales as Percentage of the Total Retail in the UK Market 36

4.2 The Number Superstores in the UK 44

6.1 Characteristics of Those Frequently Using the Most Popular Loyalty Card Schemes, by Demographic groups, Lifestage, Mintel's Special Groups and ACORN Categories 61

6.2 The Classification of Social Class in the UK 62

6.3 Grocery Market Size and Market Shares, 1990-2001 67

VI

I. INTRODUCTION

1.1 f,;1ckground

ihe traditional business used to focus only on profitable transactions, organize by

product units, look primarily at financial scorecard, build brands through advertising

and focus on customer acquisition. Not only were there over promises and under

deliver;'::s, but it also had no customer satisfaction measurement.

I lowever, when it comes to globalization R&D makes the diversity of goods have

more surplus than the number of consumers and that seems to prevail over business.

The competition, as a result, changes from product focused to customer focused . .. Compmies try to improve their service to reach the highest standard of efficiency in

order to impress customers.

Customer Relationship Management (CRM) is one of the most critical strategies

in order to approach the concept of lifetime value and support customer loyalty. CRM is

all about collaborating with each customer in order to create the classic win-win

situation. The condition that CRM can give business superi01ity especially when

competing with others, is to deal with each customer individually.

A marketing database or a collection of data is one of the practical tools used to

go toward CRM taking the application of the Tesco Clubcard as a case study.

1.2 Executive Summary

This project will look at the CRM approach by critically analyzing both strengths

and weaknesses of implementing the concept of database marketing which Tesco Pie

used as tool to create CRM. A practical case study is the implementation of the database

marketing approach in the form of the Tesco Clubcard.

1

"

In an overview of the UK retail supermarket industry, the market position of

supermarkets and superstore food sales as percentage of the total UK retail sales and ;he

competition within the industry, will be critically examined to provide comprehersion

of how the industry works.

The study will also be looking at the company analysis in which a SWOT analysis

is fully applied to indicate the success of utilizing the Tesco Clubcard through which the

customer database is properly managed in order to gain a competitive advantage by

increasing market share and profitability.

There will be an analysis of the percentage of customer loyalty of turnover and the

number of the cardholders who are frequently using loyalty cards resulting from the

effectiveness of implementation of the database marketing approach. It shows how

Tesco uses the database marketing in the form of the Tesco clubcard as a tool for CRM

to increase 16% of shop visitors and the share of the total grocery spent went from 43 %

to 46% after 5 years of launching.

The project finally closes with the summarization of the key findings as well as

recommendations for Tesco Plc in improving the usage of Clubcards to appeal to more

custc.11ers with the concept of CRM in the future.

1.3 Objectives of the Project

(1) To analyze the concept of CRM and its strengths and weaknesses

(2) To analyze the concept of database marketing and its strengths and

weaknesses

@ To identify the particular characteristics of CRM by usrng the database

marketing in the form of loyalty card which is used as a tool to create CRM

to be a case study for Thai business

2

@ro analyze the success of Tesco Plc resulting from the implementation of

the database marketing approach in the form of the Tesco clubcard to

manage customer relationship and enhance marketing performance as an

example for Thai business to use the concept of loyalty card to create CRM

and enhance its overall performance

1.4 Methodology

The layout of the whole report and the methodology will be discussed as follows.

This report is an analytical research. Secondary data is used and collected in providing

beneficial information to conduct the research on Tesco Plc, England.

The secondary data is, however, the data that was developed for some purposes

other than helping to solve the problem at hand, so it can be gathered quickly and

inexpensively. The aim of using the secondary data is to give the literature background

and set the standard to make the evaluation.

Basically, the secondary data is divided into two main categories: internal data

and external data. The internal data is the information that lies within the company,

which include the company's strategy and objectives, range of products, advertising

costs, market position and financial information.

The external data is the information which lies outside the company and it could

be obtained through desk research, the internet, library research, journals, newspaper

publications, literature review, CD-ROMs, and magazines.

The secondary data includes references from original textbooks, Keynotes,

Journal of Marketing, International Journal of Retail and Distribution Management,

seminar documents, and Internet websites.

Some further information have been gathered from online databases provided at

Universities' libraries; for example the information of customer loyalty in retailing,

3

theoretical and practical perspectives of CRM concept and relevant issues from several

authors and some more up-to-date information and news in the industry.

The official website for Tesco provides the company information, historical

background, core objectives and strategies, future plan, sales growth, existing products

and new products available, the number of stores, Tesco clubcard information and

annual financial report that have impact on the company itself and also on the sector.

This report is divided into two stages of analysis. The first stage introduces the

concept of CRM and the database marketing as a tool for CRM from the theoretical

perspectives and also a general overview of the UK retail supermarket sector where

Tesco is involved in.

At this stage, literature review based on academic aspects with different points of

view from several scholars will be provided and explains how the retail sector works.

In addition, the discussion of theoretical perspectives with different points of view

from several scholars is beneficial and ensures that the reader would sufficiently

understand the definition, evolution, strengths, weaknesses, and characteristics of CRM.

The second stage of this report is focused on the usage of the database marketing

as a tool for CRM in the form of the Tesco clubcard. Therefore, the application of the

clubcard will be investigated by focusing on how successful Tesco is in terms of market

shares resulting from the implementation of the database marketing approach that helps

the company collect personal information from customers in order to gain a competitive

advantage over other competitors.

Moreover, a SWOT Analysis is an examination of an organisation's strengths and

weaknesses in relation to possible opportunities and threats. In essence, the model is

applied to environmental and resource a•~alysis that influence toward the creation and

maintenance of competitive advantage and strategic success.

4

Lastly, conclusion and recommendations will be provided to summarize the whole

report. The recommendation consists of what Tesco has to do to maintain the

satisfactory things and correct the faults, to ensure that opportunities are exploited and

threats avoided or reduced on impact.

1.5 The Organization of the Project

This project is organized in 7 chapters as follows:

Chapter 1: Introduction. This chapter begins with the project background. It then

presents the executive summary of the project. Moreover, it also shows the

objectives of the project and the methodology of collecting data.

Chapter 2: Literature Review. This chapter summarize the concept and theories of

CRM and the database marketing as a tool of CRM used in this project.

Chapter 3: Critical Analysis of CRM and Database Marketing as a tool for CRM. This

chapter presents the critical analysis of the strengths and weaknesses of

implementing CRM. It also focuses on both strengths and weaknesses of

database marketing as a tool for CRM approach. Problems and solutions are

also criticized.

Chapter 4: Company Analysis. The chapter provides an overview of the situation and

competition in the UK retail supermarket industry. It then highlights the

details of Tesco Plc UK including the company background, Tesco's growth

strategy and its SWOT analysis.

Chapter 5:. An Analysis of Implementing Tesco Clubcard as a tool for CRM. This

chapter shows the concept of database marketing and the application of

clubcard that Tesco Plc uses as a practical case study of creating CRM; what

the Clubcard is, how it works and the data warehouse and the oui _ome of

using clubcard are also criticized.

5

Chapter 6: ·The Evaluation of Using Tesco Clubcard. This chapter evaluates the

outcome of using the Clubcard. It shows how the company successfully uses

the database marketing approach in the form of the Tesco clubcard as an

effective tool for CRM. The data warehouse and the outcome of using

clubcards are also criticized.

Chapter 7: Conclusions and Recommendations. This final chapter concludes all the

project evaluation. The author suggests some recommendations for further

implementation of database marketing and the future development of the

Tesco clubcard. And the future research is also discussed.

6

II. LITERATURE REVIEW

2.1 The Concept of CRM

This chapter focuses on the literature of CRM and the database marketing

approach by referring all the available models and theories intended to explain their

concepts in the way Tesco used to implement its clubcard scheme.

2.1.1 What Is CRM?

The specialist literature contains a host of definitions relating to this topic,

however, some of them are strikingly different from each other. Very often, one

customer encounters instead of the term Customer Relationship Management, the

synonymously used terms such as Customer Management (Diller/Kusterer 1988),

Relationship Marketing (Kotler 1997), Concept of Customer Linkage (BliemenJEggert

1998), Management of Business Relationship Management (Belz 1998) and Customer

Proximity (Homburg 1995).

An international constancy uses the following definition of CRM: "An integrated

strategies approach to capture disproportionately high share of value from current and

potential customers by using proprietary customer information effectively." (CRM

Forum 2001) However, there is another approach of CRM which goes far beyond: "The

use of customer data and encompasses other equally important aspects, which become

necessary due to the new challenges." (Veith Komer/Hans-Dieter Zimmerman, 1999)

In other words, CRM is "the practice of building long-term satisfying relations

with the key customers in order to retain their long-term preference and business."

(Kotler 1997) Smart marketers try to build up long-term, trusting and win-win

relationships with valued customers. They accomplish this by promising and delivering

high quality, good service, and fair prices to the other parties over time.

7

According to Paul Temporal & Martin Trott (2001 ), "Customer relationship

management is all about building a strong brand. It does so by creating the right blend

of organization, systems, and processes that allow your people to understand your

customers as individuals, and potentially to have every interaction with customers to

satisfy their specific needs. The detailed information your people have about each

customer also means that they are going to be best placed to identify sales opportunities

from existing customers and therefore to maximize revenues for the company."

Generally speaking, CRM or Customer Relationship Management is one of the

most critical strategies in order to approach the concept of lifetime value and support

customer loyalty.

CRM is all about collaborating with each customer in order to create the classic

win-win situation. The condition that CRM can give business superiority especially

when competing with others, is to deal with each customer individually.

2.1.2 The Evolution of CRM

According to Paul R Gamble, Merlin Stone and Neil Woodcock (1999), "The

conflict between specialized marketing disciplines and customer relationship marketing

can often be better understood if they are seen in a historical perspective."

Paul R. Gamble, Merlin Stone and Neil Woodcock, then elucidate that the

evolutionary path to CRM can be divided into 5 stages; product focus, customer focus,

full customer focus, full relationship marketing and enterprise database management.

8

Competition Forces sharper marketing

Databases and contacts

Lack co-ordination

Database integrated Internally and Externally

Enterprise boundaries Blur, new digital products And services emerge

, , ~ :.~,.' , . --"'. :' .. ·. Enterpri~ec' ·. :Datail~s~:F ··;···.·.-i ;«

,:,

Source: Paul R Gamble, Merlin Stone and Neil Woodcock (1999)

Figure 2.1. The Evolutionary Path to CRM.

(1) Product Focus

Customers are simply happy to obtain the best products and services.

Leading suppliers, as a result, try to serve them at significantly better quality

than those of its competitors in order to gain shares and profitability.

(2) Customer Focus

The high profits earned attract competition, so several other

compames offer similar products or services. The more competition

intensifies in the areas of features and price, the more companies try to

maintain differentiation through the feature mix and through branding.

Meanwhile, advertising expenditure increases dramatically especially m

consumer markets.

9

(3) Full Customer Focus

If companies have been successful in branding, leaders continue to

lead and to sustain their leadership by high advertising and promotional

spending coupled with slight "tweaks" to the product. Customer service now

becomes very important.

Not only does it focuses on product maintenance or customer training,

but it also moves into the area of customer care to ensure that the benefits

from the product or service are delivered reliably from the first point of

contact.

(4) Full Relationship Marketing

The customer base is very large or varied. So it is now important to

recognize that diversity and to identify the different kinds of relationship

that it will be possible to sustain with different types of customers by

different types of contact channels at the right time. For example, the sales

force, service and administrative relationships use account management

techniques with larger customers. Smaller customers are managed by using

direct marketing techniques such as by telephones and direct mails with as

much automation as possible.

(5) Enterprise Relationship Management

CRM or the relationship marketing approach now has to permeate

everything the enterprise does. Observing customers closely, or working

directly with them to address their reprographic, data distribution and print

technology needs, can show where new solutions are needed.

Once a market has become used to the benefits of CRM, customers

will expect reasonable standards of service and relationship marketing from

10

St. Gabriel's Library, Au

other suppliers of new products, even if they are not the best. As soon as

competition emerges, customers will expect the best from companies who

have to deliver higher standards of customer service and relationship

marketing than they did in the early days.

