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10 Conclusions & Recommendations………………………………11 Chapter 2 13 Customer Loyalty Programmes………………………………….23 Loyalty as Strategy………………………………………………33 Rhetoric Vs. Reality……………………………………………..36 Chapter 3 Methodology Research Methodology………………………………………….40 Summary of Results…………………………………………….46 Chapter 4 Analysis Results……………………………………………………………48 Discussion of Results…………………………………………….56 Origin and Motives………………………………………………64 Tesco’s definition of Loyalty…………………………………….63 Success Factors…………………………………………………..66 Strategic implications of the Clubcard……………………72 Competitive Pressures…………………………………………....77 Literature Review The Concept of Loyalty………………………………………………
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Conclusions and Recommendations Conclusions………………………………………………………81 Limitations……………………………………………………...89 Recommendations………………………………………………89 References………………………………………………………93 Appendices
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List of Figures
Fig 1 Categorization of The Loyalty Concept
Fig 2 Conceptualizations of Loyalty Models Fig 3 Fig 4 Fig 5 Fig 6 Fig 7 Fig 8 Fig 9 Categories of Loyalty (O’ Malley model) Motivator, De-motivator (Diller model) The 5P Loyalty Strategy Characteristics of Loyalty programmes (Butscher model) Opportunities for using customer information Behaviour based CLP (Morgan et al model) Relationship-based CLP (Morgan et al model)
Fig 10 The Ideal Customer experience (Fournier et al Model) Figures 11-19 depict survey results Fig 11 Customer Loyalty index sorted by female and male Clubcard members
Fig 12 Customer loyalty dimensions: Female and male Clubcard members Fig 13 Overall customer loyalty for Tesco-Clubcard members and non-members Fig 14 CLI of Clubcard and non-Clubcard members on loyalty parameters Fig 15 CLI of Clubcard members by occupation Fig 16 CLI of Clubcard –members by size of household Fig 17 Percentage of monthly grocery budget spent with Tesco (Clubcard-members) Fig 18 Percentage of monthly grocery budget spent with Tesco (non-Clubcard members) Fig 19 Factors in selecting a supermarket Fig 20 The Loyalty Cube Fig 21 Six Key success factors Fig 22 COFP diagram
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List of Acronyms
CIU – Customer Insight Unit CLP – Customer Loyalty Program CLI – Customer Loyalty Index CRM –Customer Relationship Management LTV – Life-time Value LTVA – Life-time Value Analysis RFV – Recency, Frequency, Value ROI – Return on Investment SWOT – Strengths, Weaknesses, Opportunities, Threats TPF – Tesco Personal Finance 4P’s - Price, Place, Product, Promotion,
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in a competitive market sector. Tesco Clubcard has established itself as one of the most successful loyalty schemes over the past nine years. Page 6 of 88 .1. Not on the basis of what they think the broad mass of customers want but in knowledge of what individual customers actively choose and what they prefer. (Mason. Tesco gets personal by introducing a medium through which it can treat customers as individuals. ( Humpy et al. Customer loyalty schemes were not a new idea when Tesco launched it but Tesco developed a contemporary version of the original concept which went much further in developing an active relationship with customers. This information guides almost all of the key business decisions the management team makes. . in contrast to activities which focus on winning new customers. but more important. 2003 cited in Humpy et al. In response to these changes there has been a new emphasis on defensive marketing. marketing has focused on market share and customer acquisition rather than on retaining existing customers and on building long-lasting relationships with them (Kotler. Tesco changed the way it did business so fundamentally that its effect is still seen in every part of the company. On that day Tesco launched ‘Clubcard’. With Clubcard. Today. Tesco is succeeding in its purpose. reducing the risk of taking bold new initiatives. Working with its suppliers. used by one third of all UK households (there are 25 million Clubcards in circulation. and a key driver of this is that the scheme in integral to Tesco’s stated core purpose. 2004). of all tastes and incomes and ages. Tesco has made that commitment tangible. No one would claim that Clubcard is exclusively responsible for the success of Tesco. with 82% of Tesco’s turnover going through the Clubcard (in out-of-town superstores. there is always a need for brand loyalty. As Mason points out ‘It changes the behavior of the businesses. Tesco was stuck as UK’s second-ranking supermarket. however. ‘To create value for customers’. which focuses on holding on to existing customers and getting more custom from them (higher “share of customer”). to recognize Tesco’s loyalty to customers.2000). More recently. market share has been gradually losing its revered status as marketing’s holy grail and the wisdom of focusing solely on customer acquisition (hoping that this effort will compensate for high levels of defection) is now being seriously questioned and considered as very high risk since ever more players enter an increasingly crowded marketplace (Baker.to deliver value to the customer and earn their lifetime loyalty. 2003). Calls for a paradigm shift to the pursuit of loyalty as a strategic business goal have become increasingly popular over the recent years (Sharp & Sharp. The events changed the way Tesco makes decisions. but it is clear that the benefits of the Clubcard are now written through the Tesco business like lettering though a stick of rock. 1997).1 Introduction (Overview and Background) Traditionally. While every business talks about being customer centered. It designed Clubcard not just to show customer loyalty to Tesco. it helps both parties to gain a better understanding of what the customer wants in terms of good value quality products and in-store promotions. develop products. in Feb 1995. Before Clubcard.) Tesco may well have got this enviable position without Clubcard but it could not have done so as quickly or as cheaply as it has done without the Clubcard data an insight the Clubcard provides. most importantly the way it serves its customers. value and scale. one of Europe’s fastest growing Financial Services company and arguably one of the world’s most successful exponents of CRM. It can mass-customize to suit the needs of all the types of customers. of which 10 million are active in any one week). manages its stores and. Today. Accordingly. it is the world’s most successful Internet supermarket. The Tesco Clubcard is the most successful CLP currently running in the UK. its customer loyalty programme. not only is it the UK’s largest grocer. Tesco’s marketing works because they combine insight with creativity. By understanding its customers more and using this insight to deliver back what the customer wants. As a major food retailer. this figure rises to over 95%).
Clubcard is a reflection of the attributes of the business and its commitment: a strong team ethic. top-to-bottom retailers pragmatism. faltered or never got started. for no net cost. Instead. Yet Clubcard is never questioned as a strategic priority by the management. In short. using the relevant knowledge it creates to improve the way it runs its business. usually enthusiastically supported by other retailers whose loyalty schemes are distant memories. Tesco has responded to the critics by measurably building sales through Clubcard. Page 7 of 88 . Every year since 1995. headlines have proclaimed the death of loyalty scheme. Because Tesco made Clubcard work. Tesco hasn’t found that its loyalty programme is a costly overhead. it can find out what its customers need and generate enough sales by satisfying those needs cover the cost of finding out. and most of all. a commitment to serving customers. when every other British supermarket loyalty programme in the late 1990s failed. Tesco runs Clubcard. Tesco made customer loyalty marketing work. and has been doing so since 1995.
Objective2 Examine the conditions under which customer loyalty enhances profitability Some loyalty Schemes are termed as a disguised from of Sales promotion. Page 8 of 88 . Oliver 1999). Handling data is like drinking water from a fire-hose (Humpy et al. 1996). 2004). Oliver (1999) suggested that loyalty and satisfaction are linked inextricably. objectives 1-4 are important stations (intermediate goals) which help reach the final destination or purpose (objective 5). but also that this relation is asymmetric. Thus. 1999). It’s the strategic implications of loyalty schemes that the project seeks to look into. Dick and Basu 1994. It’s a ‘zero sum game’ as profit margins are squeezed to run the scheme (Oliver. The Purpose of this research is to gain fresh insights into the concept of ‘loyalty’ and ‘customer relationship management’ and the part it plays in strategic decision making.1. all other objectives are necessary to be realized before a thorough understanding of the strategic ramifications of ‘loyalty programmes’ is acquired. Unfortunately there is no universally agreed definition of loyalty (Jacoby and Chestnut 1978. This research seeks to define the ‘real’ meaning of loyalty in retail terms and how it differs to satisfaction. Still. They are just another way of bribing the customers (Woolf.2 Aims and Objectives Aim To analyze and examine the concept of loyalty in retail and to assess its effectiveness as a corporate strategy through a Tesco Plc Case Study. Objective 5 is in a way the primary objective of the research. Objective 1 Analyze and define the concept of loyalty and identify the relationship between customer satisfaction and customer loyalty Customer Loyalty has been one of the most misunderstood concepts of recent years (Payne. loyalty schemes are practiced by big retailers. and clearly identify the conditions under which loyalty enhances profitability. satisfaction is an unreliable precursor to loyalty. arguing that although loyal customers are usually satisfied. This study seeks to identify the variables which help make a loyalty scheme successful. 2002).
(Woolf. that do nothing to engender consumer allegiance.3 Scope Since the study examines the Tesco Clubcard only. so that defeats the point [of loyalty]. Future research should seek to replicate the study onto other retailers in order to be able to get a broader understanding of the loyalty effects of customer-loyalty-programmes. TESCO Clubcard was three times more famous than Sainsbury’s Saver card and achieved two and a half time greater awareness than any other card.’ This research seeks to examine TESCO’s skill and the will which makes its loyalty program stand out and the extent to which it contributes to the retailer’s success. the results cannot be generalized for every loyalty schemes. Page 9 of 88 . Objective 5 Assess whether loyalty marketing should form a part of a retail firm’s overall business strategy Is Loyalty Marketing dead or is it a vital force to reckon with? Anti-Loyalty lobbyists argue that loyalty programmes are little more than a discount scheme . says that there is mixed evidence that loyalty cards really do promote loyalty. ASDA shied away from rolling out the loyalty card nationwide after having trials at different stores. cited in Web 3). enabling them to increase customer value. (Zaria Pinchbeck. Loyalty aficionados. The study seeks to assess the contribution of loyalty programs in creating long-term relationship with the customer. Asda. 2004. Safeway’s loyalty scheme (ABC card) started off well but was finally withdrawn four and a half years after its launch. this study only examines the loyalty effects of the Tesco Clubcard in terms of its marketplace impact. it does not examine the loyalty effects in terms of the financial impact of the programme. Tesco.2002) TESCO CEO Terry Leahy puts it ‘It’s not the skill but the will that counts. The market research company Mintel.Objective 3 Assess the role of loyalty programs in promoting loyalty and building favourable customer relationships ‘Our Customers told us that they prefer pound in their pockets’. The econometrics of the Clubcard doesn’t form a part of the research. and successfully populate new markets. grow market share. ‘Dropping the loyalty card is inconceivable’ (Russell Craig. Objective 4 Evaluate the extent to which loyalty marketing makes its contribution to TESCO’s success and identify key areas where TESCO outwits its competitors The study seeks to point out the parameters TESCO considers to quantify the effect of its loyalty program and assess if those parameters are justified. professor of retailing at Manchester Business School (cited in Web 4). cited in Web 1). 1. both say that loyalty schemes are an integral part of their retailing strategy and insist they remain committed to them. Gary Davies (2004). The research will explore the myth and realities of loyalty marketing and the part it plays in shaping Tesco’s overall business strategy. Also. Tesco and Sainsbury's. 2003. The UK's top two supermarkets. ‘Trying to analyze all the data is madness’ (Waitrose. claim loyalty programmes form the core of their business strategy. cited in Web 2). believes that loyalty cards have run out of steam stating that most of us have cards for at least two stores. on the other hand.
A Case Study (Tesco) Strategy is taken as it involves an empirical investigation of the ‘loyalty’ phenomenon within its real life concept to the particular retail firm. 1. Reference books. because the data collected is analyzed to give new dimensions to the loyalty concept and its strategic effect on business decisions. The Research Approach is a combination of deductive and inductive approach. Tesco Web page. because the existing concept of loyalty and its impact on business decisions and strategy is first tested using data and Inductive. both using primary and secondary information that is gathered and assembled specifically for this study. Although conventional wisdom dictates that customer loyalty is the most vital aspect of every business because companies live or die from repeat business. which was important to know in order to have a benchmark to find out how the Tesco Clubcard affects its members loyalty towards Tesco. namely Tesco Clubcard members and non-members. Newspaper and Magazine (The Grocer) Articles. it is a dynamic tool for customer satisfaction and loyalty measurement that uses the “customer loyalty index” as key metric in order to measure overall customer loyalty. constantly searching for ways to act as the value-adding agent for its customers. Taped interviews. This tricky tale of retail was what made the author go in for a research on loyalty as no existing literature gave a clear-cut judgment on the subject of customer loyalty in retail. Qualitative secondary information from a variety of sources is gathered like Tesco Case Studies. For this purpose. from its inception.4 Rationale The interesting perceptions with contradictory thinking with regards to loyalty in retail and loyalty schemes is what aroused sufficient interest in the author to go in for a research into this elusive concept. most of the major supermarket multiples have already joined the bandwagon. a convenience sample of Tesco shoppers is surveyed in front of local Tesco supermarket Other primary data collection methods included a questionnaire that divides customers into two categories.g Mintel) databases. conquered and died? 1. Research Agency (e.6 Conclusions and Recommendations Tesco’s loyalty marketing project has become a pillar of its business strategy and has helped Tesco evolve in its strategic thinking and direction from being an outstanding food retailer to being an information-driven business. Tesco’s loyalty scheme suggests that a loyalty scheme can only have a sustained impact on the bottom line when. loyalty programmes are surprisingly ineffective and almost 50% of them miss their business objectives partly or completely (Web 5). 2002). it changes the Page 10 of 88 . Deductive. in reality. for some. Business news channel views. Online journals. Journals. Primary data is collected using “mallintercept-interviewing” (Zikmund. 2000). Tesco Brochures. Quantitative data from Tesco Company reports and other supermarkets is collected and analyzed to compare and contrast the effect of loyalty. Is loyalty an armoury which came.1. Yet. Quantitative and qualitative research is applied. The “Satmetrix Market Stat” was made use of. it’s a roaring success while for others it turned out to be more than a liability.5 Methodology In order to approach the above mentioned research objectives. It’s customer information assets uses to allow it to take a strategic approach to customer management. this longitudinal exploratory study took into account both qualitative and quantitative research strategies which is often necessary for ‘triangulation’ – meaning ‘getting a fix from two or more places’ (Green et al.
It delves into both ‘soft’ and ‘hard’ aspects of loyalty and evaluates the success factors and conditions which encourage loyalty. The study now moves forward into the journey of exploring the ‘true’ meaning of loyalty in retail and discusses different theoretical frameworks of customer loyalty programmes and their individual characteristics. When the board recognize that loyalty scheme data is the bedrock of their business. It gave a detailed description of the aim. manpower and other resources really starts to pay dividends. then the considerable investment in technology. Companies embarking on a loyalty scheme should make sure that data is analyzed with an eye on desirable economic outcomes and companies should make sure that they establish what they are trying to accomplish with the program and continually measure its performance. purpose and objectives of the study and what the study seeks to achieve. Summary This chapter provided us with a basic guideline of the things to come. It clearly mentioned the scope of the research and areas where the study will not throw much light on.dynamic culture of the organization. Page 11 of 88 .
Syed Sameer Rahman ST03004496 Page 12 of 88 .
