Key ideas of the book “Scoring Points: How Tesco Is

Winning Customer Loyalty”

New Strategies Group

Knowledge Share Project

#nsgknowledgeshare

Having in 1995 introduced “Clubcard” – the most

successful loyalty scheme in the world among all those

used by retail companies – Tesco has moved to the

new level of company-customer relationships.

As of today it is not only the largest food store chain in

the UK but also one of the world most successful

online supermarkets, one of the fastest-growing

European companies in the field of financial services

market and probably one of the world most outstanding

examples of CRM (customer relations management).

Brief

Contents

1. Questions of loyalty

2. Making loyalty pay

3. Clubcard on trial

4. Because we can

5. Every little helped

6. Data, lovely data

7. Four Christmases a year

8. You are what you eat

9. Lifestyles become habits

10. Launching a bank

11. Babies, beauty and wine

12. A bigger deal

13. From mouse to house

14. Five tasks for the future

MANAGING DIGITAL

1. Questions of loyalty

“It was a direct result of comments from our customer panels that Tesco

launched its Clubcard scheme…’OK’, they said, ‘so we’re royal to Tesco, why

not show us a bit of loyalty in return?’… And they were right, which was why,

after examining the idea, Tesco launched its Clubcard”.

from the autobiography of Lord McLaurin,

the Chairman of Tesco

Competitors didn’t believe in loyalty program…

«Customers aren’t fooled by marketing gimmicks. Shoppers’ real loyalty

only comes from offering the lowest prices on the right range of

products”.

Richard Baker,

Asda Deputy Chief Operating Officer

McKinsey has confirmed

the “strength” of loyalty programs

Loyalty programs are popular among buyers: in the USA 53% of grocery

supermarkets customers are enrolled in such programs

48% of buyers (of those who joined supermarkets’ loyalty programs) made

shopping to the sum bigger than they would do otherwise

McKinsey Management Consultancy Report (2000)

KPMG methods of loyalty programs

1. “Pure” loyalty

2. “Pull” loyalty

3. “Push” loyalty

Strengthening of existing bonds between the customer

and the retailer.

Example: having goods packed in bags

Attracting the customer by augmenting a retail offer.

Example: buy one and get one more free

Creating a scheme that encourages us to use a way of

shopping that we would not have done before.

Example: we may be offered a combined use of credit

card and loyalty card , or to buy cheaper from the

website.

Loyalty program: “pro” arguments

1. More purchases done more often.

2. Loyalty programs provide the ability to “mass-customize” marketing

communications.

3. Assets value of data

4. Loyalty programs let companies track general trends.

5. Loyalty programs allow making the best use of resources.

6. Loyalty programs help promote trust.

Loyalty program: “contra” arguments

1. The customer does not care about the place of purchase.

2. It’s nothing but lower prices that the customer wants.

3. On the whole the retailer shall benefit from nowhere.

4. Too much data to make any use of it.

5. Loyalty program is a totalitarian surveillance. We appreciate our privacy while

loyalty cards deprive us of it.

6. Where is the gain in sales that is to recompense the cost of loyalty

programs?

Most of loyalty programs have not driven to success but on the contrary – they

failed!

MANAGING DIGITAL

2. Making loyalty pay

The economics of loyalty marketing

$30 M $5-$10 M

further annual costs of loyalty

program maintenance the cost of loyalty

program first year introduction

For big retail companies*

* From McKinsey Loyalty Program Report (2000)

Challenge

Tesco had to show ca. 2% gain in sails in order to recompense the costs of

“Clubcard” implementation.

• What kind of customers would you treat with specific liabilities? All of them, or

just the most valued ones?

• What type of reward would you offer to your customers in order to affect their

behavior in the most efficient way?

• What ‘currency’ do you have?

• Which of loyalty models you consider to be the most appropriate – universal

or hierarchic one?

• Will you treat all customers equally or would you divide them into categories?

• On what condition will your customer and you undertake mutual obligations?

When it suits the customer? Or when it suits you? Or when it suits both

parties?