2.1.3 Managing the Customer Life Cycle: The Three Phases of CRM

In personal relationships, the level of understanding and intimacy grows over

time, as long as both parties are committed to making the relationship work. It is the

same things as in the world of business. Competition is increasing so fast that customers

are rapidly finding out that they have a wide selection of partners from which to choose.

Ravi Kalakota and Marcis Robinson (1999) suggested the three phases of CRM

that have different impacts on the customer relationship. Those three phases are

acquisition, enhancement and retention as seen in Figure 2.2.

ACQUIRE

Differentiation

- Innovation

- Convenience

Clling

- Reduce cost - Listening

- Customer se ice

ENHANCE RETAIN

Source: Ravi Ka vi Kala ''ota and Marcia Robinson (1999)

Figure 2.2. The Three Phases of CRM.

11

All phases of CRM are interrelated. However, doing all three phases is a difficult

proposition, even for the best of companies. Companies have to choose which one of

these dimensions will be their primary focus but choosing one dimension to master does

not mean abandoning the other two.

The choice will dictate the technology infrastructure strategy and not choosing

means trouble. It means hybrid processes with diverse technological requirements will

consequently cause confusion, tension, and loss of focus. Each phase of CRM will be

examined as follows:

(1) Acquiring New Relationships

Beginning a new business relationship is much like going for a first

date. There is insecurity, hesitation, some fear, and anticipation. It takes a

determined suitor to overcome those obstacles.

Similarly, acquiring new customers demands a great deal of planning

which translates into an integrated experience. It is the result of a finely

tuned sales and services integration strategy. Potential customers are very

impressed when companies call them by name.

Preliminary research shows that the probability of sales goes up when

prospects receive a response to their request within one or three minutes.

The company can acquire new customers by promoting product or service

leadership that pushes performance boundaries with respect to convenience

and innovation. The value proposition to the customers is the offer of a

superior product backed by excellent service.

(2) Enhancing Existing Relationships

The company can enhance the relationship Ly encouraging excellence

m cross-selling and up-selling. Companies prove their commitment by

12

taking time to hear the customer's concerns and by developing a service

focus. Call center is one effective application for attaining and maintaining

relationship.

Some companies that can access and use customer information

effectively may offer supenor service which provides competitive

differentiation. The value proposition that they give to their customers is

offering a greater convenience at low cost by using "one-stop shopping"

concept.

(3) Retaining Customer Relationships

Like personal commitment, business relationships need patience and

undertaking. Retaining customers require a complete understanding of the

needs of the customers and a determination to stay in the relationship.

Retention focuses on service adaptability, delivering not what the

market wants, but what customers want. The value proposition to the

customer is an offer of a proactive relationship that works in his or her best

interest.

Today, leading compames focus on retention much more that on

attracting new customers. Some preliminary researches show that even a 5%

increase in customer retention can increase profits by as much as 85%. To

increase the profit, companies have to hold on the good customers; however,

it is not easy to do so.

2.1.4 How Does CRM Work?

According to Paul Temporal & Martin Trott (2001), CRM works by:

(1) Creating a continuous communication loop between brand and customer:

This can be telephone-based, face-to-face, by mail, the use of the Internet,

13

or any combination of these. The critical thing is to open communication

channels and make it easy for the customer to interact with you.

(a) Getting to know the customer: Use this new-found communication

channel to get to know your customers - not just their names and

addresses, but also:

(1) Who they are?

(2) Who is in their family unit?

(3) What they do for a living?

(4) What their ambitions are?

(5) Their likes and dislikes

You can only get this information by asking them directly.

(2) Using existing customer data: You need to look at the information you

already ought to have about the customer. Included here would be

information such as:

(a) How often do they buy from you?

(b) How much do they spend when they do?

(c) When was the last time they bought from you?

(3) Asking the customer what they want from you:

(a) What might they buy from you if only you supplied it?

(b) What do they like about your brand?

( c) What do they dislike about your brand?

(4) Establishing the unlocked potential:

(a) What brands do they used buy that are competitors of yours?

(b) Why don't they buy everything they need from you, if you offer it?

(c) What would you have to do to persuade them to buy more from you?

14

St. Gabriel's Library, Au

Furthermore, database marketing can be defined as the steps of gathering,

maintaining, and using the maximum amount of useful knowledge about existing

customers and prospects. (Jutkins 1994).

Kotler ( 1997) elucidates the point that Database marketing is "the process of

building, maintaining, and using customer databases and other databases (products,

suppliers, resellers) for the purpose of contacting and transacting. It is a customer based

information intensive and long termed and guide current marketing efforts as well as

build an overall body of information to direct future effort."

Database is therefore considered as the nerve center of database marketing

because a customer database is a huge information resource to track current customer

activity. The company is also able to communicate more effectively by offering a

personalized promotional campaign to a specific customer, based on information in the

database.

Moreover, a database provides the resources for a new generation of marketers to

perform marketing with the tools of their trade data, techniques, and statistical

techniques. Database marketers therefore communicate to individuals, not to aggregate

market segments.

By conducting research on captive database of customers, marketers can gam

valuable insight into characteristics about them that relate to the purchase of products

and services, and then refine their skills, learning to predict the purchase behavior of

their targets.

However, database marketing is not a substitute for traditional marketing

approaches because it is regarded as a complementary element by improving the

performance of marketing activities through the effective use of custorner information

by collecting and using data on customers in order to help the company gain a better

16

understanding of the market and then can utilize sales and marketing techniques in a

more precise and cost-effective way. (Linton 1995)

More importantly, mass marketing has now less efficiency to increase the capacity

of operating business. The concept of mass production, mass distribution and mass

promotion, is difficult to practice as one size fits all marketing. Thus, most companies

are seeking to implement micro-marketing focusing on segments, niches, local areas,

and individuals.

Due to rapidly changing customers' behavior in globalization, specialty shops,

superstores through mail-order catalogs, home shopping networks, and virtual stores on

the Internet are more popular that influence buyers' behaviors because customers have

more choices. (Kotler 2000)

In essence, database marketing, particularly loyalty programs, encourage customer

retention and reduce customer attrition. Not only does database marketing help keep

loyal customers, but it facilitates conversion of one time customers to loyal customers.

Information on past purchases combined with name and mailing information, provides

the companies with a qualified prospect-one who has purchased before. (Johnson 1994)

The database provides the means to target customers for cross selling and testing

new products. That is the ability to store and manipulate customer information. So it

does not merely provide better targeted communications but also the basis for product

development, quality improvement and effective customer service.

The major benefits are also a reduction in mail volumes and improved response

rates. This means more cost-efficient marketing and their reputation for sending junk

mai 1 no longer undermines the brand values. (Cooke 1994)

17

2.2.2 The Characteristics of Database Marketing

According to Shaw and Stone ( 1990), the following are the main characteristics

that are important in creating the benefits to the companies establishing a long-tem1

success with their customers:

Each customer profile is identified as a record on the marketing database and the

data is gathered as combination of individual customers because market segment cannot

be done through individual customers in this primary stage.

Not only the customer's personal data such as name, address, telephone number,

contained as accessible information in the company database is recorded, but also more

specific information about customer needs, demographic and psychographics

information about consumers, industry type and decision making unit information for

industrial customers are included in order to identify buyers and what certain products

they purchase so that the companies can design the appropriate marketing strategies for

them.

In addition to customer record, it contains information about marketing programs,

past transactions, and the customer's past responses to communications, which form

part of the programs.

The process of gathering information from customers is beneficial to the

companies in terms of deciding how to respond to the customer's needs.

Customer information is used to record responses of customers to company

initiatives such as promotional programs.

The information enables the management to target customers with certain

products in terms of appropriateness to particular needs, for instance, what marketing

mix should be implemented: marketing communications, distribution channel, price,

etc. to meet their needs.

18

Marketing programs are devised to the response of customers to the program that

provides information which the company is looking for. This means that the database

eventually replaces marketing research.

Handling the large volume of information generated by database marketing is

needed together with the development of the automation of customer information via

the development of a database and the tools to access it to handle transactions with

customers. It ensures that marketing opportunities and threats are identified more or less

automatically, and that ways of capturing these opportunities and neutralizing these

threats are also recommended. It makes higher quality information on marketing

performance available to senior management, allowing them to allocate marketing

resources more effectively.

2.2.3 The Three Steps oflmplementation of Database Marketing

According to Thompson J, Bell K., (1996), "Database Marketing is the process of

systematically collecting, in electronic or optical form, data about past, current and /or

potential customers, maintaining the integrity of the data by continually monitoring

customer purchases and/or by inquiring about changing status and using the data to

formulate marketing strategy and foster personalized relationships with customers."

(1) Building the Database

The customer database must include the main parts of identifying data

needs, building storage and access mechanisms. In the process of

identifying data needs, the data can come from both internal and external

data source.

Internal data that the company can directly collect from customers

through the willingness of the customer or prospect, give the company the

information that includes customer names, addresses, sex, age, phone

19

numbers, key demographic variable, order records, complaints, merchandise

return records, warranty cards, past purchasing history including frequency

of purchase and payment history.

I"'-. /

1. Building the database • Identifying data needs

• External and Internal data • Building storage and access mechanisms

/ I I I I ""'-""<!...? ~ 7

""'- ~ 2. Maintaining The database ~ • Updating customer data

• Cleaning and removing errors

I/ l I '<z -<..7

~ / 3. Using the database

• Segmenting customers to formulate marketing strategies

• Predicting response to particular marketing approaches • Tracking purchases or other customer information to

formulate methods to build customer loyalty and maintain relationships

/ ~

Source: Thompson J, Bell K., 1996

Figure 2.3. The Steps of Implementation of Database Marketing.

External data sources includes the data from sources outside the

company that are divided into three broad categories. They are compiled

data, behavioral data and modeled data. (Jackson and Wang 1997)

Compiled data include demographic information which can be

overlaid on an existing database such as home ownership, number of

20

residences at address, number of adults present, number of children present,

marital status, occupation, lifestyle and income.

Behavioral data include purchasing patterns and attitude patterns such

as smokers, products purchased by category and source, books/

subscriptions, and general merchandise.

Modeled data attempts to predict purchasing behavior based on

common traits with certain groups of customers. The traits are defined in

terms of both demographic and behavioral information. The concept implies

that people with similar cultural backgrounds, means, and perspectives tend

to be similar to one another. This means they share similar patterns of

consumer behavior toward products, services, media, and promotions.

In addition to building storage, the key to building the database is to

establish what data will be needed to facilitate capturing future revenue

streams in the company's existing and future businesses.

However, a database is more than just raw data because it is data

organized so as to be used for the required purpose. It can be said that a

marketing database is a database that is built to use for marketing purposes.

Many database marketing applications provide great opportunities for

collecting data while marketing.

(2) Maintaining the Database

It is important to update customer information and cleaning incorrect

data from time to time.

According to Berry and Maclean (1989), there is the need for a central

coordination function within the marketing department to ensure consistent

updating of the database. Customer information such as addresses, income

21

levels, needs, preferences and behaviors, is changed. Therefore, a database

with no updating mechanism becomes obsolete very quickly and as a

consequence it will be a problem of misidentifying customers when using

specifically targeted marketing approaches.

Moreover, all the data it contains must be accurate and correct at the

time of input into the system and amended or deleted by the time it became

out of date. (Mccorkell 1997).

The quality of the data drawn from a database depends mainly on how

up to date the source data are and whether they contain the details needed to

access the right individuals (names, addresses, telephone numbers, job

titles) and it can be measured by the results of the last audit carried out on

the data. The quality of the data outweighs every other step of the excellent

database.

The importance of cleaning the database is to remove errors such as

inconsistent abbreviations and duplications because incorrect data is one of

the significant problems for database maintenance.

Moreover, the companies need a mechanism to measure the value of

customers on the database to weed out those who are unlikely to provide

future benefit for the companies by discriminating between what is useful

and what is extraneous information.

Both updating and cleaning the database are very important to the

maintenance of the database and saving costs to the company.