Syed Sameer Rahman ST03004496 The aim of this chapter it to clear the air of confusion with regards to the concept of loyalty and bring out its ‘true’ meaning considering both attitudinal and behavioral dimensions.e. services. whereas today’s interpretations of the loyalty construct usually include both behavioural and attitudinal dimensions. 2000. there is always a reason for the customer’s repeat purchase and it does not happen by chance (Hansen. while the construct of customer retention considers the marketer as the active party. Attachment is shaped by two dimensions: the degree of preference (the extent of the customer's conviction about the product or service) and the degree of perceived product differentiation (how significantly the customer distinguishes the product or service from alternatives). This is further evidenced by the fact that some authors use customer loyalty interchangeably with other constructs. loyalty focuses more on intrapersonal aspects of customer behaviour (Hansen. The highest attachment occurs when a buyer feels a strong buying preference coupled with a high degree of perceived product differentiation.The construct of customer loyalty also differs from the one of customer retention in that customer retention has a purely behavioural character. stores. moreover. loyalty is defined as ‘being faithful’ or ‘steadfast in allegiance’ but as Payne (2002) points out customer loyalty has been one of the most frequently discussed and most misunderstood concepts of recent years .2000) .1 Categorization of The Loyalty Concept ( from the Retailer’s perspective) Adapted from Bergeron. it has been suggested that the construct of customer loyalty differs from the one of repeat purchasing behaviour in the way that it implies an intentional component. 2005. It then evaluates whether successful loyalty programmes are a stand-alone entity or form a part of the overall strategy and help in strategic decision making. i. 2.1. products. as well as salespersons (Laurent. including customer repeat purchasing behaviour and customer retention. 1997) .2000) .The level of attachment a customer feels toward a product or service is a prerequisite to loyalty and that a second factor that marks a customer's loyalty is repeat patronage. The chapter concludes by highlighting the hype and hoopla surrounding loyalty schemes and the myths associated with it. cited in Web 6)) 2. (Griffin. It goes on to give a detailed account of relevant loyalty frameworks and models put forward by purists and examines the reasons for the popularity and sudden proliferation of loyalty schemes. However. Loyalty is seen as something that consumers and customers exhibit towards brands. pg 135-147 Figure 1 Page 13 of 88 .1 Loyalty – The elusive phenomena According to the “Oxford Dictionary of Current English” (2003. pg 327).
Transactional Cross-selling . as they relate most closely to commercial results. in which the customer’s buying behaviour is seen to change or be changed. Therefore research will deal more with Tesco form of loyalty which is more emotional and less transactional. all of which have been. usually of the same product or service. not patterns of what has happened in the past. Up-selling . rather than choosing an alternative. Transactional loyalty is the ultimate objective of any supermarket. Sometimes these are regarded as more significant. Tesco encourages transactional loyalty by concentrating on more emotional aspects of things. where there is a combination of these two effects.a customer buys more from the same supplier. Complex loyalty. different product or service from the same supplier. the definitions of loyalty fall into three broad categories: Transactional loyalty. Within each of these categories there are a number of terms. Page 14 of 88 . used as definitions of loyalty.Syed Sameer Rahman ST03004496 C ross -se lling U -sellin p g R eat P ep urcha se T ransaction al P rsiste y e nc S tisfa a ction L y o alty Life e -va e tim lu A rene wa ss B nd V ra alue P erceptua l Cm o plex According to Bergeron( 2000) . Perceptual loyalty. but there is not necessarily evidence of an impact on purchasing. Perceptual loyalty will be researched upon in more detail as customer attitudes and opinions or the softer side of loyalty is what Tesco concentrates on. because they are seen to reflect possible behaviour patterns that could be created in the future. in which the attitudes and opinions of the customer are the key. These are often the most popular choices. or are being. although what motivates that change may be unclear.seen as loyalty when a customer buys a new.
the kind of emotion articulated in response to the question ‘how was it for you?’.Syed Sameer Rahman ST03004496 Repeat purchase .2004) 2. Perceptual Satisfaction . buying the product again. such that they may not even consider. Persistency . 2002 Figure 2 Page 15 of 88 .an easy and obvious use of ‘loyalty’ is within the context of the degree of satisfaction felt by users of a product or service. Indeed. When retailers look at winning and keeping the loyalty of their customers they are looking to achieve a little extra goodwill. it will be looked into in greater detail during the course of the research. when the same need arises.maintaining a relationship rather than concluding it.loyalty is seen as a function of the extent to which the business is known within its target market. and their wide consumer awareness. driven perhaps by word-of-mouth recommendations or simply the extent of knowledge of the supplier.2 Conceptualizations of loyalty (from the customer’s perspective) Adapted from Uncles et al. to generate a ‘lifetime value’.Strongly branded businesses often rely on the strength of their communications..obviously. customer satisfaction can be a misleading measure as there are many examples of customers changing supplier despite high levels of satisfaction.1. Enhancing brand value and preventing brand fatigue is one of the key objectives of the Club card. an incremental shift in buying behaviour.the commercial benefit of the relationship with a customer can be calculated over time. (Humpy et al. The research will provide greater insights into ‘satisfaction’ levels and how that relates to loyalty. The relative benefits of a competitor. However. Brand value . a slight margin of preference. to give customers a sense that they must be dealing with the ‘right’ organization. which would also bring the author closer to one of the research objectives. Complex Lifetime value . the purpose of branding is entirely to ensure that the customer returns to a given supplier again and again. Awareness .
circumstances..Syed Sameer Rahman ST03004496 There are three popular loyalty conceptualizations put forward by Uncles et al. Fader and Hardie 1996. the closest factor that can be measured is customer behaviour. 2001) . What can be quantified is customer behaviour and where customer loyalty is concerned. loyalty mainly expressed in terms of revealed behavior (i. and buying moderated by the individual’s characteristics. 2001) .Loyalty. and/or the purchase situation (Model 3). (Stone. there is still little agreement when it comes to measuring it (Rundle-Thiele. Defenders of the stochastic approach consider loyalty as behaviour and argue that the customer who buys the same brand systematically is loyal. 1997) . Stochastic modelling techniques describe the observed patterns of Page 16 of 88 . Kahn. here is defined mainly with reference to the pattern of past purchases with only secondary regard to underlying consumer motivations or commitment to the brand (Ehrenberg 1988. like love or loathing. Loyalty. Massy. is impossible to quantify exactly.(2002): loyalty as primarily an attitude that sometimes leads to a relationship with the brand (Model 1). or attitudinal terms (deterministic approach) and although it has been suggested that the concept should be understood in both terms. Kalwani and Morrison 1988.e. Analysis of models put forward by Uncles will bring us closer to one of the objectives of the research as it may reveal the ‘real’ meaning of loyalty in attitudinal and behavioural terms and the conditions which help a loyalty scheme prosper. Montgomery and Morrison 1970). the pattern of past purchases) (Model 2). Loyalty has been largely defined and measured in either behavioural terms (stochastic approach).This disagreement has led to a debate that originally started almost 30 years ago between Jacoby and Kyner and is still going on in present times (Rundle-Thiele.
2001). Foxall and Goldsmith 1994. Many researchers and consultants argue that there must be strong ‘attitudinal commitment’ to a brand for true loyalty to exist (Day 1969. or due to other more complex psychological reasons and it has been argued that the narrow technical definitions of the stochastic approach do not capture the full richness and depth of the loyalty construct (Odin. Commitment and Trust: According to Morgan and Hunt (1994).e. The determinist approach is not based on loyalty/disloyalty opposition. arguing that although loyal customers are usually satisfied. or consequences of loyalty to measure the former and not loyalty in itself (Odin.Nevertheless. The consumer buys the same brand again. and requires a very arbitrary categorization of customers into one of the two categories (Odin. which can be isolated and manipulated (Odin. these conceptualizations of loyalty are not without their critics Page 17 of 88 . Problem with this approach lies in the fact that it considers loyalty behaviour as too complex to be comprehended due to the number of explanatory variables and their frequency of appearance and therefore makes the processing of loyalty in a dichotomous way – loyalty Vs. it has been suggested that only a few customers are 100 per cent loyal to a single brand. due to situational reasons. Ehrenberg. Jacoby and Chustnut 1978. but also that this relation is asymmetric. If the usual brand is out of stock or unavailable for some reason. This gives us a pointer that satisfaction may not be as intricately linked to loyalty as assumed and brings us closer to Objective 1. but only 30% to 40% return to the previous make or model. satisfaction is an unreliable precursor to loyalty. since trust implies that the consumer has confidence in the brand/firm and is willing to rely on it though there is an evidence of risk involved. which is singularly short of nuance. Mellens et. al. 2001). Barnard and Scriven 1997). Despite the psychological and sociological richness of the ‘attitudes drive behaviour’ and ‘relationship’ approaches to understanding customer loyalty. in which 85 % to 95 % of customers report that they are satisfied.Syed Sameer Rahman ST03004496 customer buying.Moreover. Loyalty to the brand (measured by repeat purchase) is the result of repeated satisfaction that in turn leads to weak commitment. but rather. 1996. commitment and trust – not just one or the other – are the key to success in relationship marketing. then another functionally similar (or substitutable) brand (from the portfolio) will be purchased ( East 1997.Another shortcoming of the stochastic approach is that it does not tell whether repeat purchasing has been done out of habit. disloyalty. but because it is not worth the time and trouble to search for an alternative. Oliver (1997) has this in mind when he defines customer loyalty as: “A deeply held commitment to re buy or re patronize a preferred product/service consistently in the future. are likely to have a repertoire of two or three brands within any product category from which they regularly buy – i. but seeks to measure the degree of intensity of loyalty (Odin. thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behaviour” This determinist approach considers loyalty more as an attitude and argues that there are a limited number of explanatory factors responsible for it. including: Customer satisfaction: Oliver (1999) suggested that loyalty and satisfaction are linked inextricably. not because of any strongly-held prior attitude or deeply-held commitment. 2001) . polygamous or divided loyalty (O’ Malley. 1998) .2001) . Reichheld 1996).2001) . while commitment reflects a psychological attachment to the brand/firm and an enduring desire to maintain the relationship. the determinist approach has been criticised for only relying on customer declarations without taking into account their observed behaviour and also for using either antecedents. which is further evidenced by findings from the automobile industry.
3 Loyalty Frameworks A popular framework that tries to take into account both dimensions of the loyaltyConstruct has been proposed by Backman and Crompton (1994) (cited in O’Malley. it has been suggested that neither attitudinal nor behavioural measures on their own are sufficient to explain or define the complex construct of loyalty and therefore. frequentlypurchased brands. a number of hybrid frameworks have been developed which try to combine both dimensions of loyalty in an attempt to overcome such problems. 2. Also.1. Adapted from O’ Malley 1998.Syed Sameer Rahman ST03004496 (Dowling 2002). as Oliver (1999) has noted. pg 47-55 Figure 3 Page 18 of 88 . Those who subscribe to the ‘attitudes drive behaviour’ and ‘relationship’ approaches expressly rule-out revealed behaviour as a dominant measure of loyalty. or when impulse buying or variety seeking is undertaken. which results in a number of different categories of loyalty. than for important or risky decisions (Dabholkar 1999). That. Brian Woolf (2004) puts Loyalty as a positive attitude built up over a series of favourable interactions expressed in a customer’s behaviour. there is little systematic empirical research to corroborate or refute this perspective of customer loyalty. As a result. Even combined measures of revealed behaviour and satisfaction may not probe deeply enough for us to be sure there is true loyalty (Arnould. Price and Zinkhan 2002). They are thought to be less applicable for understanding the buying of low-risk. 1998). they argue. each of which have clear managerial implications as demonstrated in Figure 3. may merely reflect happenstance.
the is o w re ften inertia which keeps a cu stom loyal ba er sed on habit. Diller(2000) has proposed a model of loyalty motivators and de-motivators that is based on background theory from consumer motivation research and is illustrated in Figure 4.Syed Sameer Rahman ST03004496 High Patronag Behav e iour Low Latent L oyalty H igh Loyalty Relative attitude High O rganisations m not be ust com com e placent and m anagerial efforts should be continually fo cused on rein rcing attitude and fo behaviour.Is a state whereby cu stom will m ers ove fromretailer to retailer as the is little re benefit and difference p erceived bet een w any o the outlets in the m f arketplace . fo r exam by extending the bran netwo ple ch rk. M anagerial effo are be fo rts st cused on rem oving the obsta cles to p atronage. and/or pro viding additional service which s. 2000. Low Figure 4 Adapted from: Diller. O ccurs wh the custom feel san elem en er ent of loyalty yet will not buy fromthat retailer on every o ccasion N Loyalty o M anagers can attem to generate sp pt urious loyalty throu su m gh ch eans a in s -store prom otions. pa rticularly as the con sum is er likely to be targeted by com petitors. In an attempt to explain the forces affecting loyalty in more detail. offe value to the con r sum er Spu u L rio s oyalty In order to defe the custom ba nd er se against com petitive atta cks m anagers can attem to m pt aintain spurious loyalty and/or develop su stainable loyalty . T his m involve m ay aintaining a price advantag e. pp 39 – 43 Opportunism + Social Integra tion Variety seeking - + Contin uity Autonomy - + Relief Page 19 of 88 .Little difference is perceived bet een retailers. loyalty clubs and spe offers cial .
including humanity. but also that everyone (to various degrees) is tired of only looking for economic advantages and therefore opportunism is weakened by the need for relief. The desire for variety has its roots in a general motivation for stimulation and absence of boredom. Page 20 of 88 . and a consciousness of alternative human values. solidarity or personal loyalty. but still have their habits and like the certainty of knowing what they will get for the money paid. which in this context stands for the willingness of customers to take advantage of any opportunity to get the maximum benefit (value for money). man is a creature of habit who loves the well-known and familiar. thus people are curious. which originates from the need for more freedom of economic pressures and tasks. while at the same time. to be completely flexible and to be only interested in their personal benefit (also known as smart shoppers).Syed Sameer Rahman ST03004496 - Intensity of loyalty + Opportunism versus Relief Arguably the strongest factor constraining loyalty has been termed opportunism. Variety versus Continuity The second pair of ambivalent loyalty forces suggested by the model includes variety seeking opposing loyalty while the need for continuity makes it more attractive. The model suggests that everyone is a smart shopper to a certain degree.
social integration remains a widespread need and therefore many customers long for social integration. (Anon.” (Maurice R. However. which is becoming increasingly important in a time of customer emancipation. Loyalty has become one of the most sought after concepts in the business world and it is often the most elusive phenomena. 2004) Businesses can succeed with a great product or service. Autonomy in this context means freedom from others and decisionmaking independence. In fact. when necessary terminate relationships with customers and other Page 21 of 88 . 2004) It is now appropriate to discuss the possible effects of the construct of loyalty for retailers and why it has become increasingly popular over the recent years. p9) described the objectives of relationship marketing as being to identify and establish. where self-esteem is highly regarded and attempts made by suppliers to restrict this freedom might achieve the opposite of the intended affect. It is a force which leaps into being only when conditions are exactly right for it.Syed Sameer Rahman ST03004496 Autonomy versus Social Integration The third pair of ambivalent loyalty forces suggested by the model includes the need for autonomy opposing loyalty while the need for social integration makes it more attractive. “Loyalty cannot be blueprinted. but will fail without loyal customers. 2. for its origin is the human heart -the centre of self-respect and human dignity.1. it cannot be manufactured at all. and it is a force very sensitive to betrayal.4 Reasons for the rapid increase in popularity of customer loyalty A critical evaluation Gronroos (19994b. even in times of individual isolation. It cannot be produced on an assembly line. Franks. a sense of social security and a sense of affiliation or social esteem within different relationships or groups. maintain and enhance and.