4 loyalty “currencies”

Points-led scheme

Discounts-led scheme

Information-led scheme

Privilege-led scheme

Members benefit from access to

certain services or facilities

Loyal customers value help and

advice as much as cash

The more you shop, the less you

pay

Points, miles, stars, blocks, units

or cents

MANAGING DIGITAL

3. “Clubcard” on trial

Trial

“The company… introduced electronic cards with magnetic strip in 3

supermarkets. Though Tesco referred to “Clubcard” adoption as a “trial”, today

more than 50% of customers in each of the 3 supermarkets have become

program members. According to sources, Tesco plans program national rollout for

the next year”

From Campaign weekly paper (November 1993.)

The team

Grant Harrison

headed up the development of what was then

beginning to be known as “Clubcard”.

He was researching retail loyalty marketing around the

world. He knew the programs that had succeeded and

that had failed.

One of the first steps taken in charge of the program was turning on May 1993

to Evans Hunt Scott (EHS), a direct marketing agency, with the request to help

him to turn Tesco loyalty plans into reality.

For the first 6 months after launch of “Clubcard” trial Harrison was alone

administering the day-to-day working of the program until he obtained an

assistant.

The mechanism

2. You collect points

1. You buy from Tesco

3. Every three months you are sent a mailing with

vouchers

4. You afford the excess

The DNA of loyalty

Brand values

Business dynamic

Customer behavior

The key component of loyalty program genetic code.

The brand spends most of funds and efforts to bait the

customer

All opportunities and constraints of the business should

be taken into consideration.

“Reward the customer ‘s behavior that you are straining

after”. The key performance indicator (KPI) of the

program.

Looking for regularities

• A small part of the company customers was bringing most of the profit (the

80/20 rule).

• It was a shock for Tesco to learn that an average buyer looks in several

departments only, so the company started offering its customers to take a

“store tour”.

• The analysis of “Clubcard” holders’ post codes secured a clear picture for

each particular supermarket and its “effective area” and made it possible to

define the maximum distance that the most valued customers are ready to

travel for shopping.

“What scares me about this is that you know more about my customers

after three months than I know after 30 years”.

The response of Tesco management

to a 30-minutes’ report on results of “Clubcard” experiment

MANAGING DIGITAL

4. Because we can

Program launch: factors of success

Momentum

In the beginning the program implementation deadline set by the company management was

considered infeasible by the group of “Clubcard” developers.

Simplicity

Right choice of slogan: “Save on your bill today”

Control

“Managers trusted us, we could do whatever we wanted, having the response from the customers in

mind and becoming more and more aware of the fact that customer’s considerations can do a power of

good to the company”

Involvement

The staff working “on the frontline” always was in the picture of the situation and was to the fullest

extent involved in every milestone.

Program launch: factors of success

Preparation

The experiment lesson was learnt well. In the course of annual trial 250 000 cases were used to work

out proper strategy.

Ambition

The obtained results turned out to be convincing for the business community of London and persuaded

the company management into complete and total support of the program during the first year.

Commitment

No time to rest on one’s laurels, the company in a rapid pace headed forward to national rollout, having

commissioned the task to a young team that had more energy than experience, and having entrusted it

with the “Clubcard”.

MANAGING DIGITAL

5. Every little helped

Running ahead of Sainsbury’s

1995 Jan Feb Mar Apr May

Sainsbury’s 19,4 19,0 19,1 18,7 18,8

Tesco 18,1 18,5 19,3 19,9 19,4

UK supermarkets share of market in % (the source: Taylor Nelson Sofres)

It was for the first time that Tesco’ share of market superseded the

one of Sainsbury’s, so that Tesco secured its leading marketing

position

Mailing

• The first quarterly mailings included “Clubcard” coupons – the dividends for

club partnership; the company also introduced targeted coupons, i.e. the

discounts for customers on featured goods or brands.

• The buyers who were spending the sums insufficient for passing the “qualifying

round” received a somewhat simpler letter offering them to make better use of

the club card and receive coupons next time.

• The first mailing allowed drawing of 12 different types of letters and offers for

every buyer category. 18 months later the number of segments increase up to

1 800. Today the number of letter wordings accounts for more than 8 million

making full allowance for customer’s individuality.

Exclusive events for exclusive members

“The “Clubcard” first trial evening was held during the Lakeside, Thurrock

experiment with 100 best buyers invited to a wine and cheese party with a

supermarket manager present. The most active buyers were running a chain of

old people’s homes and spent 147 000 pounds per annum! The response rate

was 70%. Many customers came, and it was incredible!”