(3) Using the database

The database can be used to segment customers to assist in marketing

strategy formulation, predicting response to a particular advertising, and in

22

tracking purchases or customer information to formulate methods to build

customer loyalty and maintain relationships. (Jackson and Wang 1997)

Segmenting customers - All customers or prospects are different m

the database marketing application of segmentation. Therefore, the company

must identify where, why, and how to sell to customers and also which

customers the company should focus on for the product or service.

The company can maximize profits from understanding the value of

customers by responding to customers' needs.

Segmentation technique allows the company to communicate with

customers effectively because the company can target particular segments

that are profitable customers.

Formulating marketing strategies - When the company has targeted

particular segments, developing the marketing programs is needed to

provide better services through the historical data that captures the right

information from customers and then develops the marketing activities that

prioritize customer data.

Therefore, the database marketing opens the possibility for treating

each customer as an individual by formulating marketing strategies for

particular customers, not for mass group in which promotion, product offer,

price, and distribution are produced to suit particular customers' needs.

23

Tracking results - The benefit that the database marketing has over

the traditional mass marketing is that it creates a feedback to the company

and an information flow can be created both to the customer, as in mass

marketing and also from the customer·

The database marketing creates a two-way communication between

the company and the customer in which useful information is generated to

benefit future exchanges with the customer and feedback on the customer's

relationship with the company.

Building customer relationships - A detailed knowledge of the

customer's needs and past purchasing habits helps the company in building

long term customer relationships ensuring customer loyalty and increasing

the possibility of cross-selling.

Using the customer database can generate more customer loyalty in

which long term profitability and repeat business will be the result because

customer satisfaction is achieved as the right products are delivered at the

right time to the right customer by implementing the database marketing

approach.

24

III. CRITICAL ANALYSIS OF CRM AND DATABASE MARKETING AS A TOOLFORCRM

This chapter focuses on the strengths and weaknesses of CRM and the

implementation of database marketing as a tool to create CRM and how it can be used

to achieve significant business benefits by supporting and improving perfomrnnce

across the whole spectrum of sales and marketing techniques.

3.1 The Strengths and Weaknesses of Implementing CRM

CRM, as a current point-of-interest marketing strategy, is most remarkable for its

core to focus on customers and treat them individually. Once businesses win their

customers' loyalty, they would have constant transactions just like a married couple.

When a company implements CRM, it can identify customers and differentiate

them by their needs and their value to the company. In order to maximize customers'

needs, the company customizes its products, service and messages by using the

information gathering technique with the aim of pursuing the CRM approach.

Practically, the strengths of implementing will be discussed all through this

project in the case study of the Tesco clubcard as it incredibly wins and retains loyal and

repeat customers in the UK market.

On the other hand, there are some hidden weaknesses of the CRM approach that

will be analyzed as follows.

Building the database - By Far, the most common claimed benefit of a loyalty

program is building a comprehensive customer database. There have been many

programs created in order to serve this need and instead of looking at the loyalty

program as unprofitable, the costs can be seen as investments in a database asset that

will generate long-term value. This is certainly the belief behind investing in CRM.

25

Limitations of TechnologY - A customer database, however, is only valuable if it

can be used. For more companies, the ability to deal individually with the customers is

still difficult. The limitations of technology to make the large amounts of customer data

useful are real and should not be underestimated. Even the pioneers in loyalty programs

are working with segments and not using the data to personalize their offers. For

example, Tesco produces up to 80,000 variations of some letters, but this is still not

one-to-one. While such technology is inspiring, no one knows how profitable this

strategy can be.

The cost of sales is not lower - While acquiring a new customer is expensive,

advertising and other promotional costs continue, simply because some customers do

leave and even when they stay the costs of serving light and heavy buyers are generally

the same per transaction.

Loyal customers are not less price sensitive - Though CRM can increase the

number of customer and their loyalty to the business, loyal or heavy buyers often

demand a volume discount and the introduction of a loyalty program actually tells them

to expect a discount.

The benefit of being small - This means that there are potential advantages for

small companies as, the fewer customers and fewer transactions there are overall, the

greater the opportunity to be able to use the data generated. There might also be more

potential for an emotional connection with the brand because the brand can get closer to

the customer in smaller companies.

3.2 The Strengths and Weaknesses oflmplementing the Database Marketing

Nowadays, more and more companies are seeking new ways to improve their

performance to efficiently operate the business so as to gain a competitive advantage,

generate more profit and particularly maintain customer satisfaction·

26

The supermarket chain is widely regarded as the sector in which keeping customer

satisfaction is crucial in supplying the products that match the customers' needs.

Moreover. Tesco is a good example in introducing the clubcard by means of

implementing the database with the clubcard. This has shown that Tesco, the market

leader of the supermarket chain, has satisfied the customer's needs in raising the

numbers of customers who have used the clubcards.

By doing so, the view of customers as a mass does not provide the most efficiency

in satisfying the customer's needs. The database marketing, on the other hand, allows

the company to view customers as individuals and not mass. Therefore the database

marketing provides the information on specific individual needs for the company,

resulting in the company developing and supplying the products that suit their needs.

The customer behaviours are increasing more and more important because they

indicate the demand of different types of product. The volumes of innovative products

are increasing, indicating more and more the complexities complex in customer

behaviour.

The shotgun approach might have, therefore, merely being applied and worked

well enough in the past. Moreover, the traditional mass marketing approach is

increasingly inadequate to fulfil customer expectations at the level of individualised

attention.

In order to achieve customer satisfaction, companies are now required to target

them with marketing initiatives, which will derive better responses, with the

combination of strategic marketing management and information technology.

The database marketing strategy can therefore provide this value to companies by

emphasising on providing customer value, enhancing customer satisfaction, increasing

customer loyalty and eventually maximising company profit.

27

In addition, the database marketing approach has particular strengths that are

different from other approaches in terms of measurable, testable, and selective tool in

which the creative utilization of information within the company has been used in the

marketing and sales activities.

The database can be a measurable tool because responses to the marketing

programs or campaigns can be measured. This means that it enables the company to

check the effectiveness of different approaches.

By doing so the company will target the specific customer. At this stage, the

database gives a great deal of information from customers with specific types of product

they purchase. This gives the company an opportunity to create the campaign such as

sending mails to customers.

The responsiveness of customers is the way they react to those campaigns related

to their preference of product and this, therefore, enables the company to measure their

campaigns. For example, the response rate to direct mail-shot is measured in order for

the company to develop campaign evaluation as well as number of sales resulting from

campaigns and market penetration in relation to different types of campaigns.

Moreover the responsiveness of customers can be tested. This is in terms of the

packages and the types of the product as well as the way the company communicates to

their customers. The customers might ignore the product when the company tries to

target them or the customers might refuse the way the company communicates with

them.

For example, direct marketing might not work well with business customers

because they do not have much time to spend in reading the campaign brochures or mail

advertisements which the company had posted to them. At this stage, the database

marketing allows the company to improve the way they communicate to the busin~ss

28

customers and therefore this can test the effectiveness of the communication from the

company to those customers.

Since the buyer behavior has become more and more complex, the customer

might want to switch to other products in a short period of time instead of continuing

purchasing their preference product. Therefore the database marketing, at this stage,

allows the company to test the customer loyalty to their preference product. The

voucher that the company sends to customers can also be tested.

The database gives the company the type of products that customers always

purchase. By doing so, the company can post the voucher of that product to the

customers. Success or failure depends on how the customers react to that voucher.

Therefore the voucher can be tested by the customer reaction.

Determining further critiques, the database marketing allows the company to

challenge its competitors. This allows the company to test its products against its

competitors' products. By doing this, the household brand name seems to be the most

appropriate measurability.

It is a fact that the company will not be able to measure the product from other

supplies because those products are universal; every supermarket might supply the same

products. Therefore the household brand allows the company to measure their brand.

By doing this, the questionnaire might ask customers to describe their product and

also assess the quality of the competitor's product. This will go to the data record and

therefore, allows the company to improve their product by filling in the weakness of the

competitor's product.

The database marketing approach is selective as campaigns can be focused

precisely because as communication is with specific customers and can be attuned to

their expected value.

29

The database provides the customer data with more specific characteristics such as

age, sex, numbers of children, status, their estimated spending budget each week,

income and their preference credit card. That information which the database gathers

will be divided into segments or sub-segments.

As the strategic marketing indicated, the most effective way to target customers is

to target their needs, lifestyle, and economic class. Once the company has a better

understanding of specific customers, an effective strategy is then developed from

customer feedback through the database marketing for establishing long-term customer

retention.

The database, therefore, is a tool to select the segments of customer to match the

types of product. For example, the household brand might match with the lower income

segment whereas the premium brand name might match with the higher income

segment. This, therefore, allows the company to serve the product that suits their

customers' characteristics and needs.

Fu:thermore, by bringing the particular customer information such as purchase

records, customer inquiries, and complaining on the product, it allows the company to

comprehend individual customers and this, therefore, allows the company to assess the

effectiveness of different marketing activities on their purchasing behavior.

Consequently this allows the company to select information on customer

information and product preferences to provide sales and marketing people with

information they need in order to put programs into action, based on individuals and

groups.

Moreover, Professor Goldsmith (1999) indicates that the database marketing is

beyond the 4' Ps. There have been many new ideas and techniques in the ~row;ng field

30

of database marketing that encompasses the new marketing thought and practice of

establishing a customer driven approach.

Owning to the traditional marketing mix approach, it was proposed that the

company decide to produce the product first and hope one to fit all. However, now the

company has also become aware that the traditional marketing strategies targeted

towards groups of customers have become more expensive and less effective. The

database marketing, on the other hand, allocates strategic implementing before

approaching the customers. Thus, there is more focus on customers than the 4P's

application.

However the adopting of the 4'Ps will help to improve the effectiveness of the

database marketing. Providing product, price, place and promotion give the database

customer information that has already existed, therefore, integrating with the

information that the database collects, giving more potential of using the database.

3.3 The Problems and Solutions to the Problems

The implementation of the database marketing has not been without difficulty.

The database marketing concept is not flawed, but rather that companies lack critical

understanding of how databases should be designed, maintained and applied to establish

customer relationships in the company.

Moreover, using the database marketing without considering the data needs,

overlooking future data needs, organizing the data poorly, and failing to integrate all

necessary functional areas into the development and use of the database, cause problem.

Management support is one of the most critical issues related to the failure of

database marketing because of a lack of support from the top management. It is derived

from a r.:isunderstanding or underestimation of the potential of the dat~1.base-driven

31

strategy. Sometimes it is also derived from a lack of understanding of the technology

itself.

This means that the traditional managers do not envisage the benefit of the

database marketing while they agree on the shotgun approach, thus they do not fully

support the implementing of the database marketing. However, it might be the case that

the high investment on database marketing influences the manager's attitude to ignore

the potential of the database marketing. The high investment might have an impact on

the organizational change.

As indicated above, the process of setting up the database marketing in the

company needs the organization functioning differently. This means that the database

marketing needs not only the technician participation but also full participation from the

finance people to the marketing people. Therefore, when there is the strategic change,

the organizational change will occur and this results in requiring more money.

As stated above, the database marketing makes a large change in the organisation

as it requires high investment on technology. The companies, therefore, should

carefully plan to do the transitional work by considering the impact of the decision on

the companies themselves and the characteristics required for the most effective way of

implementing a database marketing strategy.

It can also be problematic and lead to the wrong direction when the company does

not continually improve their data. Peltier and Schribrowshy (1992) point out the

problem of customer information which is not updated as it always keeps changing such

as the address, income, need and preference of the customers.

Therefore, companies in which the database marketing approach is being used

should be more careful about updating of the database before implementing strategic

32

decisions to their customers. This means that misidentifying customers when usmg

specifically targeted marketing approaches, could occur.

The view of developing or supporting the benefit of technology will be destroying

human skills. Linton I. (1995) stated "database marketing does not improve all aspects

of marketing by itself. It underpins the sales and marketing skills the company has and

supports the campaigns the company runs. However, it is no substitute for employing

good sales and marketing people and running well-planned campaigns.

Nor will database marketing produce improvements if the data is poor."