One is to increase sales revenues by raising purchase/usage levels. Critics argue that the loyalty – both attitudinal and behavioral – for most customers is quite passive and resembles habit rather than serious commitment. One of the reasons for the great popularity of customer loyalty is the recognition that losing a customer means in fact more than a single sale: It means losing the entire stream of purchases that this particular customer would make over a lifetime of patronage – also known as the “customer lifetime value”(Kotler and Armstrong. Another reason for the rapid increase in popularity of customer loyalty can be found in the impressive array of “suggested” evidence in support of loyalty. and the enhanced customer insights that can be gained from analyzing the program database (a firm benefit) (Brown 2000. They have been able to provide a sense of personal service without an actual person which is clearly apparent from Tesco’s case (Seybold. by building a closer bond between the brand and current customers it is hoped to maintain the current customer base.. induce greater consumer resistance to counter offers or counter arguments (from advertising or sales-people).2000). minimize waste and help promote trust. attract a larger pool of customers. 2000. They also found that a considerable amount of loyal Page 22 of 88 . at a profit so that the objective of all parties involved are met. or particularly effective at bringing in new business. concluding that they discovered little or no evidence to suggest that customers who buy on a steady basis are necessarily cheaper to serve. some of these “profitability-arguments” have been challenged recently by Reinartz and Kumar (2002). Pearson 1996). Where the focus is on individual customers. pay higher prices and bring in new customers through wordof-mouth support (Morgan et al. Proponents tend to focus on the psychological bonding that eventuates from membership (a customer benefit). and/or increase the amount of product bought( Bolton et al. 2001) Loyalty schemes can lead to more purchases more often. 1999). revenue. who compared the behaviour. 2000) Two aims of customer loyalty programs stand out. dampen the desire to consider alternative brands.2002). cited in Web 7). and profitability of more than 16. Customer loyalty is a strategic approach to improving shareholder value through the development of appropriate relationships with key customers and customer segments. encourage word-of-mouth support and endorsement. decrease price sensitivity.Syed Sameer Rahman ST03004496 stakeholders. The popularity of these programs is based on the argument that profits can be increased significantly by achieving either of these two aims.000 individual and corporate customers over a four-year period. which is the purpose of the research (to evaluate loyalty as a strategy).However. A second aim is more defensive.. It attempts to win a slightly larger share of the customer’s spend than would otherwise be the case if the additional value of the scheme were not offered (McAlexander.2001). and this is done by a mutual exchange and fulfilment of promises.2002). and/or increasing the range of products bought from the supplier. claiming that the net present value increase in profit that results from a 5% increase in customer retention lies somewhere between 25 and 95% in over 14 industries (Oliver.Another “profitability-argument” in favour of loyalty includes that in many cases the management of loyal customers is supposed to be cheaper since they are usually better informed and therefore ordering and delivering procedures can become routine (Scott. less price sensitive. loyalty programs can be seen as vehicles to increase single-brand loyalty. give the ability to mass customize marketing communication.(Payne & Ballantyne. Research will analyze in greater detail the ways in which ‘loyalty’ programmes can transform the business and help make strategic business decisions. In today's economic climate loyalty programs can help companies do more with less. such as the figures provided by the associates of Bain & Company. Loyal customers are supposed to buy more. Loyalty programmes seeks to identify and talk to individual customers on a massive scale and torrential flow of live transactional data offers the possibility to transform how retailers manage their business.
in the hope of achieving benefits of loyal customers. The ultimate goal of every CLP. through higher tolerance of mistakes made by the supplier. Other pro-loyalty arguments include that loyal customers may bring more certainty into the business. according to Stauss et al. such as building a strong customer database.1999. e.2002). including: Payment cards: provide a mechanism for customers to pay retailers and are sometimes known as store cards Page 23 of 88 . pg37). loyal customers may also seduce suppliers into complacency and encourage inactivity and carelessness or the supplier may become too reliant on them. Butscher (2001) argues that profitability should be considered as a medium. This has arguably to do with the fact that many non-loyal customers can be highly profitable at the beginning. There are various different types of cards issued by and on behalf of retailers. time of purchase.or even long-term goal which can only be achieved if other intermediate goals are reached first. arguing that profitability might ultimately be more related to business fundamentals such as superior products.A recent ‘Best of Biz’ (2003) report also questioned customer loyalty as the driver of profitability. and to do so by rewarding loyal and heavy or frequent buyers. but once these customers cease their buying activity.2000. services or processes.On the other hand.However.2000). to build lasting relationships with customers. is to increase general operational profitability by customer retention. however. The research will extensively analyze the reasons for popularity of Tesco’s loyalty programmes and compare it with other loyalty schemes which are one of the objectives of the study (to compare and contrast Tesco’s loyalty schemes with its competitors). through increased customer immunity to competitive offers. However.What distinguishes today’s customer-loyalty programmes is their ease of use for consumers as well as the degree of technology involved.Syed Sameer Rahman ST03004496 customers were only marginally profitable. causing companies to chase after them in the hope of future profits. However. while a large percentage of short-term customers were very profitable.g. and that “firms are encouraged to study their position and options in the pursuit of this goal”(Oliver.pg33). (2001). Woolf (1996) puts it ‘great success comes from a marketing strategy base firmly on understanding customer economics and only secondarily on customer loyalty. the rationale behind modern CLPs is still the same. they may become unprofitable because the company continues to invest in marketing to them (Reinartz and Kumar. value and type of items etc) and/or the value of the rewards earned. even critics themselves have suggested that customer loyalty is “a worthy contributor to the shareholder value of a company”(Diller.g. despite their criticism. Academicians have also argued that loyalty programmes are ultimately self-defeating when competition confronts the first mover. which may mean that they fail to adapt to changes in market structure or to respond to the changing importance of certain market segments (Diller. through increased customer feedback (loyal customers are supposed to be more prepared to complain and to participate in surveys). Most modern CLPs are using some form of membership card which is presented at the point of sale in order to identify the customer and to record the purchase details (e.1999). Customer-Loyalty-Programmes The notion of customer-loyalty-programmes is not really a revolutionary idea and it is probably fair to say that the cooperatives’ pioneered the modern day programmes already in the mid 1800s (Sparks.
Syed Sameer Rahman ST03004496 Reward cards: provide a mechanism for retailers to reward their customers for repeat purchasing and are sometimes called bonus cards or club cards which is what Tesco’s club card is all about. retailers have four different CLP-card strategies available: Page 24 of 88 . Combined cards: act simultaneously as payment and reward card According to Cuthbertson and Williams (1999).
so that the retailer can find out what the customers wants.pushing customers through new channels. H Samuel. Powergen etc under Tesco Freetime but it is Tesco which issues the Clubcard points and the partners buy those at a rate negotiated with Tesco. pg 123-131 The 5 P Loyalty Strategy Pure Strategy: Spending and accruing benefits with only the card-issuing retailer. Tesco used to follow a Pure Strategy and even now the Clubcard is more or less based on a pure strategy with the primary objective being. strengthening the existing bond between the customer and the retailer. Page 25 of 88 . (Rayner. 1998).2001. Although Tesco has partners like Allders. accruing benefits with the card-issuing retailer. But they are the Tesco Clubcard points redeemable through Tesco or Tesco Freetime only. and give the customer more of it. Pure loyalty schemes aim to establish a two way dialogue so that the retailer can act to improve the basic offer. It is a technique used by low-cost airlines to encourage customers to book online. creating a scheme to encourage customers to use a way of shopping that they would not have done before . Push Strategy: Spending at several retailers. or trying to create new types of behaviour. Means. or it can be used by a retailer expanding into non-core businesses to draw customers with it.Syed Sameer Rahman ST03004496 Figure 5 Adapted from Butsher. Means. strengthening the two way communication and understanding the customer better.
Means.( Reichheld . 2001. Larger number of members helps to reach . high brand awareness and low costs. Membership prerequisite helps channel membership/focus on target groups. Purchase Strategy: Spending and accruing benefits across many retailers.1998) Pull Strategy: Spending at the card-issuing retailer. down. Clearly defined membership structure makes communication more effective Membership prerequisite keeps number of members. accruing benefits outside the retailers everyday range. Limited access makes membership more valuable.( Rayner . The advantage of a limited programme.( Sharp. so customers will find that buying one product means that they get an offer on another. successful Purchase loyalty card strategies tend to rely on high use availability. 2000) Purge Strategy: Represents a deliberate choice by retailers to avoid a loyalty card scheme. even pay a membership-fee – an effort that non-interested customers would probably not invest. They tend to act as payment cards first and reward cards subsequently. attracting customers by augmenting a retail offer. lead to segmentation and segment-specific communication. Therefore the key measures should aim at increasing the competitiveness of the retailer rather than any specific measures related to loyalty cards Butscher (2001) has suggested that the information obtained from CLP-members are particularly useful as they have already identified themselves as having a special interest by signing up for the programme and sometimes – depending on the type of programme (limited programme versus open programme). Effectively it is an inducement to create more sales by encouraging customers to buy something new. If successful. Completeness of database could. To encourage usage. It is suited to financial services and transaction processing providers and to mainstream retailers wishing to develop financial or transaction processing services. where members have to pay a joining-fee and/or annual-membership fee is that it has a positive influence on filtering out unwelcome members Figure 6 Adapted from: Butscher. new primary customers would then need to be attracted via a Push loyalty strategy.1997) It is best suited when a retailer's offer is not sufficient in itself to attract new primary customers or retaining the existing ones. Database more complete Potential customers and competitors customers can be reached more easily. Page 26 of 88 Open CLP A wider number of customers can be reached. linked product. p 51 The characteristics of limited and open customer-loyalty-programmes Limited or Opt-it CLP Membership fee helps to cover costs. after further analysis. and thus cost . A Purchase Strategy is primarily aimed at increasing customer purchases regardless of where those purchases take place. target customers of other schemes with alternative benefits and increase the number of primary customers and overall market share.Syed Sameer Rahman ST03004496 A pure loyalty card strategy primarily affects current customers. At a simple level ‘buy one get one free’. especially processing costs.
Syed Sameer Rahman ST03004496 Database includes only members with an above-average interest in the product Membership payments raise expectations. Since this research takes a Tesco Case Study. Opportunities for using customer information Figure 7 Define Sales goals Generate sales contacts Direct Sales Report Sales success Respond customer inquiries Pursue customer issues Sales Product analysis Assess customer satisfaction Servic e Customer Information Product demand Produ ct Product development Monitor service quality Marketi ng Program preparation Program testing Competitive analysis Program Planning Program analysis Page 27 of 88 . Preferring a more focused approach With smaller budgets In clearly segmented markets In business-to-business markets In markets with homogeneous customers Will be the better approach for companies: With very little knowledge about current and potential customers Following a more general approach With long-term larger budgets In unsegmented markets In business-to-consumer markets With commodity products The Tesco Clubcard falls into the category of “open CLPs”. which makes loyalty programme become more cost-effective Will be the better approach for companies: Trying to reach/reward their top customers. critical sooner. it only takes into consideration Open-CLPs. mass. so the loyalty programme management is constantly forced to improve value. since everybody living in the UK aged 18 years or above can register for it for free via an application form which provides essential information for targeted promotions (Tesco Clubcard Brochure).
CLP-managers have to select an appropriate CLP-format which can be further categorized into behaviour-based models. In order to be a source of sustainable competitive advantage. reward design. hybrid models and relationship-based models (Morgan et al. because it knows fully well that although savings are at the top of the customers’ wish list. (Bryan. and programme maintenance operations. since loyalty is inextricably linked to the creation of value. repurchase.According to Dowling and Uncles (1997). Five elements which determine Tesco’s loyalty programmes value are (1) cash value (how much the reward represents as a proportion of spend). the company developing the CLP must always take into account what its loyal customers value. A value proposition is “the full positioning of a brand . effort. attitude-based models. setting up a CLP is very resource intensive and therefore the company developing the programme should take it very seriously. segmentation. since a lack of differentiation removes any potential of competitive advantage – which is anything but easy in retailing.2001). Both the hammer and the card are tools that. behaviour-based customer-loyaltyprogrammes have been criticised as dressed-up sales promotions that are highly questionable as relationship building initiatives which fail to emphasise on emotional elements and do not necessarily lead to greater marketing efficiency and effectiveness (Tynan.g. services. The greater the perceived value of a company’s goods or services.In practice. hard benefits are usually copied by the competition and therefore it considers soft benefits as the key to its loyalty programme as they are less likely to be copied due to their mostly intangible nature.However. the full mix of benefits upon which it is positioned” and the answer to the customer’s question “Why should I buy your brand?”(Kotler & Armstrong. special products. discounts. (4) the perceived likelihood of receiving the rewards. being aware of entering a long-term commitment (Butsher. and then design a programme that directly supports their value proposition (Morgan et al.2001).g. the right combination between soft – (e. this stands in contrast with the long-term character of the relationship-marketing concept and as a result of that. travel aids.2000). financial investment and above all. Page 28 of 88 .Thus.. Just as a hammer doesn’t build a house. most CLPs follow the behaviour-based model. where first movers are quickly imitated (Morgan. rebates. being aware of the time. (2) choice of redemption options (the range of rewards offered). or purchase more frequently the firm’s offering ( Figure 8).2001). help bring the architect’s blueprint to life. in order to be viable. and (5) the scheme’s ease of use . (3) the aspiration value of the rewards (how much the customer wants the rewards). (Woolf. focusing on behavioural outcomes such as repeated patronage and targeting immediate benefits for the organisation by providing easily observable – typically economic – benefits to cause the customer to purchase. events) and hard-benefits (e. magazine.2000). a loyalty card doesn’t build customer loyalty. 2002). In order to be able to deliver a unique value proposition (that is still in line with an organisation’s overall strategy).In addition to the elements are the psychological benefits of belonging to the programme and accumulating points. i. Moreover. 2000). 2004) Building a CLP Setting up a customer-loyalty-programme requires careful planning and should include detailed plans and methods for customer identification and registration. coupons) is essential and Tesco is a champion at this. a CLP must build and sustain noticeable differences in its offerings that are difficult to copy.Syed Sameer Rahman ST03004496 It should be kept in mind that a loyalty card is not a replacement for any of the basic loyalty drivers but is a supplement to them. the greater the loyalty effect.Moreover. when properly and appropriately used.e.
2000. Adapted from: Morgan et al. resource and social exchanges and therefore these three areas of relationship content build the starting point for the relationship-based CLP: Economic Content. The economic content of relationships deals with the economic benefits and costs of participating in the relationship and it has been suggested that customers are only willing to participate actively in a CLP. if their individual cost-benefit calculation leads to a positive result. cooperation may become more attractive as enhanced economic returns will be expected – thus. all about economic differentiation. which.. It’s about deciding how to optimize long-term yield from the limited resources we have. (2000) is known as the relationship-based model. a strong economic relationship content can contribute to the growth of loyalty (Stauss et al.2003 ) Resource Content. which is based on relationship marketing theory. essentially. which then provides the partners with an incentive to explore the relationship further. all partners engage to some extent in economic. ( Woolf.Loyalty marketing is.. p 73 Figure 8 Behaviour-based CLP Programme tactics Programme outcomes Habitual buying Price advantage Persuasive communication Economic benefit Switching costs Repeat patronage Promotional expenses An alternative approach followed by Tesco and proposed by Morgan et al. consumer behaviour theory and strategic marketing theory (Figure 9) It has been suggested that in any marketing relationships. Understanding our customers’ behaviour and economics (derived from loyalty program) allows to do just that. It has been suggested that parties engage in relationships to secure valuable resources that they would not be able to acquire more efficiently elsewhere.2001). in a Page 29 of 88 .Syed Sameer Rahman ST03004496 behavioural based models “might well stimulate sales for the duration of the promotion but do not have any long-term behavioural after-effects”.
safety. Figure 9 Relationship-based CLP Adapted from: Morgan et al. honesty. (2000). The relationship-based model suggests that although economics and resources may indicate a prosperous relationship. while the consumer wants reliability. Customer loyalty and customer trust are the key variables of Tesco’s relationship-based model which it considers to be the crucial in building the intermediate goals of the model and providing competitive advantage. as they lead directly to a successful outcome. fair play and an awareness of mutual interests and therefore a CLP should accommodate opportunities for interactions so that friendships may be developed. Social content.. no relationship can be successful in the long-term without a social environment that nurtures communication. status.Syed Sameer Rahman ST03004496 business/consumer exchange means that the business requires the purchasing power and effort of the consumer. and other facets of reputation and tangible value in the products and services they purchase and according to Morgan et al. 2000. reciprocity and equity. the resource content of relationships can contribute to commitment among exchange partners through dependence. strategic interest. p 79 Relationship content Key variables Outcomes Customer retention Share of customer Economic content Page 30 of 88 Customer referral .