The reminiscences of Grant Harris

Christmas present

Every buyer earning more than 40 points with his club card during the period

from October 16 to November 12 received a fee turkey coupon .

80% of club cards owners who had earned the required number of points during

the said period made use of their coupons and got their “birds” – there were

altogether 1 million of turkeys at 3,55 pounds each given away.

Beware of fraud!

• On the 9th of December Archie Norman, the President of Asda, announced a

promo-campaign that could frustrate not only Tesco’s “Christmas gratitude”

prospects but the loyalty program in general.

• “For several weeks before Christmas Asda shall be accepting “Clubcard”

coupons in 16 out of its 200 supermarkets”.

• Asda’s been brilliant in having stolen the marketing program of its

competitor and having announced to the customers: “Use your “Clubcard”

coupon to buy in Asda more than you can buy in Tesco” (Marketing journal)

MANAGING DIGITAL

6. Data, lovely data

What Tesco learned about data

• Pragmatism

Instead of relying upon the things it would like to do, Tesco was

proceeding from methods of actual revenue boosting. Company came

to conclusion that any new piece of information was an achievement.

• Progression

Every new discovery is an engine for progress.

• Approximation

Analysts operated the approximate values and concluded them to be

sufficient for determination of whether the object under study shall stay

afloat or go to the bottom

What Tesco learned about data

• Learning

“Clubcard” was not merely a passive observer of general trends but

worked as a large laboratory mastering the subject of customers’

behavior.

• Defence

Tesco was now able to tell quickly the clients that it has lost and the

buyers who are ignoring some of the supermarkets department , and

develop for them specific incentives

• Segmentation

The possibility of distributing coupons and vouchers among those really willing to obtain them

MANAGING DIGITAL

7. Four Christmases a

year

Pantene and “Clubcard”

(EHS Brann agency) The “Clubcard Magazine” published by

Tesco had one of the largest circulations

among European general-interest

magazines (Forward Publishers)

Students’ clubcard: good start, good

concept, but turned out to be bad for

business (EHS Brann Agency)

Tesco’s Visa card: millions of buyers

were earning “Clubcard” points

regardless of the place they were doing

their shopping at (Advantage Agency)

Tesco “Kids Club” – a perfect

surprise from the company… … and something good for mom

and dad (EHS Brann Agency)

“Every glass shall do” – the

World of Wine of Tesco’s

“Clubcard”

Tesco “Clubcard”. “Every little

helps” – the slogan in action (EHS

Brann Agency)

A virtual soap bubble that has not

bursted – Tesco.com has benefited

from the “Clubcard” (EHS Brann

Agency)

Tesco “Clubcard” is pleased to give

house-warming gifts (EHS Brann Agency)

“Clubcard” addresses each

customer individually, there are

millions of versions for personal

letters (EHS Brann Agency)

MANAGING DIGITAL

8. You are what you eat

5 problems for the data to solve

1. Price sensitivity

2. Ranging for customers

3. Goods range creation

How can customers’ data help Tesco set prices at the

rate that shall make them competitive, help boost sales,

create the image of a company with democratic prices

yet without leading to financial performance decline?

In a perfect world, the assortment of goods offered

for sale in every store (and it makes up to 45 000

groups) complies with customers’ request right to a T.

The food department wanted to introduce new goods

for the expanding groups of customers who were

keeping to a diet or those with specific tastes

(gourmets, devotees of natural products, those suffering

from food allergy)

5 problems for the data to solve

4. Promotions

5. Competitive attacks

Suppose that customers buy products of some

particular brand only at the time of promotions or “skim

the cream off” around the entire supermarket choosing

the goods with best prices. In all these cases there may

be buyers who never change their behavior

The “Clubcard” provided Tesco with information about

who the company customers were, and who they were

not. At that time competitors like Sainsbury’s were not

yet armed with this type of data

MANAGING DIGITAL

9. Lifestyles become

habits

Segments in work

A segment must be identifiable

It applies to every customer. The segmentation shall not work unless it refers every client to one and

only segment.

A segment must be financially viable

A segment has to be large enough to make it economical as a business-generating tool.