Therefore this suggests that humans are still an important resource in the field of

marketing. This also suggests that database is not always necessary to replace human

skills. Therefore, the company should focus on humans as well as on technology

because they cannot work well without each other.

Furthermore, the database will not be effective without accurate information. This

suggests that the database need to be rechecked all the time and made sure that it

operates in the way the company wants and relates to the strategic marketing the

company operates.

A lack of consideration of the marketing applications and resource requirements,

is the source of most database system failures. Thus, the company should emphasize on

the marketing applications and resource requirements rather than on the hardware and

technology in order to fully utilize all of the information available.

This meant that the company should not immediately purchase hardware and

software to develop a database marketing system without considering how the database

information will be used and who will use it.

In addition to the issue of privacy in database marketing, it is also the main

consideration for the companies to take into account possible problems because the

33

companies utilize the data from customers as they want to establish a good relationship,

not to invade their privacy.

Therefore, the companies must clearly understand the issues and take

responsibility of their customers. Once the customer data has been used for targeting the

marketing programmes, the data should not, then, be transferred and sold to the third

party. So when the companies collect information from customers, ask them if it is all

right to share this data, or if they want to receive offers from other companies targeting

their interest.

"Companies must assume responsibility for the privacy issue and turn it from a

threat to an opportunity" (Jackson and Wong 1997). Which means that companies can

benefit from the responsibility by creating a constructive way to deal with this issue by

investing in devices in order to show that the companies are concerned about their

pnvacy.

34

IV. COMPANY ANALYSIS

The first part of the chapter is to provide an overview of what the UK retail

supermarket industry is by showing the market position of the supermarket and

superstore food sales as percentage of the total UK retail sales and discussing how they

compete in the sector.

It then shows the background of Tesco Pie. and critically analyzes the company

by using a SWOT analysis as an academic model to indicate how effective the Tesco

Clubcard is as one of the most important factors of the company's strength and also as

the tool in penetrating the existing market and products.

4.1 An Overview of the Retail Market Industry in the U.K.

4.1.1 Industry Overview: Supermarkets and Superstores

The UK food retailing market is not only highly advanced in terms of logistics,

marketing, pricing and merchandising, but it is also one of the most concentrated in

Europe. There have been several changes in the industry with the diversification

strategy and innovative ideas to improve their operations.

In the past few years, retail grocery groups have been developing new store

formats, ranging from city centre stores, to neighbourhood stores to petrol forecourt

stores.

Moreover, there has been a greater focus on non-food retailing including electrical

equipment and financial services; for instance, J. Sainsbury PLC, Marks & Spencers,

and Tesco have successfully launched financial products, including credit cards,

pensions, ISA's, mortgages, loans and insurance.

35

Supermarket banks have benefited from customers' trust convenience and strong

brand name. Moreover, they have low overheads and so they can generally be

competitive with low customer charges.

This has shown that the UK has experienced considerable movement towards the

one-stop-shopping concept with several large multiple retail chains in order to raise

their revenues and offer more conveniences to customers with the expansion into home

delivery and shopping on the Internet.

All the major supermarkets have entered the online shopping market; Internet and

digital television are finding their place within the shopping habits of consumers.

Tesco's Direct Service offers nation-wide coverage, while Iceland offers shoppers

a host of options, including the web, interactive TV and telephone/fax ordering.

Sainsbury To You Internet service is expanding across the UK as shopping from home

or the office brings a number of benefits to both shoppers and supermarkets.

In addition, the UK market for fresh food continues to grow. With the declining

numbers of independent grocers, supermarkets continue to be the main supplier of fresh

products for consumers. Supermarkets are aware of the potentially huge fresh food

market and are focusing their operations.

However, with the recession period m the UK, shopping patterns have been

changed. Fears of recession could provoke the pnce war m the industry with the

potential to harm a lot of the smaller chains, which have no power to stand up to the

cutthroat price.

This means that many major supermarkets squeeze out the smaller independent

retailers in the sector and take on additional roles as pharmacies, entertainment centres,

newsagents, clothes stores and petrol retailers.

36

In the future, it is expected that non-food products will become increasingly

important in many supermarket stores as they seek to head off the expected competition

from Wal-Mart. Furthermore, more consumers who have demand for organic products

appear to be growing and the market will continue to benefit from the stronger UK

economy.

After the unemployment rate continued to decrease in 1999 and there were serious

worries that the UK economy would fall into recession, it rapidly recovered and now

has grown by more than 2% in 2000 and in 2001, it is forecasted by Mintel Online

Shopping to grow by 3%· That shows good news for increasing consumer spending

resulting from the growing strong UK economy and the declining number of

unemployed people.

4.1.2 The Market Position

Table 4.1. The Supermarket and Superstore Food Sales as Percentage of the Total Retail in the UK Market.

Year Retail Sales Supermarket Supermarket Food Sales as

Sales % of Retail Sales

1995 159,103 59,362 37.3

1996 167,679 63,400 37.8

1997 178,303 67,096 37.6

1998 186,591 70,786 37.9

1999 194,556 73,444 37.7

2000 198,600 76,782 38.7

Source: Key Note-Supermarket and Superstore (2001)

37

According to Table 4.1, the grocery trade is the largest sector in the UK food

retailing industry.

In 1998, supermarket and superstore sales reached an estimated £70.79bn, up

5.5% in 1997.

The sales also continued to show an annual growth of between 5% and 6%

between 1999 and 2000. Moreover, in 2000, food sales through supermarkets and

superstores reached £76.78 billion, a growth 4.5% over 1999.

In addition, sales through supermarkets and superstores have continued to

outperform those of the food trade as a whole, increasing the concentration of the food

market, with Tesco PLC retaining its top position.

However, from the above figure, it is shown that the UK market for supermarkets

and superstores is growing strongly and continuing to increase its dominance in the UK

food retail sales. Moreover, the market position of supermarkets and superstores, is still

a major part of the UK retailing scene and constitutes the majority of food sales in the

UK.

4.1.3 Competition

Increasing competition in the UK grocery market is pressing many multiples to

search for new ways to differentiate themselves to increase their market share.

Supermarkets attempt to gain a better competitive position in the minds of consumers

by pricing goods competitively and providing non-price competition by offering

benefits and facilities to those who choose to shop at the stores such as launching

customer loyalty cards, and in-store facilities: cafes, photo processing, and dry cleaning.

The major trend in the supermarkets sector continues to be the competition

between the leading b1u.nds in the UK for the market leader J. Sainsbury, Tesco,

38

Safeway, and ASDA Group are all continuing to compete fiercely and undercut one

another on price.

Recent years have seen the arrival of the discount store, Aldi (German) and Netto

(Scandinavian) on the UK food market, but the strategy of discounting is quite different

from the typical UK supermarkets. Product ranges are much smaller, and product

differentiation with a product category much more restricted. The emphasis is on price

and volume of turnover.

However, the environment for the leading grocers in the UK food retailing trade is

developing in terms of marketing and innovation.

In addition to supermarket operations, logistics have become significant in

ensuring the expansion of fresh and chilled product ranges. There has been a rapid

technological and organisational innovation process of a major scale in the process of

bringing food to the consumer. The major retailers have either constructed their own

large-scales, high-tech facilities, or engaged the major logistics companies.

By providing non-price factors, several multiple chains offer more range of

product lines, customer loyalty cards, large parking and convenient locations to attract

more customers and maintain their market share.

Over the past five years, store reward cards have become an integral part of the

UK grocery retailing with the big supermarket chains all operating some kind of loyalty

scheme such as the Tesco Clubcard, the Safeway ABC card and the Sainsbury Reward

card.

The whole principle of loyalty schemes is that they are the ways of getting to

know your customers. Due to technological advancements, however, the process is

easier with loyalty cards. Loyalty cards may be considered as a forr11 of loyalty scheme

39

and it is one of the major focuses for the company- Now the cards have become a hot

trend in marketing for keeping loyal customers

The strategies of the major chains have shifted from intense price competition to

loyalty schemes. For these schemes to be implemented successfully there has to be

motivation for their uptake from both sides of the exchange relationship, which are

retailers and consumers. The benefits of implementation of the loyalty cards are a way

to increase profitability through encouraging loyalty behaviour and increasing retention

rates.

McGarry postulated, "Customer satisfaction or customer retention is an important

milestone along the road but building customer loyalty means going the extra mile". If

companies need to put an effort into going the extra mile, then the information

processing and clear segmentation are needed.

For instance, Tesco encourages holders to save up points which they can then use

to deduct cash amounts from their shopping expenses. In tum, the schemes can also be

used to help the company gain information about and communicate with customers.

A customer loyalty scheme is a tool for identifying and rewarding loyal

customers. Points are awarded according to how much customers spend. Then

customers can use these points for a discount on future purchases at the store in which

they were earned. Typically, a loyalty scheme uses some form of membership card,

which is presented at the point of sale to record the value of the purchase and the value

of the rewards earned.

The key to a loyalty program is the database, which can help identify those loyal

customers. Information in database can be used in numerous ways to improve services

and store offers. Companies with high margin products or services and dependent on

repeat business will find the loyalty program a necessary part of the marketing program.

40

:·.;.

Similarly, information is the use of such programs to retain and build loyalty

among profitable customers and will certainly continue to be a primary use of the

database system.

Which means that the main strength of having a card is that it enables retailers to

differentiate their offer and data is not only used to produce marketing programmes but

also to effect changes in the way the business is run to improve customer service and

satisfaction.

Reward schemes have many motivating features that attract new customers;

therefore, this is one of the most powerful competitive strategies appealing to major

chains to benefit from customer database to gain a competitive edge in the marketplace.

4.2 The Company Background

Tesco originated from a market stall owned by Jack Cohen, whose policy was

"pile'em high, sell' em cheap", and the supermarket has continued to focus on a value­

for money approach.

It introduced the concept of a superstore m 1967. The superstore was a new

concept in retailing - a very large unit on the outskirts of a town, designed to provide

ease of access to customers coming by car or public transport.

In 1992, it opened the first Tesco Metro, a city center store meeting the needs of

workers, high street shoppers and the local community. It was then followed by Tesco

Express, combining a petrol filling station with a local convenience store to give

customers a selected range of products.

In 1995, the first customer loyalty scheme was introduced in February, which

offered many benefits to regular customers and also helped the company to collect

customer data. Tesco has a long lead on its competitors - it has been planning its online

strategy since 1996, while many of its main competitors are offering only trials.

41

In February 2000, Tesco had 60% of the total online grocery Market, following

the success of Tesco Direct for catalogue shoppers that can be measured, by the number

of new shoppers the e-venture has delivered - 40% of Internet shoppers were not Tesco

customers before.

The company has planed to have 45% of its space abroad by the end of 2002, and

to derive a total of30% of sales from international business by 2004. cwww.tesco.co.uk)

4.3 Tesco's Growth Strategy

4.3.1 A Strong UK Core Business

Tesco is positioned as the UK market leader with focus on customers' needs and

continues to seek organic growth opportunities and innovative ways to open new stores

and improve supply chain efficiency responding to increasing customer demand.

4.3.2 Non- Food Products

The company expects to achieve non-food sales of £5 billion by the end of 2002

to be as strong as it is in food by planning to use the Internet to develop its non-food

sales.

4.3.3 Retailing Services

Tesco has the diversification strategy to expand to new areas as retailing services

and now it is expanding financial products with Tesco personal finance. Tesco's website

is also successful in establishing the largest grocery e-retailer in the world.

4.3.4 International Growth

The company focuses m Thailand for its international expansion m Asia and

Hungary in Central Europe. Tesco has chosen to use the hypermarket format for its

international expansion and its objective is to achieve sales in the emerging markets of£

5 billion in 2002.

42

St. Gabriel's Library, Au

4.4 SWOT Analysis of Tesco Pie.

A SWOT analysis is an examination of a company's strengths and weaknesses in

relation to possible opportunities and threats. In essence, the model is applied to

environmental and resource analysis that influence toward the creation and maintenance

of competitive advantage and strategic success.