2 Loyalty as strategy In order to realize the purpose of the research.Syed Sameer Rahman ST03004496 Resource content Social content Customer Loyalty Customer trust Co-operation Promotional expenses Product development expenses Tesco’s CLP-Mix Tesco’s CLP falls into the category of so-called “integrative instruments” (Stauss et al. communication with members is exclusive. 2001). 2004). it’s important to assess loyalty schemes as a part of a strategy rather than a stand-alone entity. as well as interactive in that Tesco not only talks to their CLP-members but also listen to what they have to say (Hansen. Tesco’s design of a loyalty program takes into account the nature of the business. It must be considered that CLPs do not exist in a vacuum.2001) due to its capability to combine various elements from existing tools as it relies on a differentiated set of product. 2000). Communication issue is of great importance for the interaction with CLP-members and with Tesco. and the competitive landscape. 2001). For this purpose Tesco has exclusive CLP-magazines (Clubcard Magazine). 2001). 2000). firms like Tesco have adopted them as a core business strategy (Morgan et al. 2.2000). favourable conditions of payment as well as financial advantages via bonus programmes. (Fournier et al. It is essentially a long term CRM strategy that not only evaluates the current performance of Tesco’s relationship with its customers.2000). contains member discounts. The success strategy is always to closely align an organization with its customers but bringing this vision to reality is far from easy ( Sawhney. meaning that it is only accessible to members. Page 31 of 88 . integrated in the sense of “everything Tesco does (and sometimes does not do) sends a message that can strengthen or weaken relationships”. communication and distribution issues to organize the customer benefits (although it has been claimed that relationship marketing offers an alternative to the traditional 4P classification. The price-mix. but should be a coherent element of a company’s overall strategy and capabilities (O’Malley . regular newsletters or mailings. its market position and strategic goals. most scholars do still use the classic paradigmatic framework when identifying adequate tactical marketing tools for building and maintaining relationships with customers (Hansen. but also drives its strategic direction (Roberts.Given the potential benefits of customer-loyalty-programmes. or CLP meetings and events for members (Butsher. price. The product-mix consists of goods and services of the specific CLP-operating company (Tesco) or its coalition partners (partners under Tesco Freetime).
2003) to deliver a Customer Experience that meets the needs of the individual customer.2003 pg 133-151 Figure 10 Page 32 of 88 .. 2003) calls as ‘The Ideal Customer Experience’. . Adapted from Fournier et al. The result is win-win between the company and the customer.Syed Sameer Rahman ST03004496 Tesco’s concept of Relationship Management begins and ends with the customer. The strategy behind this (and behind Tesco’s strategy) is that a customer whose needs are understood and met will continue to purchase from the company with increased frequency and value. Strategists have put in place a framework for understanding and meeting the needs of the customer or which (Fournier et al. A framework for the Ideal Customer Experience is designed by (Fournier et al.
Initially. such as Wallet Share for growth strategies. acquire or terminate specific customers. Now Tesco understands the pivotal concept in determining a customer’s value. grow High Growth customers. The results of these measures enable Tesco to allocate specific resources to target a specific customer segment. Tesco’s Customer Strategy measures delve into deeper detail by breaking down the measures by each customer segment. Customer Strategy Measures Customer Strategy measures attempt to answer the following questions: 1 1. These strategies are executed via the Customer Experience. This is very crucial as it should drive decisions on where a company should allocate resources. and Retention rate for retention strategies. How did the company perform in retaining/growing/acquiring/terminating the appropriate customers? 2 3 However. Tesco’s loyalty scheme was ‘one size fit all’in this case but later on it realized the importance of doing something extra for its more profitable ‘Premium Loyal’ customers. The resources that work within a targeted customer segment shapes the customer experience for the individual customers within that segment. which breaks it down by Value and Customer Characteristics/Preferences. Tesco’s loyalty measures are comprised of: 1 2 3 4 5 • Average Profit per Customer by Tenure • Size of Customer Base by Tenure • Lifetime Value of Customer Base by Tenure • Potential Value of Customer Base by Tenure Although Loyalty measures are discussed in brief. Each individual Customer Strategy outlines the steps that need to be put in place to retain. and determine if negative value customers can be turned into profitable customers. the study doesn’t deal in depth with the econometrics of the Clubcard. The strategies designed are created with the primary objective of meeting the needs of the customer. acquire either High Value or High Grow customers. Rank the Customer Base by Value One of the key outputs of determining the Customer Loyalty Measures is to rank the customer base by value. These measures evaluate the performance of a company’s current customer base and drive the future direction of a company’s overall customer strategy. and its success is dependent on whether the needs of the customers have been met. grow. Also.Syed Sameer Rahman ST03004496 Customer Loyalty Measures Customer Loyalty measures are designed for the people within a company who dictate the strategic direction of the company. Which customers should a company retain/grow/acquire/terminate? 2. Customer Strategies Tesco establishes customer strategies to retain High Value customers. The Customer Experience is comprised of the following components: Page 33 of 88 . that some customers are much more important than others. each customer strategy contains tailored Customer Strategy measures.
many marketers believe that the route to customer loyalty is through the operation of a number of mechanistic.Syed Sameer Rahman ST03004496 1 1. offering the appropriate assortment mix. as well as to receive valuable information from the customer in the form of feedback 4 5 3. Moving customers up a ‘loyalty ladder’ through image-based or persuasive advertising and personal service (recovery) programs are frequently used tactics (Brown 2000. deals and special offers to attract the customers of competitor brands. Advocates of the contingency approach (Figure 3 Model 3) emphasize what might seem to be prosaic factors – such as avoiding stock-outs. in a bid to match competitors with no expectation of dramatic changes in customer attitudes and behaviour. The Customer Profile will continue to be enriched as the relationship between the company and customer grows deeper 2 3 2. and processes to meet the needs of the individual customer The ‘Customer Experience’ bit is where Tesco hugely outflanks its competitors. Tactical Measures Tactical Measures are all measures that evaluate the performance of the Customer Experience. Here the potential for loyalty programs to impact demand is very limited. Reality There is confusion regarding the nature. White and Schneider 1998). From a functional perspective. These measures are critical to detecting the success or failure of any component within the Customer Experience. processes and activities for creating Page 34 of 88 .3 Rhetoric vs. extending opening hours. advocates of the attitude approach (Model 1) ( more or less adopted by Tesco) aim to increase sales by enhancing beliefs about the brand and strengthening the emotional commitment of customers to their brand. generate knowledge and change customer behaviour. services. Under these circumstances. and achieve growth via increased market penetration. tactical initiatives such as loyalty cards. Depending on the models (shown in Figure1) one adopts. and processes. It is hoped that customer incentives and rewards are a sufficient basis to build loyalty. it creates the Ideal Customer Experience by customizing the products. the strategy adopted can be significantly different. and Technology. On the other hand. a loyalty program might be launched for mainly defensive purposes. They also often use price promotions. Delivering and Receiving Value at Each Customer Interaction – Tesco views each interaction as a golden opportunity to deliver value through its products. Detailed examination of all the factors will be done which will make the author reach closer to Objective 4. Managers who adopt (Figure 2 Model 2) approach try to maintain their share of category sales by matching competitor initiatives and avoiding supply shortages. role and influence of customer relationship marketing. events and promotions. For example. scope. points schemes. 2.. Populating the Customer Profile – To create the Ideal Customer Experience. services. Customer Ownership. Customizing the Customer Experience – By understanding an individual’s needs. Tesco populates the Customer Profile with the relevant information to properly understand and meet the customer’s needs. an organizational perspective views relationship marketing as a total firm customer orientation – one that seeks to integrate and align multiple sources.
in reality they are surprisingly ineffective and it has been suggested that almost 50% of them miss their business objectives partly or completely (Reinartz. it has been argued by Fournier et al. such as getting caught up in price wars with competitors due to heavy financial incentives. Also. even after a lifetime. it also seeks to evaluate the loyalty concept and its effectiveness in future. the demand of certain customers is so small. The greater the proliferation of loyalty schemes.2000). strategy and methodology. 2004).2000). appealing more to the minority of customers who are especially susceptible to promotions. while in fact it has been suggested that they are more likely to view companies as “enemies”. making it difficult for smaller programs to compete effectively . One reason therefore can be found in the fact that many CLPs have been launched as competitive-moves in order to combat a competing programme. or investing in the wrong customers (in some cases.One reason therefore might be found in the false assumption by many marketers that every customer is keen to develop an intense and devoted relationship with them. As markets mature.2001)). and will increasingly demand control over their own data (Tynan. the less they act like loyalty schemes. there is increasing saturation and cannibalization of loyalty effects. Although the applied marketing literature suggests that there are very high expectations for CLPs. loyalty programs appear to lack clear goals or are not tied to overall business strategy which is what makes ineffectual and ineffective. there is a clear limit to the number of such schemes the customer will take the trouble to join. arguing that even those that increase sales might actually be still draining money – which could have a variety of reasons apart from underestimating CLP-set-up and maintenance costs.(1998) that “the very things that marketers are doing to build relationships with customers are often the things that are destroying those relationships” since what is called “intimacy” by marketers is often viewed as “intrusive” by the customer in a world where customers want. Summary This chapter dealt with the relevant theories and concepts that pertain to the concept of loyalty in general and illustrated the brand of loyalty which is relevant to Tesco.” (Kadar & Kotanko. that the cost and effort of turning them into loyal customers are out of proportion to the revenue they could generate (Butsher. is not contaminated and bias is reduced to a minimum.It has also been suggested that far too many customer-loyalty-programmes have overemphasized on information gathering rather than relationship building and have thereby ignored the need for customers’ voluntary participation in the programme (Tynan.1998) . The study now moves ahead into adoption of appropriate methodologies to figure out what loyalty approach Tesco adopts. not “allies”(Fournier et al. 2001). is that many organisations underestimate the full cost of setting up and sustaining CLPs. One must question whether the proliferation of loyalty programs represents real value creation or is simply a case of “keeping up with the neighbours. Too often. with quality often being sacrificed for speed in many cases (Butsher. how its strategy aligns with the loyalty model and overall business objectives. Through appropriate methods in place.Syed Sameer Rahman ST03004496 superior customer value on a consistent basis. For this purpose the tried and tested ‘Satmetrix’ Loyalty index is applied to measure ‘Customer Loyalty Index’ to find out the effect of the Page 35 of 88 . 2002). The chapter also seeks to ensure that the data collected is valid and reliable.Another reason. according to Cigliano et al.Furthermore. It gave us the outline of the form and structure of Tesco’s Clubcard and how its embedded within the organization.(2000). if loyalty forms the core of its business strategy and how much does it contribute to enhancing customer experience and achieving business objectives. The aim of the next chapter is to achieve the research objective by applying the appropriate research approach.
Focus groups. Telephonic and face to face interviews are also conducted as a part of primary data collection. Page 36 of 88 . which help to triangulate findings.Syed Sameer Rahman ST03004496 Clubcard.
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Syed Sameer Rahman
In order to approach the research objectives, this longitudinal exploratory study is taking into account both qualitative and quantitative research strategies, which is often referred to as ‘triangulation’ – meaning ‘getting a fix from two or more places’(Green et al,2002). The triangulation approach strives to capture a more complete, holistic, and contextual portrayal of the phenomena under study, and is intended to neutralize bias in any one approach applied (Green et al., 2002). According to Bonoma (cited in Lewin & Johnston, 2002), researchers can pursue high levels of data validity and generalizability by adopting triangulation strategies which provide replication and/or corroboration of findings across methods (i.e. experiments, surveys, case studies). It has further been suggested that the integration of both research strategies within a single project opens up enormous opportunities for mutual advantage, since inherent weaknesses of one approach can be overcome only by using other methods (Simon & Vosseberg , 2001). The Research Approach is a combination of deductive and inductive approach. Deductive, because the existing concept of loyalty and its impact on business decisions and strategy is first tested using data and inductive because the data collected is analyzed to give new dimensions to the loyalty concept and its strategic effect on business decisions. Both Quantitative and qualitative methods of data collection technique is applied, although the major part of the research relies upon qualitative data and its analysis. Qualitative secondary information from a variety of sources are gathered like Tesco Case Studies, Tesco Brochures, Tesco Web page , Reference books , Journals , Online journals, Newspaper and Magazine (The Grocer) Articles , Taped interviews , Business news channel views , Research Agency (e.g Mintel) databases . Quantitative data from Tesco Company Reports and other supermarkets are collected and analyzed to compare and contrast the effect of loyalty. Before embarking on a definitive research methodology (Philosophy, Strategy and Approach) each research objective was taken into consideration separately and a SWOT analysis was done for each data collection approach against each objective. A rationale was established behind each research method before going ahead. It was ensured that the data collection methods were more or less interdependent so that each method filled the hole or covered the areas which could not be covered by the other.(e.g Focus groups helped in redesigning and reframing some of the questions in the questionnaire, telephonic interviews and Face to Face interviews were only conducted after the secondary data was collected and analyzed to properly design questions in order to keep the interview short , exact and effective) Initial secondary data collection method included reading through the relevant material in Books , Journals , Online Web pages, White papers, Seminar papers, Company Reports, Tesco website, Tesco cases studies, Research databases (Mintel) etc. Keywords were then generated to refine the search. Keywords generated: - Customer Relation Management, Loyalty Marketing , Direct Marketing , One-to-one Marketing , Database Marketing , Relationship Marketing , Customer Loyalty, Retail Strategy, Co-creation, Integrated marketing communications, Affinity programs , Buyer behaviour. Generation of keywords made the secondary data collection a lot easier as it gave a specific direction to data collection , more relevant material were available in less time. Primary data collection methods were embarked on only after sufficient insight had been gained from secondary data and most of the secondary data was collected and analysed and the ‘loyalty’ concepts fully understood.