A segment must have its distinctive feature

There must be specific features distinguishing one segment from others and playing certain role in

using segments for specific goals

One-to-one marketing

They often consider the ultimate goal of segmentation to be one-to-one marketing, but the experience

of “Clubcard” has shown this not to be the case. We are all personalities but when it comes to buying

habits we happen to have much more of common than fundamentally different. And similar features

are the instruments that turn segmentation into powerful means of company development.

MANAGING DIGITAL

10. Launching a bank

Club card plus

Club card plus is a prepaid card. Customers were receiving twice as more of additional

points as usual in case they were making purchases with the help of a new card.

The deposited sum was allowed with interest to the extent of ca. 5% per annum.

Club card plus was initially launched among Tesco staff and in 2 weeks it was proposed

to the general public. The personnel was first to learn how the card is to be used and

then teach this to the customers.

In August 1996, the total amount of “Club card plus” deposits made up 10 million

Pounds, or ca. 10 Pounds on every holder’s account – on the average each of them

started spending in Tesco 4 Pounds per week more. In 1997 the number of cards

holders made up 600 000 persons.

MANAGING DIGITAL

11. Babies, beauty and

wine

Kids’ Club: the principles of “Clubcard”

Relationships based upon free choice

The clients were offered receiving rewards instead of getting from Tesco proposals

based upon current data. The customers were offered to enroll by means of leaflets and

inserts and envelops with mailing materials.

All club members were referred to one category

All moms-to-be were equal regardless the sums they had spent in Tesco by the moment

of joining the club.

The “Kids’ club” based itself upon Tesco supermarket

Its goal was to establish relationships with Tesco brand.

The “Kids’ club” could not have turned into an independent brand.

Clients were proposed additional advantages first of all by means of Tesco’s favorite

means of personal communication with its customers: direct mail

Kids’ Club: the differences

No minimum threshold

At that time holders of club cards were to spend in the supermarket at least 5 Pounds on

shopping in order to have their points earned.

An expectant mother could receive the first postal mailing from the “Kids’ club” without

paying a single visit to Tesco

It was rather assistance than monetary consideration that came as the advantage of club

membership.

The membership in “Kids’ club” was of temporary character

The proposal was valid only for the period of pregnancy and the first two years of baby’s

life.

The process of “Kids’ club” distribution was independent from basic mailing

The “Kids’ club” mailings were to be dispatched not once in three months but

successively and in compliance with estimated date of child’s birth.

MANAGING DIGITAL

12. A bigger deal

Individual schemes vs collective ones

Individual schemes Collective schemes

Advantages

The simplest one

Unlimited power

More possibilities for increase in the number of active

customers, that’s why the scheme has the potential of

reaching “a critical mass”.

Disadvantages

Cost

Non-proportional distribution of brand-members’

commitments

Every retailer has a limited access to the clients’

database used

Lack of sufficient control over promotional campaigns

There can be disputes occurring between brands

Example

Initial model of the “Clubcard” “Premium points” proposed by British Petroleum and

Argos chain of supermarkets

Outsourcing schemes

Advantages

• Partners can share costs of customers’ attraction, communication with customers, database

management, rewards, data processing and join analysis of database with further conclusions made.

• A good way of attracting clients

• Can enroll a wide variety of buyer categories

Disadvantages

There is a risk of “common market dilemma” (the occurrence of donor-brands and brands benefiting from

this)

Example

Air Miles – the scheme that involves independent brands; for many years numerous companies have been

actively using “currency” while running campaigns aimed at customers attraction and retaining.

MANAGING DIGITAL

13. From mouse to

house

Tesco.com

On November 5, 1996, Tesco

officially presented a possibility

for its clients to order goods

over the Internet using a CD as

a goods catalogue.

This was the world first full-

scale cyber-market.

MANAGING DIGITAL

14. Five tasks for the

future

5 tasks for the future

1. Shall “Clubcard” manage to become a global project?

2. Shall “Clubcard” manage to remain the most popular loyalty program in the

UK?

3. Shall “Clubcard” succeed in facilitating sales growth?

4. Shall “Clubcard” manage to give instant gratifications?

5. Shall “Clubcard» be able to help Tesco suppliers?

MANAGING DIGITAL

How can

New Strategies Group help?

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member of Ukrainian Association of TOP digital agencies Ukrainian Digital

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