Strengths

- Market leader

- Tesco brand

-Strong Customer database

- Number of Tesco stores

Opportunities

- Cross selling

- International expansion

- Organic food

- Diversification to non-

Weaknesses

- Started international race

late

Threats

- Entry of Wal-Mart

- Economic crisis in some

countries

Figure 4.1. SWOT Analysis of Tesco Plc.

4.4.1 Strengths

( 1) Market Leader in the UK

Tesco has the strong leading position in the United Kingdom with

customer-focused strategy. The company has the highest market share of

43

15.6% in 2000 and the Tesco group achieved outstanding full year results

with rising sales of 11.9% to £22.8 billion.

(2) Tesco Brand

Tesco was founded in 1924. Over the last seventy-seven years, as the

food retailing market has changed, the company has grown and developed,

responding to new opportunities and seeking many innovations.

Moreover, Tesco has rapidly been growing with its UK portfolio and

repositioning towards a focus on quality and service rather than on low price

as well as continuously increasing sales growth.

This reflects its strong brand values of simplicity, value for money,

excellent customer service and convenience so that Tesco is a widely

accepted brand for customers throughout the world.

(3) Strong Customer Database

Tesco's core purpose is to "Continually increase value for customers

to earn their lifetime loyalty." This reflects the company's customer focused

approach and its commitment to developing an efficient customer driven

company. The company's strategy is also the retention of existing customers

and attraction of new customers in the UK.

In 1995, Tesco became the first UK grocery retailer to launch a

national customer loyalty card, the clubcard. Now the number of

cardholders is over 14 million. It enables the company to collect customers'

information via the Tesco clubcard, which means that Tesco can develop

promotional programs to tailor particular customers more precisely.

44

(4) Number of Stores

Tesco's branches are over 750 stores in the UK and increases every

day. Its number of stores is not the most in the UK, while Somerfield has

total 1,333 stores and Iceland has 764 stores nationwide, Tesco's 319 out of

750 are defined as superstores with at least 250,000 sq.ft. of net sales area.

The growth in the superstore format achieved by the Major Multiples is

shown in the Table 4.2.

Table 4.2. The Number of Superstores in the UK.

Major Multiple Superstores (1 ~·January) Superstores 1994 1995 1996 1997 1998 1999 2000 2001 Tesco 229 236 247 264 286 288 302 319 Sainsbury's* 203 218 239 256 268 272 280 293 Asda 192 193 196 203 206 213 221 232 Safeway 109 131 143 169 173 177 181 185 Somerfield Na Na Na 27 27 27 24 13 Morrisons 54 62 72 7. 78 88 93 99 Waitrose 3 4 5 7 7 7 8 10 Iceland 0 0 0 0 0 0 0 0 Total 790 844 902 999 1,045 1,072 1, 109 l, 151 * mcludes Savacentre Source: IGD Stores Database (2002)

Tesco, as a result, has become a national leader retailer with an evenly balanced

store portfolio, geographically spread throughout the UK.

(5) Technology

Tesco.com is an Internet innovation for the company. By investing in

technology, Tesco is the number one internet business for grocery with the

success of internet shopping via the Tesco website providing easy access to

customers all the time, thereby offering a variety of services.

45

Recently, a relaunched site has halved ordering time for its customers

and offers pre-bookable deliver slots.

The company also relaunched BabyClub on-line, set direct links to

Tesco Personal Finance and announced a joint venture with iVillage,

providing a UK-based version of the successful US-based women's internet

portal.

4.4.2 Weaknesses

(1) Started International Expansion Late

Tesco joined the global race late and lags behind some of its global

competitors in terms of international presence, particularly, Carrefour has

been a leading international retailer with a truly global strategy and much

international expertise over the European market where it now can claim

retail dominance in four leading markets: France, Spain, Belgium and

Greece. It is the Number 2 retailer in Italy and the Asian market in which

China and Japan are emerging markets.

4.4.3 Opportunities

(1) International Growth

Tesco has a strategy for international expans10n, and is the UK's

leading international grocery retailer. It is the largest food retailer in the

Republic of Ireland, and is rapidly developing operations in central Europe

and Asia. Tesco's objective is to achieve sales in the emerging marketing of

£5 billion in 2002.

(2) Diversified Non-Food Sector

' Tesco has expanded its product ra11ge to take in a number of non-food

goods and services as Tesco's objective is to be as strong in non-food as it is

46

in food. The company expects to achieve non-food sales of £5 billion by the

end of 2002. In order to achieve this objective, it is increasing the space

allocated to non-food in stores. Tesco also plans to use the Internet to

develop its non-food sales.

(3) Organic Foods

Tesco continues to look for organic growth opportunities in the UK by

seeking innovative ways to open new stores. The company is considering

the large number of customers who are demanding the organic products,

thus a huge range of organics foods is offered at stores from curry to cereals

and toffee to gin. Also, Tesco is supporting organic research at leading

universities.

( 4) Cross-Selling to Financial Products

Tesco is diversifying into new areas and adapting the changing

consumer trends. It is expanding into financial services as one of the fastest

growing banks in the UK. Financial services were launched with Clubcard

Plus and the company is confident that finance offers further opp011unities

for expansion and continues to develop them in coajunction with the Royal

Bank of Scotland.

4.4.4 Threats

(1) Entry of Wal-Mart

The acquisition of ASDA by Wal-Mart Stores Incorporated, the

world's largest low margin retailer was the most significant development in

the UK grocery retailing in 1999. Since the take over, the supermarket price

wars have escalated dramatically. This means that price pressures are going

to continue in the industry.

47

(2) Economic Crisis in Countries

Tesco' s success in the global markets remains dependent on the speed

of economic development in each country. Though Tesco is now rapidly

growing its international turnover, the company has been affected by

economic problems such as the movement of current exchange rates and

there were worries that the UK would be sucked into a global recession.

48

V. AN ANALYSIS OF IMPLEMENTING THE TESCO CLUBCARD AS A TOOLFORCRM

This chapter shows the concept of database marketing and the application of the

clubcard that Tesco Plc uses as a practical case study of managing CRM. It analyses

how successful the company uses the database marketing approach in the form of the

Tesco Clubcard as an effective tool for CRM to gain a sustainable competitive

advantage in the highly competitive marketplace.

5.1 What Is a Tesco Club Card?

Tesco, in the United Kingdom, is implementing the database marketing approach

in the form of the Tesco Clubcard by firstly collecting customer information via the

Clubcard. The card is a plastic card with a magnetic strip on the back. The magnetic

strip has the details of the Clubcard holder as the unique card number.

Figure 5.1. The Clubcard.

Therefore, Tesco is able to directly collect internal data from the application form

of each customer through the willingness of the customer to give the company their

personal information including names, addresses, telephone numbers, e-mail addresses,

dietary requirements, date of births, and the number of members in the family.

49

This means that it is not necessary for the company to purchase from the

marketing research company as that can cost Tesco a lot of money.

Every cardholder has a unique number, which is swiped at the cash point of the

Tesco store where the customer does his or her shopping. As a result, the company can

track what a current customer transaction is and also past transactions at the store

because all in formation are captured from the Clubcard.

It also means that Tesco is also able to gather behavioural data, for example, what

a customer normally buys, how much he or she usually spends, how frequent the

purchase is, and then the company can predict purchasing behaviour from modelled data

based on common traits.

5.2 How Does the Clubcard Work?

As the customers finish their shopping and pay the bill at the cash point, they are

asked for the clubcard that will be swiped at the cash point. Depending upon the

purchase, the points are awarded for their shopping.

As the Tesco rule, a point is awarded to the customer for every £1 spent and the

points will be accumulated. Whenever the point reaches 150, the customer is given a

voucher for £1.50 that can be spent at the Tesco store.

For every £1.00, one point is awarded and some items also have special bonus

points from Clubcard Deal that customers are able to accumulate the points from

Tesco's partners. These points are recorded and they are transmitted to the head office's

mainframe computer.

At the end of the day, these details are updated to each and every customer's

record. This means that Tesco considers the quality of information so as to precisely

analyse the collected information.

50

As the details of each of the customer's purchase are updated, at any time, the

customer purchases can be viewed later. Since these details are stored for each and

every customer, the volume of the data is increased. At regular intervals, these data are

transferred to the data warehouse of Tesco.

Since the purchase details are recorded in the database, the data regarding what

the customers had purchased will be recorded. On analysing this data, Tesco can

determine what they need in particular. For instance, a customer buys bread and jam

once in two days at Tesco and this is recorded in the database. Using the decision

support system the company can estimate that the same customer may buy bread and

jam every two days in future.

This is just for one customer, and similarly, Tesco can estimate the same thing for

thousands of customers and the company can estimate when the customers buy and

what they buy. Not all customers do shopping all the time. Some may do weekly; some

may do once in a fortnight and some once in three days. So when they come for a

product, Tesco should not say that the product is out of stock.

By estimating what the customers will buy, from the past history of database,

Tesco can easily fill the stock so as to enable the customers to buy without trouble.

5.3 Data Warehouse

According to Terry Leahy, the new marketing director, "We .are spending a lot of

money on information, but we have to think a lot about what we want to do. We don't

want information that's just nice to have; we want information that we'll act on."

Data Warehouse becomes an important application for Tesco Plc in the

implementation of database marketing because it enables and provides the company

information to make better decisions with the explosion of the company scanner data

and techniques to analyse sales data.

51

Tesco A11iai1~es Cash Point (Customer A)

Tesco Cash Poirit. <Customer A)

~w-·

Tesco Cash Point (Customer C)

· (Customer m Main Frrun(! Computer at . o:·, • ·:··-: ... ~1----- Tesco Cash Point

(Customer X) ........ Te~~o Alli<iri~es Cash Point •·· ·

·· (Customer X)

···~

Marketing Strategy

Tes~g H~~ci'.Office

DATA WAREHOUSE

(Customer A)

A.i1~

···.·.Best'· · M~rk~tii}g · (:n~Cisiori ..

Decision Support System

Figure 5.2. The Data Warehousing Technology of Tesco Plc.

52

Tesco holds information in the data warehouse at 2 levels: in a central

management information system that all stores have access to and in each store to

support local marketing initiatives.

All Stores

DATA WAREHOUSE

Warehouse in Central

MIS

Warehouse in each store Local Store

Figure 5.3. The Two Levels ofTesco's Data Warehouse.

According to Inmon (1994), the father of Data Warehouse defines that the data

warehouse is a subject oriented, integrated, time ~ variant and non-volatile collection

data in support of management's decision-making process.

The Data Warehouse of Tesco also has in the following four characteristics.

5.3.1 Subject Oriented

According to Inmon, "The data warehouse is organised around the major subjects

of the enterprise such as customers, products, and sales rather than the major application

areas such as customer invoicing, stock control, product sales, etc. This is reflected in

the need to store the decision support data rather than the application oriented data.''

At Tesco data warehouse, the data is collected from various cash points at Tesco's

superstores and Tesco's partners such as Esso Petrol station, Tesco Visa, Tesco Baby

53

Club and so on. The data in the warehouse can be classified m majors, such as

company, product sales, and stock

In addition, using the data warehouse, Tesco can further go to extract the

information, for example, getting the customer data in which the purchase is made, the

total sales by the customer in one full month, etc., thus, the data classification can be on

any key areas.

The data warehouse also helps Tesco to identify the sales in one month for one

single customer and it can be used to identify the stock control of one branch. For

example, the peak time sales of one branch can be analyzed so as to enable to put more

Customer Service staffs to provide services to customers at peak time periods.

It is shown that using the data warehouse not only enables the company to decide

about the customer invoicing, but also to make other decisions. For example, if Tesco

finds that for one particular branch that is operated from 9.00 - 22.00, and that the sales

is very high in that particular branch, the company can extend its opening time from

7.00 - 24.00. to. gain more opportunities in generating more sales and gaining more

customers.

Similarly, if the company identifies that one branch has a lot of customers on

Saturday, but the number of customer service staffs are inadequate in that branch,

arranging more staffs can be increased on Saturday at that branch.

5.3.2 Data Integration

According to Inmon, "Integrated because of the coming together of corporate

application oriented data from different source systems, which often includes data that

is inconsistent, using, for example, different formats. The integrated data source must

be made consistent to present a unified view of the data to the users."