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Syed Sameer Rahman
For the fulfilment of Objective 1, Objective 2 and Objective 3, Focus groups have been conducted to reveal both behavioural and attitudinal aspects of loyalty and to decipher if loyalty schemes encourage loyalty or is it just another marketing tool. Focus groups are a cognitive form of qualitative research. There is less structure to the group, with group members being encouraged to take their own paths of discussion, make their own connections and for the whole process to evolve. It seeks to encapsulate the experiences and feelings of respondents in their own terms. The purpose of the project is disclosed to the respondents or is otherwise obvious to them from the questions asked. Focus group is a tool borrowed from psychotherapy where it has long been realised that people can be encouraged to open up if they are asked to share their views as part of a small group.(Edmunds,1999). It has a brainstorming effect so that a comment from one person sparks ideas from another and groups can yield more ideas than one to one interviews. The group may gel and a bonding between members acts as further encouragement to disclosure. Focus groups reveal customers viewpoint and perception and looks at loyalty programs through customer’s eyes. By historical evidence it is found that women and old people were more loyal in their shopping habits while men and students are the most promiscuous and fickle. The variables taken into consideration in the formation of focus groups were Age, Gender, Income, Religion (in some cases), closeness to the supermarket, weekly shoppers and weekend shoppers. The details of the participants were tried to be matched against the profile of the customers, to ensure that the conclusions drawn were statistically significant. Focus groups gave customer viewpoint on loyalty, satisfaction, loyalty schemes and what kind of loyalty programs they preferred and what changes they thought would make them to visit the store more often. It also gave insights into customer’s feelings about loyalty schemes and whether they built any longer term relationship because of the loyalty programs. Focus groups helped the author gain sufficient insight into customer’s minds. They also helped the author reframe some of the questions in the questionnaire so that the customer understood it better. It was the first phase of primary data collection, five focus group sessions were conducted altogether and the number of participants ranged from 5-8. To test the information generated from focus groups and to gain further insight a convenience sample (convenience sample due to the lack of time and financial resources) of Tesco shoppers has been surveyed in front of a local Tesco supermarket – which is also known as “mall-intercept-interviewing”( Zikmund,2000).Mall intercepts have been used because it was thought that feedback from a larger population than a focus group was desired and also because mall intercepts can provide more statistically reliable data than a focus group. Mall intercept interviews lasted somewhere between 5-12 minutes. As in Focus groups , they helped attain Objective 1 , Objective 2 and Objective 3. In order to reduce possible shopping pattern biases and ensure data reliability, a more representative sample of the overall population has been taken and the interviewing took place on a weekend, Saturday late morning till late afternoon, Sunday late morning till late afternoon and Monday during morning office hours and evening times when people get out of work. This was to ensure that both Cash/ Stress rich time poor and Time rich cash poor customers were considered. Reliability of data was achieved by minimizing participant error as timing didn’t dilute the results and the data wasn’t contaminated . Also, there was a high degree of structure to the interviewing to reduce observer error. The advantage of interviewing a convenience sample is that it is relatively fast and inexpensive, however, the drawback of this method is that there are no statistical techniques to measure the random sampling error (“Random sampling error is the difference between the sample result and the result of a census conducted by
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Syed Sameer Rahman
identical procedures”), and therefore it does not allow the researcher to project the data beyond the sample (Zikmund, 2000) For ‘mall intercept interviewing’, a questionnaire has been developed that depending on the interviewee-response divides them into two categories, namely Tesco Clubcard members and non-members, which is important to know in order to have a benchmark to find out how the Tesco Clubcard affects its members loyalty towards Tesco which represent the same questions as applied in the “Satmetrix Market Stat” to measure the Satmetrix “customer loyalty index”. To evaluate how the Tesco Clubcard affects its members loyalty towards Tesco it was originally planned to use a customized version of the “Customer Acid Test” (Web 9) to measure each categories loyalty towards Tesco and then compare the findings against each other. However, it turned out that the entire Test would be too long for interviewing shoppers in front of a supermarket and therefore it was decided to use the first section (the first four questions) of the “Customer Acid Test” only, which represent the same questions as applied in the “Satmetrix Market Stat” to measure the Satmetrix “customer loyalty index”. Satmetrix Systems is claimed to be the leading provider of enterprise solutions for improving business loyalty and profitability with leading companies around the world relying on its systems, including Cable & Wireless, eBay, E*Trade, Hewlett-Packard, Honda, Lucent Technologies, Network Associates and Siebel System( Web 10). The “Satmetrix Market Stat” is a dynamic tool for customer satisfaction and loyalty measurement that uses the “customer loyalty index” as key metric in order to measure overall customer loyalty (Web 11).It is used by many leading companies across a large variety of different industries, including retailers and consumer goods leaders, which are all using the following listed questions in order to measure customer loyalty (each question is rated on a 0-to-10 scale (Renis Likert’s scale 1932), with 10 representing the highest score): How satisfied are you with this provider’s overall performance ? How likely is it that you would recommend this provider to a friend or colleague? How likely is it that you will continue to purchase products/services from this provider? If you were selecting a similar provider for the first time, how likely is it that you would use this provider again? The questions address both the perceptual components - which are based on customer attitudes, opinions, and emotions, such as satisfaction - by asking for the overall level of satisfaction, likelihood to recommend, and likelihood to choose again as if for the first time, as well as the transactional components of the loyalty construct which are based on the customer’s intended or actual purchase behaviour – by asking for the propensity of making repeat purchases, and therefore the “Satmetrix Customer Loyalty Index” (CLI) comes close to hybrid models of customer loyalty measurement that try to measure the attitudinal and behavioural dimensions of the customer loyalty construct( Web 10) Although the “Satmetrix Customer Loyalty Index” does not take into account such constructs like commitment, trust, liking and identification as recommended by Diller (2001), a research tool had to be found that does not cost the interviewee too much time (otherwise the likelihood of getting an answer from the interviewee without much thought just to get finished with the interview is likely to increase), but still has a reasonable level of validity (validity is the ability of a scale or measuring tool to measure what is intended to be measured (Zikmund, 2000)), and therefore the “Satmetrix customer loyalty index” appeared to be the best compromise, since it takes into
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including Fred Reichheld. Page 41 of 88 . including a question regarding the customers’ “perceived” expenditure in terms of a percentage figure of their monthly grocery budget spent with Tesco (categorized into four options: (1) less than 25%. and club scheme). Unemployed.4 or more) in order to be able to conduct some cross tabulations (in order to see a complete copy of the research tool. perhaps ‘store location’ can be a bit more important a factor than what the questionnaire results reveal. brand assortment. as well as a “yes/no” option for Clubcard members regarding whether they have spent more money with Tesco since they have had a Clubcard or not (however. tested and applied by a highly regarded institution which has many industry-leading clients around the world and employs several leading authorities in the field of loyalty research. Tesco Clubcard members and non-members who have participated in the interview and then compared against each other.3.Syed Sameer Rahman ST03004496 account both dimensions of the loyalty construct by asking the above mentioned questions and also due to the fact that it has been developed. but treated separately). Just to make sure the findings were right and to probe into it more deeply. This part of research threw up interesting findings. it didn’t occur to them that store location can be a factor at all. The interesting bit was 9 out of these 12 respondents interviewed responded that they didn’t consider Store Location a factor at all which literally meant that just because they stayed near a particular store . 2000). Skilled Worker. The two additional items capturing the behavioural dimension of the customer loyalty construct are used to demonstrate what percentage of their monthly grocery budget (their share-of-wallet) Tesco Clubcard-members spend with Tesco as compared with non-members as well as to show whether Clubcard members have increased their spending behaviour since they have had a Clubcard or not. In order to find out the importance of a CLP for Tesco customers. occupation (divided into Professional. interviews were conducted with 12 of the known respondents who had chosen ‘Location’ as the single most important criteria when choosing a supermarket. these added items are not included in the CLI.2.respectively. it was thought that the behavioural aspect of the loyalty construct is somehow weakly represented by the “Satmetrix customer loyalty index” since there is only one question concerning repurchase intentions and for this purpose the research tool developed for this study included two more items to measure the “perceived” behavioural dimension of the loyalty construct. value for money. please see Appendix). (2) 25 – 50%. one-stop-shopping. Since demographic criteria are often mentioned to influence shopping attitudes and behaviour (Carman 1999. To quantitatively measure the loyalty effect of the Tesco Clubcard. the research tool developed for this study also took into account questions to obtain coverage on gender. (3) 51 – 75 %. they could imagine store location as an important factor. which seemed to contradict previous researches conducted in 2003 and 2001 which pointed out ‘Location’ and ‘One stop shopping’ as the single most important criteria . Student) and size of household (1. whose publications include widely read articles in the Harvard Business Review and The Wall Street Journal ( Web 11) However. the arithmetic mean of each question representing the CLI is calculated for both. since customers chose ‘value for money’ as the most important factor while selecting a supermarket . the research tool also employed a question regarding “the” most important aspect for them when they are selecting a supermarket (options available: location. (4) 76 – 100%). Retired. the overall CLI for each category (Tesco Clubcard members and non-members) is measured by calculating the arithmetic mean of all four questions representing the “Satmetrix Customer Loyalty Index”. Afterwards. cited in De Wulf. Only when they were given the scenario of living somewhere far away from their favourite super store. Homemaker. So .
but without the ‘benefit’ of a loyalty program). Qualitative data collection technique embarked upon was Semi-structured in. Success evaluation was done to figure out the contribution of the Clubcard. They were significantly better at ‘recommending’ and once satisfied served as better advocators. operating profits and the strengthening of Tesco Brand and the overthrowing of Sainsbury’s to second place meant that Tesco was doing something special in relation to other supermarkets. increase in average spend . they had to be the advocates of Clubcard. Managers were also asked to rate Tesco’s success factors and which factors they considered made Tesco stand out in comparison to its competitors. Regular increase in sales. Focus groups and mall-intercept interviewing helped in findings regarding other supermarket loyalty schemes and Tesco scheme was the most preferred one. Result also indicated that Clubcard may have an effect on customers monthly spend. Strategic questions were also included in the interview to figure out to what extent does Club card play a role in the overall strategy of the firm. Both the semi-structured interview and the telephonic interview had questions on training to figure out how much Clubcard knowledge permeates from the managers to the floor staff (customer facing staff) Questions also related to any possible link of Clubcard to other factors (store formats. Summary The results by and large indicated that women were more likely to own a Clubcard and more likely to be influenced with the loyalty schemes. Also. with Clubcard members scoring higher than non-Clubcard in every loyalty dimension. etc. organizational viewpoint was necessary. going though research databases such as Mintel and Grocery magazines such as ‘The Grocer’ revealed important difference between Tesco’s and other supermarket loyalty schemes which helped compare and contrast supermarket loyalty programs. to assess if at all a link can be established between the Clubcard data and other factors. Results also revealed a correlation between household size and CLI. The interview also tried to probe deeply into training of staff and the emphasis given to the Clubcard during training . As they interacted directly with the customers. number of outlets . with Clubcard members spending major portion of their monthly spend with Tesco as compared to non-Clubcard members. Interviews would reveal the importance of Clubcard and the role it played in the overall strategy. Managers were also questioned regarding the potency of Clubcard and what made Tesco Club card stand out and different from others. Page 42 of 88 . There was a noticeable difference in shopping behaviour between Clubcard and nonClubcard members as well. Other criteria which may directly relate to the Clubcard such as increase of customer base .depth interviews with Tesco Store managers. it was noticed that loyalty was more or less directly proportional to the household size (the more the size of household. increase in shopping frequency were studied in detail and conclusions were tried to drawn from them. the more loyal the members and visaversa). with pre-program measures and noticeable differences were carefully studied while taking into consideration the control group (group subjected to the same new service regime. Quantitative measures of effectiveness have been developed by typically comparing and contracting post-program levels of sales. customer satisfaction. non food expansion) which has played significant role in Tesco’s success. The author thought that if Tesco considered Clubcard as a part of its strategy. Interviews would reveal the importance of Clubcard and how much emphasis was paid to the club card during training.Syed Sameer Rahman ST03004496 For attainment of Objective 4 . special emphasis and extra sessions should be dedicated to the Clubcard during staff training so that the staff were aware of its importance in the firm’s overall progress and treated it as an essential ingredient in company’s success. quantitative analysis and examination of Company Reports has been done. For the attainment of Objective 5. Another qualitative data collection technique for attainment of Objective 5 included Telephonic interviews with Tesco staff. customer retention.
After having the appropriate methodologies in place and collecting the required amount of data over a period of time. none of the participants declared Clubcard as the prime reason for selecting a supermarket. analyzed and discussed. where the qualitative and quantitative data collected will be carefully examined. Page 43 of 88 . the study now moves into the analysis part.Syed Sameer Rahman ST03004496 Though all these factors pointed towards the positive effects of Clubcard. Data collected from various sources will be triangulated before coming to a definitive conclusion.
Syed Sameer Rahman ST03004496 Page 44 of 88 .
The evaluation of loyalty as a corporate strategy will be discussed. and 66 were male – of whom 29 (43. of whom 86.24 per cent (9) were male. and as a result of that.76 per cent (59) were female and 13. The results of the ‘mall intercept interviewing’ will be discussed and analyzed first. The survey also revealed that 55. telephonic interviews and face-to-face interviews will follow. These findings along with the findings from the secondary research will be triangulated and a thorough examination of the Tesco Clubcard will be done. men were much more likely to refuse to participate in the survey than women. Analysis of focus groups.1 Results Data from the questionnaire indicates that more than three quarters (77. The factors which have led to the success of the Clubcard will be highlighted and the strategic implications of the Clubcard will be analyzed. but they also scored higher in terms of overall CLI than their male survey-counterparts. as demonstrated in Figure 11 Page 45 of 88 .93 per cent) owned a Tesco Clubcard.22 per cent) of the 158 respondents surveyed participate in the Tesco Clubcard programme.74 per cent (68) of the Clubcard-holders interviewed participate in more than one Supermarket CLP. 4. 92 out of 158 respondents were female – of whom 83 (90. The data further indicate that women were not only more likely to participate in the survey and more likely to own a Tesco Clubcard.2 per cent) owned a Tesco Clubcard.Syed Sameer Rahman ST03004496 Introduction This chapter is devoted to the presentation and analysis of the information collected. Although it was tried to get an equal gender distribution.
where female Cardholders scored 9. but the most significant difference between male and female Tesco Clubcard-members occurs in the “Recommendation” dimension as shown in Figure 12.15 Index-points as compared to only 7.4 8.Syed Sameer Rahman ST03004496 Figure 11 Customer Loyalty index sorted by female and male Clubcard members 8.8 CLI 8.14 gend er Female participants generally scored higher in every single dimension of the CLI. Page 46 of 88 .8 Fema le Male 8.45 Index-points of male Cardholders.79 8.6 8.2 8 7.
15 7.45 8 6 Female Male 4 2 0 Ov e rall satisfaction choose first time In terms of their occupation. of whom 12. Clubcard-members scored reasonably higher than their non-member survey counterparts with an overall CLI of 8. 27. 18.39 per cent (20) Skilled Workers.68 for Clubcard-members as compared with 7.51 9. accounting for a CLI difference of 0.30 per cent (15) are living in a single household. 16.19 9. 16. Regarding their loyalty towards Tesco.1 8.05 per cent (33) Professionals.32 7.68 5 6 7 8 9 10 3 4 .15 per cent (38) of the Tesco Clubcard-members interviewed were Homemakers. and 16. 22.84 Index-points in favour of Clubcard-members.84 for non-members. purchase again recommend non -Clubcard members Overall customer loyalty for Tesco-Clubcard members and non-members 7.33 per cent (37) in a household of four.15 9.02 per cent (11) Students.Syed Sameer Rahman ST03004496 Figure 12 Customer loyalty dimensions: Female and male Clubcard members 10 CLI 8.39 per cent (20) Retired.85 8.13 per cent (27) in a double-household. 30.39 per cent (20) in household of more than four people.84 Figure 13 Club card members 0 1 2 Page 47 of 88 8. the data show that 31. and 9.85 per cent (23) in a household of three.
with Clubcard. In terms of “Choose first time”.33 Index points of respondents without a Clubcard membership.13 Index points.15 for non-holders) with a surplus of 0.45 as compared with 8. while the “Overall Satisfaction” dimension of the CLI accounts for the smallest difference (8.29 Index-points for Clubcard-holders as compared to 8. the biggest difference between Clubcard-holders and non-holders occurs from the “Recommendation” dimension of the CLI.87 Index-points as compared to 7.holders scoring 8.15 Index-points in favour of Clubcard-holders. accounting for a difference of 1.19 Index-points of respondents without a Tesco Clubcard. respondents holding a Clubcard membership scored 8. compared with 7.68 Index-points in favour of Clubcard-holders. Page 48 of 88 . while in terms of “Purchasing again” they scored an Index of 9.89 of non-members.Syed Sameer Rahman ST03004496 Type of customer Type CLI As shown in Figure 14.
results reveal that “Homemakers” holding a Tesco Clubcardmembership are most loyal towards Tesco.33 7. “Professionals” (8.68) and “Skilled Workers” (8.14 8.69 8.19 8.29 8.45 8.77.87 CLI 7 6 5 4 3 2 1 0 O erall v satisfaction choose first time Purchase again Recommend Clubcard members non-Clubcard members When manipulating the data according to occupation. scoring a CLI of 8.13 7. “Students” (8.75).73).53) (also illustrated in Figure 15) Page 49 of 88 .Syed Sameer Rahman ST03004496 Figure14 141414 10 9 8 Clubcard and non-Clubcard members on loyalty parameters 9. followed by “Retired” Clubcard-members (8.
7 7 8 .6 8 5 .72.Syed Sameer Rahman ST03004496 Figure 15 CLI of Clubcard members by occupation 8.8 8 . followed by Clubcard-members living in a household of 4 with an overall CLI of 8.6 8 5 .5 8 . with single households being the least loyal with an overall CLI of 8.7 8 .4 S den tu t H em om aker R etired P rofession al S killed w orker When manipulating the data according to “size of household” (as shown in Figure 16).7 8 3 .54.80.7 8 3 . results indicate that Tesco Clubcard-members living in a household of more than 4 people represent the most loyal category with an overall CLI of 8. Page 50 of 88 .5 CLI 8 .
67 per cent (15) of non-members.6 8. 37. 13. Page 51 of 88 .70 per cent (46) replied “51 – 75 per cent” as compared with 22. and 18.8 8.67 8.03 per cent (22) of Tesco Clubcard-members responded “76 – 100 per cent” – compared to 11.33 per cent (37) answered “25 – 50 per cent” in contrast to 41.8 8.4 1 2 Size of household 3 4 More As illustrated in Figure 17. while 30.54 8.65 8.11 per cent (4) of without a Clubcard membership.22 per cent (8) of participants without a Tesco Clubcard membership.93 per cent (17) of Tesco Clubcard-members responded “less than 25 per cent” compared with 25 per cent (9) of non-members when they were asked for their monthly grocery expenditure spent with Tesco as percentage of their overall monthly grocery budget.72 8.7 CLI 8.5 8.Syed Sameer Rahman ST03004496 CLI of Clubcard –members by size of household Figure 16 8.
70% 13.52 per cent (47) responded “Yes”.93% 30.33% < 25% 25-50 % 51-75% 76-100% Figure 18 Percentage of monthly budget spent with Tesco(non-Club card members) 11. < 25% 25-50% 51-75% 76-100% Page 52 of 88 .Syed Sameer Rahman ST03004496 Figure 17 Percentage of m onthly grocery budget spent w ith Tesco (CLubcard-m em bers) 18.03% 37.67% When asked whether they have increased their spending with Tesco since they have had a Clubcard membership.48 per cent (75) responded “No” and 38.22% 25% 41. 61.11% 22.
34 per cent (48) of Clubcard-members and 36.46 2. The survey also provided other valuable indicators which are discussed below. and to analyse the success factors behind the Tesco Clubcard model.44 per cent (7) of respondents without a Tesco Clubcard.The results from the survey provide some evidence for a positive impact of the Tesco Clubcard on its members loyalty towards Tesco.11 39.02 2.11 per cent (11) of non-members who perceive “value for money” as most important when selecting a Supermarket.02 per cent (11) of all Tesco Clubcard-holders and 19.Syed Sameer Rahman ST03004496 In terms of what is most important for them when selecting a supermarket.18 50 40 % 41. and “one-stop-shopping” being ranked as most important for 2. with “brand assortment” being most important for 9.78 30 20 10 0 lo aio ct n Ba d rn factors Vlu f r a eo mn y oe O eso n tp s op g h p in Clubcard-m bers em non-m bers em 4.66 36. Figure 11 and 12 Page 53 of 88 .18 per cent (60) of all Tesco Clubcard-holders and 41. none of the respondents mentioned “Clubcard”. while 49. since surveyed Clubcard-members generally scored a higher CLI than survey participants without a Tesco Clubcard-membership.34 19.2 Discussion of the survey results The prime interest of the survey was to examine the impact of the Tesco Clubcard on its members loyalty towards Tesco by applying the Satmetrix “Customer-Loyalty-Index”.78 per cent (1) of all non-members (also demonstrated in Figure 19) Factors in selecting a supermarket Figure 19 49.46 per cent (3) of all Tesco Clubcard-members and 2.44 9. followed by 39.66 per cent (15) of all surveyparticipants without a Clubcard responded “Location”.
Tesco’s future loyalty strategy should be to try to target females and bring them in under the Clubcard umbrella. they are good at recommending and promoting things. they shop more often and are more likely to be ‘locked-in’. and also justifies investments into promotions specifically targeted at women (e.co. Tesco invested heavily in a series of other initiatives designed to offer better value. they are more loyal . As Focus group discussion had revealed that customers rate ‘word-of-mouth’ publicity as the most important factor affecting their shopping habits. Even if they do not shop a lot. making them far more better word-of-mouth marketers for Tesco. Figure 12 also indicates that female have higher CLI than men on all CLI parameters which effectively can mean that its easier to satisfy females . The “Overall Satisfaction” dimension. the high difference in CLI with regards to ‘recommendation’ suggests that Females are good advocators. Thus. this is particularly true in the case of the “Recommend” dimension of the CLI meaning that Clubcard-members are much more likely to recommend Tesco to their friends and colleagues than customers without a Clubcard-membership. supermarkets and department stores are more likely to attract female participants. 1999) (according to an AGB Omnimas loyalty scheme tracking survey. while petrol loyalty schemes tend to be male dominated). The huge difference in other CLI parameters except ‘Satisfaction’ does seem to suggest that Clubcard directly or indirectly does affect the shopper in one way or the other. But then it could indicate that Clubcard does not enhance the satisfaction factor among its members. improve its stores. and give a higher level of service to its customers (Peck . This could be perceived as a weakness of the Clubcard since one of the main targets of customer loyalty programmes is to increase customer satisfaction.females do sign up for loyalty schemes makes matters easy. Also.Syed Sameer Rahman ST03004496 It is also worth noting that female participants were generally more likely to own a Tesco Clubcard (90.(1997). since respondents living in a household with several members were inclined to score higher in terms of CLI than respondents living alone. Figure 15 and 16 The results also indicate that there appears to be a positive correlation between household size and CLI. Interesting bit to note is. as compared to 43. since Tesco shoppers without a Clubcard-membership are almost as satisfied as Clubcard-members despite the fact that they do not receive the additional benefits Clubcard-members get. as with ‘Baby Club’ . suggesting that Page 54 of 88 .g. which is in line with the research findings by McGoldrick et al. since Clubcard-members scored higher in overall CLI and in each single dimension.1999). which means that females are in a way Tesco’s biggest asset. The fact that more often than not . the small difference between Clubcard-members and nonmembers in terms of “Overall Satisfaction” could also be seen as a strength of Tesco’s overall strategy (apart from investing in the Tesco Clubcard. Even in the case of ‘Choose first time’ and ‘Continue purchasing’ there is quite a bit of difference between Clubcard members and non-members which means that for Club card members the satisfaction does get transformed into transaction more easily and perhaps transaction into loyalty which can be justified by their habit of recommending.93 per cent of all male respondents) and also scored higher in terms of CLI than their male survey-counterparts as demonstrated earlier in Figure 11 and 12.uk).02 per cent of all female respondents owned a Tesco Clubcard. accounts for the smallest difference of only 0.15 Index-points between Clubcard-members and non-members. but on the other hand. if we consider satisfaction as the base and compare it with other loyalty parameters it reveals that though there isn’t much difference in the ‘Overall Satisfaction’ parameter between Clubcard members and non-members the difference is huge when it comes to ‘Recommendation’. iVillage. which supports claims that gender is a key discriminator in CLP-card ownership/participation (Wright & Sparks . Figure 13 and 14 There appears to be clear evidence of a positive impact of the Tesco Clubcard on its members loyalty towards Tesco.
there were considerable 38. it only justifies the previous finding that women are more loyal than men. We find that the CLI of Homemakers is the highest and considering that women form a major chunk of Homemakers category. customers may want to shop at Tesco to add points and get discounts. However. when in fact their shopping patterns might show otherwise (Wright & Sparks . which is inconsistent with the research findings of this study in that “Homemakers” and the “Retired” scored the highest CLI and “Students” even scored higher than “Skilled workers” and only marginally lower than “Professionals” (however. but the majority of them did not increase their spending with Tesco since they have had a Tesco Clubcard. It here then that the Clubcard may have an effect.73 per cent) of all Tesco Clubcard-members surveyed responded that they spend more than 50 per cent of their monthly grocery budget with Tesco. More interesting things emerge when we try to analyze Figure 16. But it wont be unreasonable to think that with bigger household. One stop shopping etc. there is a significant amount of difference between the percentage of monthly budget bought from Tesco by the Clubcard members and non-members which again suggests that Clubcard may be the driving force behind it.52 per cent (47) of all Clubcardmembers surveyed who responded “Yes” when asked whether or not they have increased their spending with Tesco since they own a Clubcard. since Clubcard-members tend to spend a higher percentage of their monthly grocery budget with Tesco.1999). it must be recognized that process of sample selection of the present study is different from that employed by Mason). compared with one-third (33.. followed by “Value for money” Page 55 of 88 . demonstrating that more than half (55. Figure 17 and 18 A positive impact of the Tesco Clubcard on its members loyalty towards Tesco appears to be further evidenced by . 61. while the vast majority of both categories responded “Location” as being most important. since it has been suggested that consumers are not necessarily objective in regards to purchasing behaviour and that they are not likely to admit being influenced. this figures have to be treated carefully. We notice that CLI increases in direct proportion to the size of household which means the bigger the size of household the more loyal customers are . On the other hand. Also. but suggested that the full-time employed tend to be more store loyal. But loyalty can be because of several factors. Tesco’s ‘Value for money’ products’ with its ‘Tesco Value’ lines. it could be argued that the majority of them have already been high spending/loyal customers beforehand and that the Clubcard did not fundamentally change their loyalty and shopping patterns but it also suggests that Club card also acts as a ‘lock-in’ for the customer and makes them less susceptible to competitor attack. product variety.33 per cent) of all surveyed non-members. Thus Clubcard may make the larger households least susceptible to competitor attack by making them stick to Tesco for Clubcard points and subsequent discounts.48 per cent (75) of all surveyed Clubcard-members responded “No” when asked whether or not they have increased their spending with Tesco since they have had a Clubcard (however.Syed Sameer Rahman ST03004496 loyal customers are more likely to live in larger households. Mason (1996) found little difference in customer loyalty according to household size. which does suggest that Club card does have a role to play as far as consumer spend is concerned. However. neither Clubcard-members nor non-members responded “Clubcard” as being most important for them when selecting a supermarket. customers have to spend more which can mean that they may be more ‘price conscious’ than the ones with single households and may value discounts a lot more . location. Thus (assuming that the respondents were objective). Figure 19 Another interesting result of the survey includes the fact that none of the participants.
with “Brand assortment” being third most important and “One-stop-shopping” being fourth most important . Tesco does well enough to create a positive hype around the Clubcard which helps creating a mirage in customers minds. Perhaps with the addition of some branded stuff it can increase satisfaction levels of non-Clubcard members and make them a part of the Clubcard. After being informed that its 1%. About 15-20% of the participants shopping at Tesco were not aware of the Clubcard. may be they value it less than the other factors mentioned. This meant that Tesco is lacking somewhere in creating the right kind of awareness and perhaps not promoting the Clubcard properly. ‘Product Variety’. Respondents were happy over the Page 56 of 88 .2. they thought that points could be added and redeemed only at Tesco and no where else. ‘Good customer service’ . suggests that Tesco is failing to create the right kind of awareness. (e. So. suggesting that “one-stop-shopping” is the most important factor for keeping UK-customers loyal (here again. Though general view was that Clubcard didn’t encourage loyalty.1998) 4. non-Clubcard members seem to value Brand assortment a lot more than Clubcard members which means Tesco can rethink its strategy with regards to branded goods. none of the participants knew the percentage or the share of discount Clubcard gave them.e. most of the respondents of the focus group stressed that there were never asked or encouraged to sign up for the Clubcard and even the employees were not sure of the exact benefits. most of them said that they signed up for it because they had nothing to lose. But the fact that Clubcard wasn’t the most important criteria doesn’t suggest that it wasn’t important at all.74 per cent (68) of all Clubcardholders surveyed participate in more than one Supermarket CLP. rather than just one i. polygamous or divided loyalty (O’Malley. Another research finding revealed that 55. so they made sure that they bought stuff in multiples of a pound and would not shop for £3. Another interesting bit is the difference in ‘Brand Assortment’ . this might be due to differences in sample selection and study methodology. Most respondents refuted that loyalty can be generated by a loyalty scheme. most of them were shocked and disillusioned.g they would not stop or reduce their frequency of shopping at Tesco). Though interview with employees revealed that they were always asked to emphasize on Clubcard. The interesting aspect was. ‘Tesco Value products’ and ‘Good shopping environment’ (like less wait at the till ). ‘Quality of products’. Again. some even thought that Clubcard was an ‘opt in’ scheme where they have to pay for being a part of the scheme.g they knew that 1point gets added every pound .1 Analysis of Focus group Analysis of focus group sessions revealed important insights about customers perception towards Clubcard and supermarkets in general.92 but would make sure that the bill reaches £4 and they don’t miss a point) The habits did not change completely but Tesco does manage to bring in something extra. Regards Clubcard . No one knew that Clubcard points can be added elsewhere also and that Clubcard umbrella encapsulated other companies besides Tesco.2001). since the sample of the present study was geographically concentrated to the City of Cardiff as well as just to one supermarket). thereby supporting claims that consumers are more likely to have a repertoire of two or three brands within any product category from which they regularly buy. Most of the respondents who had a Clubcard . Most of them thought the discount was something around 5% on their spend. Customers associated Clubcard with Tesco only. Though this emotion may not get transmitted into changing of shopping behavior. Tesco isn’t doing enough to encourage customers to get enrolled in the loyalty scheme.Syed Sameer Rahman ST03004496 being second most important. in no way can a judgment be made that customers do not value their Club card. did mention that their buying habits changed negligibly because of the Clubcard ( e. There was very little awareness of the Clubcard other than the points. yet respondents did say that they would feel unhappy and even cheated if Tesco tries to do away with it. Some of them did say that loyalty does have a part to play as far as supermarkets are concerned but the reasons for loyalty were ‘value for money’. it may have been one of the important factors though not the most important. These findings are inconsistent with the findings of a survey conducted by Verdict (Cuthbertson. It was only the word-of-mouth publicity that was making customers sign up for the Clubcard .