54

Data from various sources such as Tesco's stores from several branches and Tesco

petrol stations are collected everyday and updated into a single data warehouse, thereby

making a single integrated database.

Since the data from various sources have different formats, it can be difficult, for

making decisions. But, when this data is put in a single data warehouse, they are

converted into a single format, enabling the company to make any decision.

5.3.3 Time Variant

According to Inmon, "The data in the data warehouse is only accurate and valid at

some point in time or over some time interval. The time variance of the data warehouse

is also shown in the extended time that the data is held, the implicit or explicit

association of time with all data, and the fact that the data represents a series of

snapshots."

Data in the warehouse is only accurate and valuable at some point in time or over

some time interval. Tesco can use the data of sales of a particular time period to predict

the sales of another similar time. For example, using last year's Christmas sales, Tesco

can predict and estimate this year's Christmas sales. But using the same sales data, it is

not easy to predict the sales of an ordinary week this year.

However, from sales data of last year this week, the company can also predict the

sales for this week of this year.

But the data of only one year's Christmas sales is not enough to predict the next

year's Christmas sales. The continuous record history of sales of three or four years

Christmas sales will be required to help predict the Christmas sale of this year. This

means that time variant is shown in the extended time the data is held so the company

retains its data for many years to predict sales trends.

55

5.3.4 Non Volatile

According to Inmon, "As the data is not updated in real time but is refreshed from

operational systems on a regular basis, new data is always added as a supplement to the

database, rather than a replacement. The database continually absorbs this new data,

incrementally integrating it with the previous data. Once the data is updated, it stays in

the data warehouse permanently which cannot be changed. This permanent data forms

the history."

Tesco uses the data warehouse to collect information from a Clubcard holder

individually and then target the customer with promotional programs effectively. For

example, if a customer buys particular products repeatedly such as bread and cheese,

Tesco can read the history information of this customer. This information then enables

the company to give an offer such as money off voucher for the next purchase to the

customer according to particular products which the customer regularly buys from the

Tesco store, which means that exploiting the data warehouse allows Tesco to identify

and differentiate customers individually.

Information from data warehouse can support decisions about shelf space

allocation, store layout, promotional effectiveness, product location and product

turnover. As a consequence, the data warehouse helps Tesco in terms of corporate

decision making by creating an integrated database of consistent, subject-oriented,

historical information.

It integrates data from multiple incompatible systems into a form that provides

one consistent view of the company. By transforming data into meaningful information,

a data warehouse also enables Tesco to perform more accurate analysis.

56

VI. THE EVALUATION OF USING THE TESCO CLUBCARD

This chapter evaluates the success of Tesco in using the Tesco Clubcard to create

CRM, the benefits to customers, and the benefits to Tesco itself. The evaluation of the

outcomes of implementing the Clubcard can be considered as proof of Tesco's huge

success of the way Tesco manages customer relationship.

6.1 Why Is the Clubcard?

Tesco has operated the clubcard as a loyalty card that offers benefits to regular

customers. The core purpose of the clubcard is, "to create value for customers for their

lifetime loyalty". (www.tesco.co.uk).

Apart from that, it helps the company discover more about customer behaviours

by understanding their needs from their purchases as well as designing promotional

campaigns to suit individual customers. Moreover, the increasing number of

competitors such as Sainsbury, Safeway, Asda have become more significant with the

impact on Tesco's profitability and sales. Therefore, Tesco has to retain their customers

and also attract more new customers to maintain the profit and keep the market leader

position. One way of achieving this would be offering some incentives for those who

regularly do shopping at Tesco in order to increase customer satisfaction and loyalty.

In this competitive world, to attract new customers to Tesco and retain them to do

their shopping at Tesco, the company launched this club card scheme in February 1995,

and it is one of the major factors in obtaining a tremendous success and increasing its

market share by beating its competitor, J.Sainsbury successfully.

When Tesco first launched the Tesco Clubcard program in 1995, David Sainsbury

dismissed the idea and did not do anything. He missed the power of a meagre 1 %

57

rebate. And he was wrong again when Sainsbury's launched its own card one year later.

By then, the public just thought they were trying to copy Tesco.

Currently, many of the UK retailers use loyalty cards but no one has been able to

replicate the phenomenal success of the Clubcard. There are 2 million Clubcard holders

from 22 million households in the UK.

6.2 Benefits of the Club card to the Customers

As the customers join the Tesco Clubcard, they use a plastic card, with a magnetic

strip which has the details about the card number and number of points earned. They

also fill out a form, with details such as customer name, age, address, their occupation,

and other details.

As they do their shopping at Tesco, or at any other places where Tesco has

partners such as Esso service stations, Budget Travelshop, Lifestyle Sports, Esat

Digifone with Speakeasy and Esat Clear, the customers earn points depending on the

various products they purchase and their points get accumulated. When they reach a

particular number of points, Tesco offers them special discount vouchers to buy

products on special promotions in-store.

More importantly, customers feel personalised since Tesco sends them money-off

coupons and special offers to suit particular customers according to their dietary

requirements, for example, special offers on fruit or vegetables for vegetarians instead

of special offers on meat products.

It also helps customers receive less junk-mails from Tesco which knows what

they want so when vouchers are mailed, coupons are issued which become specific to

the customer.

Therefore, the Clubcard is an effective tool for the company and impressive for its

customers because it says to them "Thank you for shopping at Tesco."

58

6.3 Benefits of the Clubcard to Tesco

"Tesco wouldn't be Tesco now without the Tesco Clubcard. It is used to run our

business. We used it for planning new stores, in new product development, to

understand who is buying what products, and in planning our promotions." quotes Tim

Mason, Tesco's marketing director.

Much of Tesco's success can be attributed to the launch of Tesco's clubcard

program, which has evolved from a reward program to a CRM program that is so

integral to the daily operations of the retailer.

As the details of the customer are collected, the Decision Support System is able

to decide what each and every customer needs in regular terms. This means that Tesco

is able to communicate with customers effectively by predicting their purchasing

behaviour from the database and then formulating marketing strategies to target

particular segments.

As a consequence of these activities, Tesco gains several benefits of implementing

the database marketing approach in the form of the Tesco Clubcard as follows:

6.3.1 Cross-Selling to New Products and Services

Database marketing represents the single most cost-effective way of generating

new business for Tesco. This is accomplished through selective targeting with

understanding of the past behavior and buying experience of customers, which help

Tesco identify and target its customers that are most likely to buy.

By developing the database as a marketing tool to generate more profits for cross­

selling opportunity based on its customer profiles, production of new products and

services, is needed. This means that due to, having records of existing customers and

using the database Tesco can launch new incentives to encourage customers to spend

59

more in its store, for example, Tesco has offered personal finance such as mortgages,

loans, insurance, saving accounts to existing and new customers

6.3.2 Having Better Customer Services and Communication

According to Grant Harrison, the Clubcard coordinator, he explained how they

have better customer service and communication from Clubcard that, "From our point

of view, Clubcard is an extention to customer service, and service is about the

relationship with the customer. Clubcard gives us a chance to improve it. Direct mailing

offers are very personal and give the customer the chance to think about them before

going shopping. If the rewards were purely electronic, the customers would never have

to tell you who they are. As it is, we get very direct communication."

Database marketing has many benefits, some of which include being applicable to

the company. Also, it is an integrative force in communications planning. Tesco invests

in database marketing by showing the cost savings resulting from specific programs

such as mailing, magazine, and voucher to customers, which means that database

marketing helps reduce advertising expenses and waste, as well as ensure that the right

customer get the right personalised offer when he or she is most likely to respond.

Furthermore, the Tesco clubcard enables the company to communicate with the

customers on almost a one-to-one level by focusing towards individual customers

according to their purchasing patterns and Tesco is also able to talk to a large proportion

of the population as individuals with database technology, for example, a frequent

shopper can be sent a different message as apposed to a lapsed shopper or non-shopper.

6.3.3 Attracting More Customers

According to Mintel (1999), Tesco gains the benefits from customers who are the

cardholders in which the loyalty scheme has been proved fruitful in attracting many

shoppers with promotional activities.

60

Tesco is able to come up with more accurate assumptions about customers and

markets based on the data that has been compiled and organised to highlight measurable

results and opportunities.

The effectiveness of database marketing enables Tesco to manage information and

create meaningful clusters of data that allow the company to achieve specific marketing

objectives through the careful targeting of customers and prospect sub-segments.

Tesco can further understand customers, trends, purchasing behaviour, and better

target customers through the effective implementation of the database marketing

technique to attract more new customers to join the clubcard scheme.

6.3.4 Gaining Customer Loyalty

The aim of the Loyalty scheme is to reward repeat purchasing to motivate

customers to participate m the scheme, which means that customer loyalty can be

created via the loyalty card to achieve customer satisfaction that offers the reward to

customers.

Therefore, Tesco is able to build a long-term relationship with a high level of

customer satisfaction and improve rewards through access to comprehensive data

regarding the different behaviour patterns of its customers when making purchases.

6.4 The Outcomes of Using The Clubcard

The Tesco clubcard has been regarded as successful in implementing the database

marketing as a strategic tool. The fact shows that Tesco' s clubcard has been the leader

in the clubcard group over its competitors such as Sainsbury and Safeway.

There are many criteria that indicate the success of the Tesco clubcard.

61

6.4.1 The Turnover from Loyal Shoppers

Firstly, according to Figure 6.1 the turnover from loyal shoppers of Tesco's

clubcard is 77%, which is higher than its competitors, Tesco has high volumes of

customers' thus this can indicate that the clubcard is in a growing phase.

90 80 70.

Q) 60 O> l'il 50 -c: Q) 40 () ....

30 Q)

a.. 20. 10

0 .··• Tesco Sainsbury Safeway Somefield M&S Iceland

Name of supermarket

Source: Taylor Nelson Sofres/ IGD Research (09/01/2000)

Figure 6.1. Customer Loyalty % of Turnover from Loyal Shoppers.

Moreover the high volumes of customer in using the clubcard can refer to the

strong brand name of Tesco itself. This can indicate to the market growth that

corresponds to the brand loyalty of its customers.

6.4.2 Customer Segmentation

Secondly, Tesco, furthermore, in terms of customer' s segment, Tesco has proved

that the company has succeeded in targeting broad customers or mass market by using

the club card as a major drive. The evidence from Table 6.1 illustrates that Tesco has

successfully targeted all age groups as well as all social classes.

In addition, Tesco has used this application as a strategic tool to create the

awareness of mass customers. By doing this, Tesco welcomes all social groups to use

62

I

the clubcard. Tesco therefore can record all types of customers of different ages and

social class. This is the important factor of adopting customer information to the

database.

Table 6.1. Characteristics of Those Frequently Using the Most Popular Loyalty Card Schemes, by Demographic Groups, Lifestage, Mintel's Special Groups and ACORN Categories.

Tesco Clubcard (%) Sainsbury's Reward Card(%) Safeway ABC Card(%)

All 28 21 13

Men 25 19 10

Women 31 23 16

15-19 10 9 4

20-24 27 18 10

25-34 28 19 12

35-44 35 17 14

45-54 29 27 14

55-64 30 27 20

65+ 29 26 12

~ AB 36 29 16

Cl 28 25 14

C2 27 17 12

D 25 18 11

E 21 11 9

Base: 1536 Adults Source: Mintel /BMRB (May 2000)

The benefit here is that one customer can relate to others. For example, Tesco

understands exactly who the customers are, what their demographics are, whether those

63

SL Gabriel's Library, Au-

customers have any children or pets and how old they are. Thus Tesco can use that

information to serve its product by using its campaigns such as its promotions and

incentives to target those groups through the loyalty scheme. The social class and age

group in Table 6.1 have well indicated the success and have indicated the loyalty of

customers in using the Clubcard.

Table 6.2. The Classification of Social Class in the UK.

Social Social Status Occupation

Grade

A Upper Middle Class Higher managerial, administrative or professional

B Middle Class Intermediate managerial,

Administrative or professional

Cl Lower Middle Class Supervisory, clerical, juniormanagerial,

administrative or professional

C2 Skilled working Class Skilled manual workers

D Working Class Semi-skilled or unskilled manual workers

E Those at lowest level State pensioners or widows (no other earners),

of Subsistence casual or lowest grade workers.