None had any ideas that Clubcard points can be added and redeemed elsewhere and that Tesco was in partnership with other firms.2. Tesco’s key ring Clubcard format went quite well with the customers. They thought that the emphasis paid on the Clubcard was justified. it was revealed that Tesco did value their staff and staff were given various privileges like Clubcard linked to staff discount card etc.1 retailer in UK by investing in better retail environments . Nor was anyone aware that Clubcard points can be viewed on the Tesco. Tesco does concentrate on every little that can lead to customer satisfaction and to an extent this satisfaction does get converted into loyalty as seen from the survey results. quality shopping experience. which would reduce defection levels and reduce churn. But ironically.2003). The company has an enviable reputation for being innovative by offering good value across an extensive range of products while providing a convenient . ‘A Clubcard member values his or her statement mailing because it is personal . Some staff were of the view that some customers purposely shopped more to add Clubcard points which seem to point out that Clubcard may increase customer spend in certain circumstances.3 Analysis of Semi-structured face to face interviews conducted with Store Managers The main purpose of interviewing Store Managers was to find out the importance of loyalty as strategy and to what extent they thought Clubcard was important to the overall decision making and functioning of Tesco’s business. Although . employee training. Customers were also quite satisfied with the coupon format and the quarterly Reward scheme. Videos of Clubcard launch were also shown during the training days to have additional impact on the staff so that they understood its importance and relevance. Tesco stores have become the no. Most of them didn’t bother to ask customers to sign up for a Clubcard and those who did could not explain the exact benefits of the Clubcard. none of the staff interviewed had any idea how Clubcard helped the organization. 60% of them didn’t even know how the points added up and those that did was only because they themselves were Clubcard members. ‘the quarterly me’ ( Mason . 4. With regards to customers . ‘customers set the agenda’ and ‘customers are the Page 57 of 88 . customers had the receipt safe and made sure they got the points added the next time they shopped which seems to show that customers did care for points and the subsequent discounts. 4. Customer-centricity was highlighted regularly during the course of the interview with clichés such as ‘customer is the king’. Even if they forgot to bring the Clubcard. value added services. all staff interviewed were of the opinion that customers valued their Clubcard a lot. This was because they had to make sure that more and more customers joined the Clubcard which would give Tesco an opportunity to lock them in with their promotions and special offers. Managers felt that much more emphasis was paid on Clubcard during training than before. Tesco is blatantly aware of the fact that customers regularly appraise the TESCO brand according to these criteria. and it uses this knowledge to employ a coordinated and proactive marketing approach successfully. supply chain efficiencies and customer relationship management.2.2 Analysis of Semi-structured interviews with Check-out (Customer facing) staff Interviews with Tesco check out staff revealed important insights. Above all. even after all this most of the Tesco staff didn’t know much about the Clubcard . but there was a lack of motivation due to long work hours and due to which the staff admitted missing out on asking the customers about the Clubcard.Syed Sameer Rahman ST03004496 Clubcard in the key ring format which meant they didn’t have to remember taking the Clubcard whenever they shopped at Tesco. The answers related to training seemed to endorse the point made by front-line staff.com site. They had absolutely no clue as to why Clubcard data was collected and how it was beneficial to the organization. that there was quite a lot of emphasis on Clubcard during training and staff were made to realize its importance and relevance and Clubcard was projected as a potent force. other than this being a ‘discount scheme’. All the interviewees did say that quite a bit of emphasis was paid to the Clubcard during the training period and all effort was being made for the employees to understand its importance to the business. The interview would also help to triangulate the findings .
Safeway . Tesco do have a commitment and dedication to make the maximum use of its Clubcard data and do value their loyalty program. Pressured from above by a seemingly unassailable market leader in Sainsbury’s. it is important to understand the circumstances under which it started and the objectives Tesco had in mind before embarking on it .Syed Sameer Rahman ST03004496 regulators’. already.Tesco was not in a market leading position . it didn’t generate the same type of information as the Clubcard and because of being a multi-branded loyalty card .All major retailers were starting to think on these lines and ‘loyalty’ was the latest buzzword in retail . ‘Me too’ factor . resources and capabilities which made their chosen strategy feasible. the floor staff had no clue regarding the importance and workings of the Clubcard which seem to suggest that Tesco did lack somewhere in the training part. Managers thought that the data collected from Clubcard was exact through which they knew more about customer behaviour than its nonloyalty program rivals such as Asda. It needed to protect its current market share by sustaining and developing the value of its customer base. Tesco needed to fight back against the competition. the knowledge didn’t seem to permeate down to the customer facing staff.It was technologically possible to process the volume of transactional data that a loyalty scheme would generate. One of them cited the example that . The interview did reveal that Tesco soundly backed its Clubcard and to an extent does rely on the data generated. it didn’t generate loyalty at all which defeated the whole purpose of a loyalty program. They believed that Clubcard was making customers loyal . They thought Nectar card didn’t work on the same philosophy as Tesco and though it was a loyalty card . Tesco started the concept of loyalty marketing primarily due to three major reasons:- Technologically feasible. Club card Page 58 of 88 . because this would make it easier to evaluate its effectiveness. managers were of the opinion that Clubcard would always be a strategic weapon and will guide Tesco to reach its short term and longer term objectives. It cannot be ascertained from the interview if Tesco’s foray into non-food or international expansion can be related to Clubcard data in any way but promotional effectiveness can undoubtedly be attributed to the Clubcard and the information it generated. One note worthy feature was. with a looming threat from below from pricecutters like Asda and Kwik-Save. There were no plans to shelve the Clubcard in near or distant future. Having at their disposal.3 Origin and Motives Before assessing Tesco’s loyalty scheme. Competitive Pressure . a customer can drive to any super market within 15 mins . and facing the prospect of an invasion from German and US discounters like Aldi and Costco. For the first time there was a realistic prospect of collecting and managing masses of accurate customer-based transactional data and using it to provide insight advantage. For example . Even after training. With regards to the future strategy. Interviews did reveal that Tesco’s value their Clubcard a lot and to an extent they did rely on Clubcard data to make strategic decisions especially the ones related to promotion. In fact. Sainsbury’s were all testing it . they said that Asda relied on market research which only gives them an approximate idea regarding customer purchase patterns while Clubcard data was exact and reliable. Tesco didn’t want to be left behind. the word ‘customer’ cropped in to the point of irritation which suggested that Tesco did value their customers and the Clubcard for them was a way to customer-centric market research. though the Store managers had enough knowledge of the Clubcard and its workings. so it wasn’t because of the store location but its was customer loyalty that was making them shop at Tesco and that loyalty has been built from listening to the customers and giving them what they wanted. 4.
Commitment and Championing. Tesco’s biggest leap into the unknown. Page 59 of 88 . not just profitability. provided everything possible is done to demonstrate value in that headroom. Some very loyal customers can make very low contribution to company profits while some occasional customers can make greater contributions. This contains two elements: the first is how likely the customer is to remain a customer. Headroom is vital to a mature loyalty scheme like Clubcard and Tesco knows this and constantly works to increase the headroom. therefore was to increase market share. such as new departments in a store. The underlying motive. reflect loyalty –Terry Leahy’s concept of the scheme is to encourage loyalty . because a defecting customer has no financial value in future. Contribution . this is the potential for the customers to be more valuable in future. in Tesco’s model. Adapted from Humpy et al. It also measures ‘headroom’. Commitment Measures future value..does not. 2004 Figure 20 Th Loyalty Cube e Championing Z Co mitment m Y Contribution Customer X Contribution Signifies customer’s profitability.Syed Sameer Rahman ST03004496 became one of a series of initiatives to break the cycle of under-achievement. Customers who are already buying as much as possible have little headroom.4 Tesco’s definition of loyalty (The Loyalty Cube) Customer’s location in the loyalty cube suggests what sort of action is appropriate to earn their lifetime loyalty. 4. The three axes on the loyalty Cube signify Contribution. for these customers new complementary areas become much more important.
If they see value in a program they will recommend it. Tesco set the agenda and the only option for the competitors was to react. or that it would take it longer to launch nationally. Championing Customers with little headroom can act in a third dimension in the cube: as an ambassador for the brand. the Clubcard programme is that brand in action. What ever opportunities or constraints exist for the business as a whole .2 The Launch Because Clubcard was the first loyalty scheme to be launched nationwide . successful at championing .Syed Sameer Rahman ST03004496 Commitment has special significance in Tesco loyalty model as it always works to enhance value for the customers to increase headroom. Tesco’s determination to gain first-mover advantage paid off. The successful launch of Clubcard provided the initial impetus. Business dynamics Tesco’s loyalty programme does not exist in isolation from day-today business dynamics of the company.1 Understanding the DNA of loyalty Tesco’s loyalty program is a success because Tesco understands the basics of loyalty. the launch was where it could have hit or miss. Several factors contributed to making the Launch a success Secrecy and Momentum Tesco’s office relating to Clubcard activities was named ‘the bunker’ and it was completely isolated to prevent any information leak because the race for first mover advantage was on with Sainsbury’s. that the focus of the programme should be to encourage profitable customer behavior ‘Reward the behavior you seek’ as it is known at Tesco. it is reflected in the loyalty programme. The secrecy around the national launch wrong footed competitors.4. The analysis of survey results do reveal that Clubcard members are quite good at advocating and recommending which means Tesco has been to an extent. who had assumed that Tesco would move to a larger trial . Brand Values This is a key ingredient in Tesco’s loyalty programme’s genetic code. the qualities that customers recognize and admire. Whatever the characteristics of the brand are. Simplicity Page 60 of 88 . 4. 4. It’s loyalty programme is the active expression of its brand’s personality and values. The long term value of a low value customer in Tesco is in recruiting highervalue customers. This is where the idea that loyalty program members are ‘members of the brand’ comes to life. Championing is of utmost importance in the Clubcard model as Tesco knows that ‘word of mouth’ publicity is the most effective way of marketing.4. Customer behavior It is axiomatic for Clubcard and any other loyalty programme that aims to succeed. Tesco establishes priorities for the change it wants to see in customer behavior.
com (as Page 61 of 88 . direct and emphasized what customers got out of the deal in the most basic terms. at the centre of strategic thinking). It has completely integrated the Clubcard programme into its online and offline operations allowing Clubcard-members to accumulate points whether they buy in-store or at Tesco. customers spent 28% more at Tesco and cut spending at Sainsbury’s by 16%. ‘Every Little Helps’ and ‘Thank You’ were a natural fit. Time between Tesco’s Clubcard launch and Sainsbury’s Reward Card. The phone lines were in place to handle customer queries. according to Market researcher Taylor Nelson AGB. to earn their lifetime loyalty”. the marketing material was tested. reward design. The front-line staff were always informed and closely involved at every key stage. it provided Tesco with considerable first-mover-advantage. and programme maintenance operations were also in place. Complete integration Tesco Clubcard does not exist in a vacuum. Control and Involvement The Tesco Board trusted the marketing team to do what they wanted . 1999). registration. they backed the advertising messages in their dealings with customers at the local level. one month after its launch. Marketing Director of Tesco plc. Tesco’s customer management has the ability to link and integrate customer information across the entire business.000 households had come to shop with Tesco and over one third of the gains were reported to be at Sainsbury’s expense) (Peck et al.Syed Sameer Rahman ST03004496 The advertising message was right ‘Save on your shopping today’. 4. Infrastructure Before the launch Tesco made sure that its preparation and infrastructure was fully in place. segmentation. to earn their lifetime loyalty”(Web 9).5 Success Factors First-mover-advantage Since the Tesco Clubcard was the first nationwide supermarket CLP in the UK. driven by customer response and the growing vision of what customer understanding could do for the business. making Tesco what has been termed a “Value innovator” (Mauborgne. This principle is further embedded in Tesco’s core purpose of “Creating value for customers. the processes and means to deal with customers in a new way were ready.. suggested that the reason why the scenery only changes for first-movers is because customers realize that organizations who do something first do it for their customers and the ones who follow do it to neutralize competitive advantage (cited in Web 8). the IT infra structure was in place. It was simple . 1999) (Value innovators are companies that instead of striving to match or outperform the competition. but is a coherent element of Tesco’s core purpose of “Creating value for customers. suspecting of sending the wrong message. at different customer interfaces and throughout the duration of the customer relationship. Because it was ‘ their Clubcard’ . cultivate value innovation by placing the buyer. it desperately wanted the Clubcard to reap dividends for them . meaning that an additional 200. Careful planning and detailed knowledge on methods for customer identification. Tesco made sure that the launch was well planned and no stone was left unturned . not the competition. It fitted customers expectations of their supermarket brand. The word ‘discount’ was banned internally and was never mentioned during the launch . Tim Mason. They acted as marketers for the scheme too. over five million people had joined the Clubcard scheme and Tesco recorded a like-for-like increase in sales (household penetration had increased by almost 1 per cent.
where. when and what products Tesco Clubcard-members buy. the amount of analysis resources applied and the additional returns and new customer value created.2001) often less than 5 per cent of this data is ever analyzed.uk”. such as the “Tesco Healthy Living Club” or the “Tesco Baby Club” into the Clubcard framework and allowing Cardholders to communicate with each other via Internet chat rooms provided by the Internet service provider “iVillage. likely competitive threats based on where they live and their loyalty towards Tesco. it is understanding the value of the information it provides. Yet. Tesco’s approach to advanced Data Mining has helped them to drill to the earth’s centre and beyond. Tesco maintains a carefully constructed “knowledge profit and loss account” to measure customer investments in the scheme. which has been suggested to be an essential element of successful customer-loyalty-programmes that is difficult to emulate for competitors due to its emotional and intangible nature (Dowling & Uncles . and also increase the likelihood of creating “aspirational value” (how much the Clubcard-member wants the reward.’( Keith Mills . e. The range of products in Tesco stores is also tailored using knowledge of how Clubcard-members shop across brands. Tesco allows its Clubcard-members to exchange information on topics like healthy living. arguing that “Every little piece of information helps”. Tesco increases the likelihood of creating what has been termed by O’Brien and Jones (1998) Page 62 of 88 . many other companies. By allowing Clubcardmembers to check their points balance whenever they want via the Internet. are still tending to their company’s flowerbeds (Ahlert. thereby trying to create value particularly to its female members by giving them the chance to build friendships and by promoting a ‘sense of belonging’.. in comparison. Tesco has built a suite of sophisticated customer segmentations according to real purchase behaviour. and many more topics. the programme creates value to its members in that it contributes to improve its ease of use and its transparency. The big step forward isn’t to launch a card with magnetic stripe on it. their responsiveness to previous promotions. the most important aspect of any CLP is the benefit package a programme offers to its members. 1998). 1997). Rather than analyze the data in a random fashion. since Clubcard vouchers can be used for a huge variety of benefits that cover a broad area of interests . Tesco knows exactly how much. 2003). ‘Benefit package’ and not just another marketing gimmick According to Butscher (2001). By providing Clubcard-members with the opportunity to accumulate and redeem Clubcard points not only with Tesco but also with its coalition partners (i. Dunnhumby( marketing data specialists and market research company that s 53% owned by Tesco) makes sure that this does not happen to Tesco.2000). This allows Tesco to tailor sophisticated campaigns and to offer Clubcard-members more of what they value by sending out targeted offers based on what they do and do not buy. Technological and analytical prowess Although a growing number of retail organizations have realized the importance of customer information and therefore started to collect large amounts of customer specific data.g. diets.which are likely to appeal to people from all kind of social classes with different interests. Armed with this data. rather than a version of purchase behaviour based on demographic or socio-economic stereotypes (Pack et al. exotic free travel might be more desirable than in-store shopping discounts) to Clubcard-members (O’ Malley.Syed Sameer Rahman ST03004496 well as with Tesco’s coalition partners) across almost every product category offered. which is one of the main success factors behind the Tesco Clubcard. ‘The mechanics of the reward had been done elsewhere in the world before Tesco but the thing that Tesco sets apart is the depth of its data analysis.co. By integrating various other Clubschemes. 1999).e. It realizes fully well that that technology supports the Customer Experience rather than drives it. Tesco uses intuition and creativity as well as statistical know-how and always tries to make best and efficient use of technology available. Air Miles Founder. pregnancy and baby. purchase strategy). fitness. their expenditure levels on particular products and parts of the store. according to the Accenture Institute for Strategic Change (Harris et al.