Source: Office of Population Censuses and Surveys

By increasing loyalty, Tesco has built up from existing customers and has created

product differentiated. In addition to the product differentiated, Tesco has offered a

wide range of activities that relate to the use of the Clubcard. For example, Tesco has

recommended customers to use the clubcard to fill the tank.

64

I

This, therefore, generates the new customers, whose car are filled tanks up at the

Tesco petrol stations in order to earn the points and at the same time the customers can

use the club card to shop at Tesco. Thus, at any time, the customers will fill the tank

with Tesco petrol so they can earn something back. Hence, this is one benefit of Tesco

in using the Clubcard as the strategic marketing to generate the volumes of customers.

6.4.3 Long-Term Relationship

Thirdly, the long-term relationship with the customers is one of the factors that

can create loyalty. The clubcard can keep records of customers individually. This allows

Tesco to pursue customer' behaviour in order to develop its product to meet customer

satisfaction. Once the products have been developed, it creates the impression for

customers to use the high quality product and therefore generate customer loyalty with

their long-term relationship with the company.

The long-term relationship creates the customer's long-term needs. Once the

company understands the customer's long-term needs, the company will be confident in

implementing its strategies in the future by predicting customer behaviour.

This confidence leads the company to reduce the risk in the decision making

process of the product development, reduce costs by implementing continuous

improvement processes and reduce the skills development costs of training that are

based on an understanding of the customers' long-term needs.

6.4.4 Fulfilling the Customer's Expectations

Fourthly, Tesco can use the database to fulfil the customer's expectations. This

can track back to the old marketing methods, which offered the same price for all

customers. Customers were trained to expect the discounts. With the implementation of

the database as the new method, more companies are creating customer 1evel pricing

65

which reflect the value of the customer to the companies, and the value of the service to

the customers.

In future, it will see the customer with higher expectations about convenience,

price, value and quality. The database marketing will be able to ensure that the company

will continue to serve the customer in the future because the record will indicate the

present and future needs. Thus the company can produce the products for the future and

this will help by the company to persuade the customers to buy the products.

6.4.5 Improving Products

Fifthly, in terms of product, the club cards allow Tesco to improve the products.

The database marketing allows the company to perceive the customer's expectations in

terms of product. For example, Tesco will use the statistics of each customer to create

the offer to him/her. By doing this, Tesco will be able to recommend the product which

is similar to the product that the customer always uses.

Therefore, the customer will perceive more variety or types of product and Tesco

can measure the test of the customer by the statistics of purchasing. Moreover, this

allows Tesco to improve and expand the product range.

It can be concluded that the database marketing by usmg the Clubcard has

resulted in the benefit of the customer as well as Tesco. The Figure 6.2 illustrates this

function.

Tesco has implemented the database marketing by introducing the clubcard to the

customer. This allows the company to record the customer individually regarding age,

sex, income, and activities. Therefore, Tesco will keep those data in order to firstly keep

the track of customers in different periods of time and secondly Tesco will use those

data to improve its marketing strategy in order to develop its product, promotion,

campaign, price and voucher to customers.

66

The responses of customers to the company marketing strategy, therefore, can

also be tested. If the marketing strategy failed, Tesco would also be able to improve the

strategy again by considering the track record of each customer. Thus, overall, it can be

concluded that the database market contributes greatly to the success of Tesco in

enhancing the marketing strategies as well as customer satisfaction.

Develop Marketing Improving the ... Strategy

... product, creating the

G ,, ... Database ...

I ...

marketing ... Customers

r (Clubcard)

Customer records ..... .....

Age, sex, mcome, activities

Figure 6.2. The Implication of Database Marketing to Enhance Tesco Marketing Strategies.

6.4.6 Market Share

Throughout the 1980s and the first half of the 1990s, Sainsbury' s was the market

leader in grocery retailing in Great Britain. However, in 1995, one year after the

introduction of the clubcard scheme, Tesco accelerated past them to become the number

one in this country and the gap between these two major players, has widened every

year sin e Tesco has continued to increase its share and Sainsbury's has drifted

downwards.

67

Asda, which has been taken over by Wal-Mart since 1999, plays an important role

in this sector with its position as the third-largest supermarket as the capacity of gaining

more market share and its entry have a tremendous impact on existing players with an

intense competition on price.

20 15 -~ 10 0 - 5

0

UK Market Share

90 91 92 93 94 95 96 97 98 99

Year

Source IGD Research 2000

_Tesco

_ Sainsbury's

-Asda

_Safeway

_ Sorrerfield

-KwikSave __ tvl&S

_ J'v'orrisons

_Waitrose

_Iceland

Figure 6.3. A 10-year Review of Market Shares for the Major Multiples.

Tesco, however, has come a long way since the days when it was regarded as a

'pile them high and sell them cheap' retailer. Now it has the highest market share of any

of the major multiples, a position it has held for a number of years.

The success of the loyalty programme - the Tesco clubcard is one of the most

important driving forces behind Tesco's rise to the number one market share position

because it is a very essential factor to help drive strong sales and profits growth as well

as market shares going up by 2 % to 12.6 % since it had been launched to the public in

February 199 5.

68

This has shown that customers are very responsive to this scheme and it is a

stimulus effecting behavioural loyalty. Loyal customers trnst the Tesco brand and will

therefore provide an opportunity for cross selling and generating more customers and

profits. It can be said that technology underpinning the scheme analyses the customers'

shopping and enables the company to understand their shopping patterns more

precisely.

Table 6.3. Grocery Market Size and Market Shares, 1990-2001.

12month Dec Dec Dec Dec Dec Dec Dec Dec June Dec June Uec June to: 91 92 93 94 95 96 97 98 99 99 00 00 01

Total 64./ b':J .L IL. I /b.0 1'SU.4 85.0 88.9 ':JJ.J 94./ ':Jt>.6 ':JI .':J ')') .8 lUJ.

Market 0 Size(£

bn)

MarketShareo/o: IGD figures calculated from data provided directly by retailers

Tesco 9.9 10.1 10.4 11.4 13.4 14.2 14.8 15.4 15.4 15.6 15.8 16.2 16.5

Sainsbwy's 11.3 ll.9 l 2. l 12.3 12.2 12.2 l 2.4 12.2 l 2. l I l 1.8 ll.7 1/.5 Jl.6

Asda 6.) (J_j 6.5 6. / Fl. /.°I'> °l'J.J '/', .b °l'J.1:> '). l ')_j 9.5 9.6 I

Sate way l.'2 /.J /.) 7.6 7.3 7.6 7.6 I

I .6 7.6 I .4 /.) /.) 7.5 !

I ::>ome1i1ew 4. ! 4.J 4.J 4.4 4.2 4.0 J.15 b.':J b.b b. l ).() ).0 4./ I

K.w1k Save 3.L j_(') 4.1 4.0 4.2 4.1 J.) - - - - - -

M&S J.2 J.O J.l 3.1 3.0 J.1 J.U L.Y L.8 L.':J L.9 2.8 2.7 I

lceland l.J l.) l.(J 1.7 1.7 l.7 l.6 l./ 1.8 l. / l. / 1.7 1.6

Market Share%: IGD estimates calculated from published Report & Accounts I

Morrisons l. / u l.Y 2.2 2.4 2.5 2.5 2.6 2.8 J.O J. l J.3 J.4

wa1trose 1.7 1.7 l.b 1.6 1.7 1.8 1.8 1.8 1.9 l.Y 2.U L 1 2.1

Source: IGD Research 2002

However, there are some other reasons behind Tesco's success in terms of being

the market leader and gaining the highest market share of any of the major multiples in

69

the UK. Apart from the Clubcard scheme, Tesco also offers the customer added value

and reduces switching through the elements of the marketing mix which are product,

price, promotion and place.

6.4.7 Financial Analysis

The purpose of the analysis of Tesco's financial performance is to evaluate the

success of the introduction of its clubcard. The financial analysis \vill focus on six-year

summaries of the annual report as referred in the appendices in order to analyse the

change of turnover, its profitability and financial condition since 1996-2001.

According to the 6-year record, the total turnover has increased every year from

1996 to 2001. The highest growth of sale rose 18.47% to £16,452 million in 1998. The

percentage of increased turnover in 2000 and 2001 was less than the percent growth in

1998. This means that the turnover in 2000 and 2001 increased by reducing the rate

compared to 1998.

The UK turnover 1s the highest part of Tesco's revenue and it continually

increased up to £18,400 million in 2001. The application of the clubcard has been a

strategy contributing to the rise of the turnover because it has stimulated the repurchase

of customers and consequently it has accelerated the growth of turnover.

The operating profit has gone up increasingly since 1996. The operating profit as

a percentage of sales, and operating margin, has been average around 5.6% between

1996 and 2001. Although the sales growth in 1999 and 2000 was reduced, the operating

margins are 5.6% and 5.5% respectively and climbed up to 5.6 again in 2001.

This indicated that the company has retained the ability to generate the profit each

year. The similarity of operating margin is attributable proportionally to the increase of

cost of sales which means that even if the turnover is reduced the operating profit as a

percentage of sales is similar to the previous year.

70

The annual profit has grown through six years especially the net profit which has

increased 13.91 % to 606 in 1999. However, there was the highest growth of turnover of

18 .4 7% from 1997 to 1998, and the lowest growth of the annual profit during the same

period. The major consideration has been the increase of expenditure in 1998 that was

the Ireland integration costs.

In addition, return on capital employed (ROCE) is a ratio indicating the

profitability. The ROCE of the company has illustrated the consistently profitable

performance, although there was a small reduction of ROCE from 17.2% to 16.1 % in

2000. The ROCE indicated the return from capital employed which means the

company's capacity to generate profit from capital employed. Tesco has had the

favourable ROCE from 1996 to 2000.

It can be concluded that all these results in the increase of profit for the financial

year during 1996 and 2001 is a good indicator ofTesco's financial performance because

the turnover continually increases and there are also the upturn of operating profits

every year. There is also the increasing market share over its competitors in the UK

grocery retailing market that shows that the way Tesco has operated the clubcard has

been proved successful from implementing the database marketing approach in the

improvement of the overall performance.

71

VII. CONCLUSIONS AND RECOMMENDATIONS

7.1 Conclusions

It is essential to look once agam at the context within which this project has

analysed Tesco Plc so as to conclude the whole project and then provide

recommendations.

Increasing competition m the UK grocery market is pressmg many major

supermarket chains to search for new ways to differentiate themselves to create a

competitive advantage along with gaining more market share and profitability.

The traditional incentives of general price cuts and occasional free offers are no

longer sufficient in an increasingly competitive and sophisticated marketplace. The

strategies of the major chains have therefore shifted from intense price competition to

loyalty schemes.

As Tesco was the first supermarket to introduce its clubcard in early 1995, it has

had a competitive edge over the other supermarkets. Judging by the financial

performance of Tesco that has shown an increase in profits during 1996 and 2000, it is a

good indicator of Tesco's financial performance because the turnovers are continually

increasing and there are also the upturns of operating profit every year.

Tesco has, since at the end of 1995, overtaken Sainsbury to become the largest

supermarket gaining the largest market share in the UK grocery market. The numbers of

clubcard holders have been continuously increasing and they are very responsive to the

scheme with the fact that Tesco has the highest percentage of customer loyalty of

turnover from loyal shoppers in 2000

It can therefore be concluded from the fact that Tesco Plc is very successful in

implementing the database marketing approach as a strategic tool in the form of the

72

Tesco Clubcard by maximising the strengths of the concept of database marketing to

enhance the marketing performance of the company.

With strategic improvements through the better use of marketing information via

the data warehouse technology, Tesco can in terms of corporate decision making

transform customer data into meaningful information in performing more accurate

analysis.

Therefore, the database marketing approach is not only providing Tesco with

present or short-term benefits but the implementation of the database marketing

approach is also providing future business in which Tesco has increased efficiency and

effectiveness through customer loyalty and gaining an opportunity for cross-selling

resulting from the development oflong-term relationship with customers.

7.2 Recommendations

Clubcard in the U.K. - Tesco will be facing the problem of maturity stage of the

clubcard in the near future. Therefore, the company needs to keep on improving

campaigns and offering rewards to appeal to its customers as the real value for their

purchases. So it is important that the incentive should be sufficiently impressive to have

an effect in participating in the scheme.

The Tesco Clubcard should add more benefits as a universal card in which a

whole life-style range of services with many advantages can be utilised. For example,

the Clubcard can be used as an ATM, a debit card and a credit card combined into a

single card in order to easily use internationally and is also convenient for the

customers.

Tesco should not allow customers to use the clubcard only at stores, but Tesco

should also be looking at combination incentives with other retailers and service

73

providers in other lines of business and allow the customers to use their clubcards at

those stores in order to make the clubcard widely accepted.

However, Tesco should not only manage information collected from Tesco stores

carefully, but also from other retailers or partners of the scheme, to efficiently transform

all customer information correctly and responsibly so as to formulate the marketing

strategies in the future.

International Club Card - Tesco is planning to become the number 1 in the retail

market of the world and they have begun their dream to be a global brand in Asia.

Thailand is their lead country in Asia, and has made annual profits. Known as Tesco­

Lotus, it has contributed to good growth and the seven new stores have contributed to a

sales increase of 56.9% at the end of 2001. In South Korea, Tesco Homeplus now has

seven hypermarkets. In Taiwan, Tesco opened their fisrt store in December.

Tesco has been successful in Asia having a strong brand name in Asia. Their plan

to expand their distribution channels all over the region, is developing.

The recommendation is that Tesco should launch the Clubcard program all over

the world, collect data, and connect data resources from all data warehouses in Asia

together with that in the UK and EU to share data resource internationally.

Tesco' s customers would be able to use the Clubcard, accumulate points, receive

vouchers and awards, and update their purchasing information at Tesco anywhere in the

world.

Tesco, on the other hand, can use information, compare different customer

behaviors between countries to decide the marketing strategies with the highest

efficiency.

fhe cost of investment might be a large amount, but in long-term it would

definitely make Tesco become the strongest brand in the world and gain customers'

74

loyalty globally. No matter where they are in the world, they would look for Tesco to

shop in and feel like having relationship with Tesco.

7.3 Future Research

The project provides problems, solution and the implementation of CRM by

database marketing in the form of loyalty card scheme taking the success of Tesco

Clubcard as an example. It must be useful for both large and small business especially

in Thailand to pursue and innovate new strategies in the scope of CRM and the database

marketing approach can be extended.

The case study of the project is focused on supermarket and retail business area;

however the future research can be applied by any other business industry; for example,

book shop, CD retail, VDO rental shop, food market, fitness center, bank, etc.

Not only can they use the concept loyalty card to create CRM, but they also create

their brand and gain customer's lifetime value.

Apart from retailer, service business is one of the most obvious business

industries that can take the application of CRM and the database marketing in the form

of loyalty card to implement. Because service industry; for example, hotel, airline,

hospital, and restaurant, usually has to contact to their customer directly. CRM, as a

result, becomes the potential tool to help customer identify themselves and staff to

impress them by treating them individual, for example, to call them by their name or to

know what they brought last time.

By the way, some other business can use the implementation of database

marketing to create CRM. Not only the customer's loyalty that is the prospect of

implementing CRM, enterprises will gain other benefits from the concept of database

marketing. For example, industry control can use it to increase operational efficiencies

and protect profit margins. Its benefits are to reduce sales configuration error and after

75

marketing sales. Bank can use it to lower operational costs and generate new

debit/credit card process. Automation can also increase revenue and consistency across

the company and it can use the concept to decrease order error rate and makes stronger

ratio from quotes to order by collecting the data properly.

Tradition way of gathering data; such as taking note or memorize can be viewed

as a way of database marketing. However, to use the implementation of loyalty card

requires more than that to make it better standard of efficiency. It can be said that

creating CRM by marketing database in the form of loyalty card is most suit to rather

large scale of business.

Size does matters. - Apart from type of business, size of it is also a factor to

criticize in scope of CRM and the implementation of loyalty card program.

Firstly, if you have only one store location, determine if your Point of Sale (POS)

software supports loyalty or frequent guest functionality. You may be able to implement

a loyalty card program without using a transaction processor.

But if you have more than one store and your application supports real time or

frequent data updates, you may also be able implement without a transaction processor.

Moreover, if you have multiple store locations or if your POS software does not

support loyalty functionality, you can implement a program using credit card terminals

and a transaction processor. A special application is loaded on the terminals to support

the loyalty portion of the transaction. It may be able to use the existing terminals, or

new terminals may be required.

Selecting CRM program - There are many CRM players who give CRM solution

m Thailand, for example Peoplesoft/vantive, Interact commerce corporation, Onyx

Corporation, Siebel Systems, Nortel/Clarify, MicroStrategy, Oracle (CRM), Pivotal,

Kana/Silknet, etc.

76

Technology must provide flexibility and control, security and short term lower

cost of implementation. It must also be independent or mostly free from human

memory. So that once the person who takes the control of the implementation is not

available for any reason, the system will be able to run continually and easy for the new

person to replace.

Tips for selecting software is to start with your needs, open architecture, select

off-line functionality, get quantity and quality integration capabilities, pick financial

stability, and have reseller network.

Above all, the most important thing is to carefully select the CRM solution that is

most suitable for the characteristic of business and the scope of services.

However, business has no need to start the program with the huge investment of

technology, but begin with the strategy, then finding self-relevant technology and

finally picking the great partners to work with.

The case study is based on UK marketing atmosphere, thus, in order to take this

project as an example, Thai business should study the feasibility based on Thai

atmosphere. Growth strategy study, SWOT analysis and AnsoffMatrix can be utilized.

Consumer behavior of Thai people and English people might be different for any

aspect but the common trait is that people love low price and high quality is the same.

As long as people love this, the implementation of the loyalty card simply create CRM

for any trait including Thais undoubtedly.

Moreover, Thai people mostly like to have the most benefit from what they buy

that the success of previous sales promotions and membership card can be described as

a prove.

77

Thus, database marketing in the form of loyalty card program and the benefit of

point-base special offers must be another step of marketing promotion to appeal Thai

shoppers.

Enhancing membership card program - Many Thai businesses already have

membership program, but they don't use the database to support the implication of it to

evolve it to be come loyalty card to create CRM for the business.

Previous membership cards or sales promotions that Thai businesses often used

are aimed only to increase the amount of sale in a particular time. But the propose of

loyalty card Tesco implemented is to increase sales, building brand and create

customer's long-term loyalty simultaneously.

So far, membership card program can be enhanced to be loyalty card to approach

CRM by providing database technology as mentioned above and use the information

from the database to help planning marketing strategies following the concept of CRM

and the database marketing.

To formulate strategy and recognize customer value is the most important to go

toward CRM because this is the most critical step that the business will use the

information to enhance their service to impress customer and differentiate the loyalty

card from simple membership card.

By the way, customer's personal data must be secret and isn't used for other

specific area that informed them at the first place. To approach them by mail or

magazine must also not too aggressive and make them uncomfortable.

However, to implement the database marketing in the form of loyalty card will be

more efficient while working along with the other promotion. For example traditional

promotion, decrease sales price, etc. to appeal exiting card holder and also those who

have opportunity to apply for the card.

78

Product quality is a must - More importantly, along with the CRM program, Thai

businesses must control the standard of quality of products including that might use as a

special offer or a gift.

To create loyalty that is the final goal of CRM is to make customer trust in brand

that the brand is sincere to service and give them offer. Once they feel the offer is fake

or inferior, they might have bad attitude toward the brand that can destroy loyalty and is

so danger in the way of brand building.

Some of the detail in the project research might based on different factors and

marketing atmosphere, for the most part, this project gives the critical process of

creating CRM by the database marketing in the form of loyalty card which Thai

businesses including SMEs can take as an example to manage relationship with

customers and earn their life-time loyalty.

79

APPENDIX A

SIX-YEAR RECORD OF FINANCIAL ANALYSIS

80

Table A. I. Five-Year Record of Financial Analysis.

Year ended February 1997 1998 1999 2000 2001

Financial statistics £m

Turnover excluding VAT

UK 13,118 14,971 15,835 16,958 18,400

Rest of Europe 769 1,8481 1,167 1,374 1,772

Asia - - 156 464 816

13,887 16,452 17,158 18, 796 20,988

Operating Profit

UK 760 875 919 993 1,100

Rest of Europe 14 37 48 51 70

Asia - - (2) (I) 4

------- ~- - --· ----- -774 912 965 1,043 1,174

Operating margin

UK 5.8% 5.8% I 5.8% 5.9% 6.0%

Rest of Europe 1.8% 2.5% 4.1% 3.7% 3.9%

Asia - - (1.3)% (0.2)% 0.5%

Total Group 5.6% 5.5% 5.6% 5.5% 5.6%

Share of profit/loss from joint - (6) 6 II 21

ventures

Net interest payable (24) (74) (90) (99) (125)

Underlying profit 750 832 881 955 1,070

Ireland integration costs - (63) (26) (6) -

81

Table A.1. Five-Year Record of Financial Analysis. (Continued)

Year ended February 1997 1998 1999 2000 2001

Goodwill amortization - - (5) (7) (8)

Net loss on disposal of - (8) - - -

I discontinued operations

Net loss on disposal of fixed - (1) (8) (9) (8)

assets

Profit before taxation 750 760 842 933 1,054

Taxation (203) (228) (237) (259) (288)

Minority interest - - 1 - 1

Profit for the financial year 520 532 606 674 767

Adjusted diluted earnings per 7.83P 8.84P 9.37P 10.18P ll.31P

share

Adjusted earnings per share 8.03P 9.05P 9.59P 10.36P I

Dividend per share 3.45P 3.87P 4.12P 4.48P 4.98P

Net worth - £m 3,890 3,903 4,377 4,798 5,392

Return on shareholders' funds 20.1% 21.3% 21.3% 20.9%

Return on capital employed 17.1% 18.7% 17.2% 16.1 %

(ROCE)

Net assets per share 60P 59P 65P 70P

Source: Annual Report 2001

82

APPENDIX B

SUMMARY CASH FLOW STATEMENT

83

Table B. l. Summary Cash Flow Statement.

2001 £m 2000 £m

Cash From Operations 1,937 1,513

Interest (161) ( 131)

Tax (272) (213)

Gross Trading Cash Flow 1,504 1, 169

Net Capital Expenditure (1,968) (1,229)

Changes in financing 88 20

Dividends (254) (262)

Normal Cash Flow (630) (302)

Business Changes (76) 1

Non-cash Movement (38) (39)

Movement in Net Dept (744) (340)

Opening Net Dept (2,060) (1,720)

Closing Net Dept (2,804) (2,060)

Source: Annual Report 2001

84

APPENDIX C

SUMMARY BALANCE SHEET

85

Table C.1. Summary Balance Sheet.

2001 £m 2000 £m

Fixed Assets 10,038 8,527

Current Assets 1,694 1,342

Short-term Creditors (4,389) (3,487)

Net Current Liabilities (2,695) (2,145)

Total Assets Less Current 7,343 6,382

Liabilities (1,927) (1,565)

Long-term Creditors (24) (19)

Provisions

Total Net Assets 5,392 4,798

Equity Shareholders' Funds 5,356 4,769

Minority Interests 36 29

Total Capital Employed 5,392 4,798

Source: Annual Report 2001

86

APPENDIX D

FINANCIAL CHANGE(%)

87

Table D. l. Financial Change(%).

I 996-I 997 I 997-I 998 I 998-I 999 I999-2000

(%) (%) (%) (%)

Turnover I4.83 I 8.47 4.29 9.55

Operating Profit 6.9 I 7.83 5.8 8.08 I

Profit before taxation I I. I I 1.33 I0.79 10.81

Profit for the financial year 11.59 2.3 I3.91 11.22

Source: Annual Report 200 I

88

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