It was data realism . Tesco found that in any single store. If a loyalty scheme is to be integrated with the business.2004) Page 63 of 88 .(Gilbert. ‘Clubcard wasn’t just about passively observing trends. Tesco produced a video presented by Tim Mason encouraging staff to sell the card to shoppers and making sure they knew what the benefits were. too. It's near impossible to build strong customer loyalty with a staff that is constantly turning over. The value of that information builds on the fact that Tesco is a trusted brand. ’Serve your employees first so they. 2004) Tesco didn’t agonize over information it couldn’t extract at first. It built on each new discovery. The Emotional factor Loyal customers may value help and advice as much as cash. what they did was effectively grassroots marketing using Tesco’s own staff. time and resources and made compromises. The internal customer Tesco’s loyalty program rollout established loyalty marketing at the heart of the business. Tesco has found that when it provides information that is objective and useful.2003)During initial Clubcard days. The analysis also established that the stores with the highest Clubcard penetration were least effected by competitor attacks. or hold up the process until it could get information. not idealism. and then to use Clubcard. and will make a profit?’ ( Humpy. can serve your customer’ which is what Tesco is good at.Syed Sameer Rahman ST03004496 as “cash value” (how much the reward represents as a proportion of the actual expenditure) for Clubcard-members since it provides them with the opportunity to accumulate points more quickly.(Cigliano et al. Professionalism and pragmatism Successful retail loyalty programmes are created by matching good marketing skill and commercial pragmatism with a hard-headed attitude to data. Immediate results of data analysis were apparent.1998). Loyalty programs stand and fall on how they are represented by the employees that personify it.2000) During the launch in 1995. The World of Wine Club provides easily digested specialist advise on wine enjoyment. but to answer some of the biggest questions about most customers. The Baby Club provides information at a time when potential parent needs it. it has to be a part of the working lives of the people who run the business in the stores. and found that there were surprisingly many of them.. Instead. in turn. In effect. The key rule of customer loyalty is. offering straight forward advice on a range of different subjects. it was a massive laboratory of customer behavior. and felt valued and understood. but about what Clubcard does for the business as a whole. The designers of datamart took pragmatic decisions on data. they decided not to use data to answer every question about every customer . Maclaurin crisscrossed the country to make sure that every member of staff knew exactly what was needed. Tesco staff have been an important ingredient in encouraging customers first to take up. the top spending 100 customers were as valuable as the bottom 4000. it deepens the trust amongst the customers who have opted-in to that part of the programme. Tesco found that the best way to get around the complicated data warehousing was to start small with a Datamart. They want to buy from people who know them and their preferences (Fournier et al. They broke down data to test a series of hypothesis. and has been successful in engaging more experienced premium wine purchasers who might otherwise not have considered Tesco as their wine merchant. They are briefed early and thoroughly not just about what will be different for their job . it asked questions that it could answer. ‘Tesco started not from what would we like to do but from what can we realistically do.’ (Humpy. because customers buy relationships and familiarity. The staff at every level from the main board to the frontline staff is made to understand why the scheme is important to the customers and to the businesses future and are made to nurture and encourage it at every opportunity.
pg 21-23 Figure 21 Commitment Tesco made sure right from inception that there was commitment and involvement of all departments. The Clubcard program works to accomplish both. six key success factors that contributed to the success of the loyalty scheme as depicted in the figure below are Adapted from Ahlert et al.Syed Sameer Rahman ST03004496 Six Key Factors Besides other factors .2000. Most loyalty programs try their hardest to differentiate the company in the customer’s eyes but forget to differentiate the customers in the company’s eyes. and differentiating the customers in the company’s eyes. Differentiation Tim Mason defines differentiation as having two aspects: differentiating the company in the customers’ eyes. Page 64 of 88 . and on-going refinement of the loyalty program. and Clubcard wasn’t left solely to the marketing team. The whole organization was and is involved with the introduction. execution..
It’s no more complicated than that. Some customers also said they valued the holiday and travel offers that they could get with the Safeway ABC card. (Humpy et al. shoppers had to pay £10 in one shop to qualify for any points but with majority of customer feedbacks having a common gripe. Don’t leave it in the marketing department. and replace the various parts to be refreshed.’ It has always tried to make changes to the Clubcard according to customers choices and right from the start . Reward (Not being a part of the wall paper) It was particularly kept in mind that the benefit offered to the customers or the Clubcard reward didn’t become a part of the wallpaper. refine. As Tim Mason points out ‘Clubcard is to improve our performance at every point of contact with our customers.2000) Tesco is a great believer in the divinity of simplicity which is why its loyalty card program is easy-to-understand. This demonstrates that Tesco is willing to change its policy if it adds value to the customer experience. it needs Measurements Mainline. the £10 minimum spend required to make before qualifying to earn Clubcard points.( Hansen et al.’ Flexibility Tesco has shown the flexibility to alter. As Terry Leahy puts it ‘Never stop listening to customers and giving them what they want. It abolished the concept of minimum spend all together to make sure that low spending customers are not alienated.Syed Sameer Rahman ST03004496 Simplicity The more a program gets cluttered with options and exceptions. From top to bottom. 2004). the Clubcard has been a act of co-creation .. Tesco made a deal with Thomson holidays and Lunn Poly to give customers more opportunities to earn points. when Clubcard was introduced. That’s like leaving store performance data sitting in the accounting department and not getting it to the operators who can use it. Also. As Humpy (2003) puts it .’ the loyalty program. there is relentless commitment to making sure that everything that the company did was relevant to customer needs. ‘Seldom does any great idea play out forever. ‘With a scheme based on rewards-on-demand we may get an increase in behavioral loyalty but there is no opportunity to extend emotional loyalty.For example. Tesco has turned customer information into on-going measurements to help improve all parts of the business. 4.’( Tim Mason . 2003). to make them happier and the company richer . the more it loses its appeal. evidences showed that customers did value having more opportunities to earn points on their spending than those offered at Tesco alone.. It hasn’t just used it to help develop targeted mailing lists and for promotional matters. Terry Hunt calls it ‘loyalty-cul-desac’.6 Strategic implications of the Clubcard Page 65 of 88 . Tesco now follows a ‘pound a point strategy’. The team want to keep Clubcard as a chosen rather than a given: an active rather than a passive feature and that thinking has led Tesco to transform from being one of country’s biggest TV advertisers into one if its biggest direct mailers. don’t marginalize your customer data. Customer Centricity Tesco is a prime example of a company that believes in customer being the ‘regulator’.
Segmentation has deepened the relationship between Tesco and its customers.Give people what they want’. and those characteristics must have meaning when the segments are used for the purpose intended. through life-styles to Shopping Habits Segments. or producing special mailings for vegetarians. Clubcard has constantly created value for the business along the way and taught Tesco how to make customer segments helpful and relevant.’ It is not just sales tool. they find out Which shoppers use them Which shoppers like them If there is a way to focus promotions on best customers How they can take investment from promotions and return it back to the business Page 66 of 88 . viable – It is large enough to make it economical as business generating tool. The segmentation strategy is practical and scaleable. They create a new way for Tesco to present itself to particular customers that made the brand more relevant to their daily lives and provide information about what customers want. but by encouraging fractional changes in the way shoppers shop. Tesco’s segmentation strategy. quickly enough and flexibly enough to be useful in existing conditions of the business. which is based on not just what people buy. but a significant clue to customer behavior. today. Tesco’s segmentation isn’t just freak measurement effect.A segment is allocated to all of the customers. not through spectacular changes in customer behavior.2004) Its segmentation works. the more responsive customers are and less profligate the business needs to be with discounts and offers. The quarterly direct mail programme gives Tesco the opportunity to sustain a regular ‘conversation’ with customers. Armed with Clubcard information. It produces results cheaply enough. refine and improve. As Leahy points out ‘ Talk. Tesco’s particular segment has three specific attributes: Identifiable. Frequency and Value model. by producing targeted versions of Clubcard magazine . For example. to life-stage categorization . The Shopping Habits categories are developed using a combination of mathematical rigor. listen and learn . Each response gives Tesco an opportunity to learn . creative analysis and old-fashioned retail nous.Syed Sameer Rahman ST03004496 Segmentation Strategy Tesco has made a long hard journey in its understanding. and puts Clubcard data into the decision making progress at every stage. Tesco learnt that the more relevant the brand is. ( Humpy et al. It has led to the quarterly mailing programme. it is possible to market products and services to that segment that will make it worth wile. arguably the world’s most successful sustained use of direct mail as a communications medium. Every little does indeed help. Distinctive – It has characteristics that make it clearly different to other segments. but why and when they shop.. their promotions. and reduce overall cost of. Communication Strategy The concept of a loyalty contract also leads to critically important decision in Tesco’s communication strategy. As Terry Leahy says. Tesco uses customer insight to evaluate the effectiveness of. analysis and use of data. is built on shopping habits. from a basic Recency . A viable segment has quantifiable value that is.
The coupons are chosen using an analysis that shows that the customer has a high propensity to buy a product (that is . in the very first statement mailing it was one size fits all. what the customers want to buy. Results Page 67 of 88 . analysis of Clubcard data allows Tesco’s marketers to see which promotions create a lasting change in shopping habits. ‘The logic is simple: we all want lower prices. and what they really do when they are shopping. All other techniques and measures are inadequate compared to Clubcard’s accuracy. ‘Not surprisingly . Tesco has been the first to introduce ‘Value’ lines. but not by the rest of us.( Kelly.2002) Pricing Strategy Brasher believes that Clubcard makes Tesco understand which customers care most about discounts. If Clubcard data could identify the products that were bought by price conscious shoppers. the redirecting of money back into the business (further contributing to price reduction). The transactional history of millions of customers bridges the gap between how customers think they act. This makes Tesco fight the battle as fiercely as any rival but on their own terms. Today.For example. offering basic items at low prices. 2003). we found that all out customers really value relevance’ (Brasher.What is ‘Market Reseach’ for other firms is ‘customer insight’ for Tesco and Clubcard has made Tesco to measure success in the form of ‘share of customer’ and not just ‘share of market’. This transformation has come about because Tesco found that what was once feared by customers as a ‘hard sell’ is now much more easily accepted . two are for related items. reduced management cost.’ (Brasher. and in which ways their brand preferences are affected in future . Measurement Criteria (The measure of success) Tesco’s loyalty programme invites the marketing team to think in terms of segments of customers . reported through a selective research panel . even liked because it is information they can act on during their next shop.Syed Sameer Rahman ST03004496 …which results in over 60% fewer promotions. and also which products they most want to see discounted. four coupons are for goods that the shoppers already buy. For example . and more tailored. and which are one-offs. at the lowest possible cost for Tesco. in selection and proportion. effective promotions. Tesco is able to identify accurately which customers react positively to promotions. There are two special aspects that Clubcard tracks :Results and Trends. investing in price cuts where the money would work hardest. but so far that the customer has not tried it). but only a section of us shop exclusively on that basis. The tone of the Clubcard Magazine has changed over the years from a very soft sell to a much more product and price-oriented agenda. 2003) Risk minimization by bridging the knowledge gap The opportunity to look into each basket. other similar customers buy it regularly. knowing what the profile of that customer is and what that household prefers to buy. Targeting Strategy Much effort goes into improving the targeting of the product-specific coupons. then lowering those prices would have a huge benefit for them. It acts as a sustainable customer proposition and not merely a short term promotion. Tesco is the first supermarket to have a ‘Targeted marketing director’ and a ‘Customer Insight Unit’. This has helped Tesco reduce the quantity of promotions by concentrating on those that have the greatest potential to be successful. Tesco tries its hardest to ensure that the entire product range on sale at each store accurately represents. gives Tesco the capacity to minimize the risk of all promotions.
Syed Sameer Rahman ST03004496 Clubcard has been developed on the principle that there is no such thing as complete success or total failure. so that any demand created by the mailing is properly satisfied in stores. Baby Club Page 68 of 88 . ‘We didn’t know an awful lot about banking. with each party owning half of what is called Tesco Personal finance. Tesco can see whether new products are cannibalizing existing products and what items best customers buy and make sure that those items are always in stock and displayed prominently and the range is expanded. 1997) Tesco has developed its financial services strategy from Clubcard as the transactional data recorded by Clubcard is invaluable. Everything what happens is an opportunity to learn and everything that goes wrong contains the germ of future success. 2003) The main success criteria is return on investment (ROI). (Brasher. Clubcard has contributed significantly to the birth. Loyalty information helps build product/buyer profiles. With information derived from its loyalty card and enriched by appended external demographic data.000 from sales value during the period of anything up to £7 billion. This is calculated from The value of vouchers sent out The total cost to Tesco of the vouchers and the money-off coupons redeemed The like-for-like sales uplift that resulted The regional variations The customer segment variations The take –up rates of different product coupons Predict trends Through meticulous planning of the statement’s mailing contents Tesco future proof’s the Clubcard effect. 2002). Clubcard provides a widely valued currency that gives TPF a clear competitive edge. The offshoots Tesco Personal Finance Tesco has a joint venture with Royal Bank of Scotland. This planning goes hand-in-hand with stock control and store logistics. “Without a doubt. From the first mailing Tesco has been able to measure the ROI of the statement mailing to the nearest £100. when the company launched a credit card through Tesco Personal Finance. we thought we had a chance to be successful at doing part of their job. Success of the Clubcard scheme encouraged Tesco to look more closely at the whole complex issue of financial services. As we knew a lot more about customer service than they did. growth and enduring success of TPF. but we knew much about banking as the banks knew about customer service. the card data allowed them to pitch the offer so accurately at the right profile people that Tesco became on of the UK’s leading card issuers in a matter of months by volume. Through the intelligent application of transactional data. Clubcard enables Tesco to target the right financial services products to the right customers at the right time. For example.”(Brian Woolf. having detailed customer information gives them a competitive edge. As through the use of Clubcard points as an integral benefit to TPF products. Tesco can readily develop profiles of customers who would most likely be interested in basic banking services as well as an array of related options.( Brasher. It costs Tesco significantly less than half of what it costs a bank to acquire a financial services customer. Through the quarterly statement mailing Clubcard provides TPF with one of the most cost-efficient recruitment media known in the retails finance business. Timing is everything and the analysis of results from previous campaigns enables Tesco to predict what will occur next with ever-improving accuracy.
Tesco has created a smaller. The contribution of Clubcard isn’t just about finding new users. rather than just fishing in the pool of internet users. Tesco has gone for a new type of loyalty offer by launching ‘Baby Club’. The Clubcard team . paid off. Since the Launch of the Baby club Tesco has learnt the importance of sub-clubs and makes sure that each sub-club has the capacity to deliver value to Tesco and connects it to the customer emotionally. The concept of Inner circle had been core to Tesco thinking since the launch of Clubcard. Also . The reason being.com on its network of stores rather than regional Page 69 of 88 . Tesco could be very specific in terms of targeting. the emotional bond was much weaker. looking into this found out that in spite of its price (20% cheaper than Boots) . The focus was on showing empathy with the aspirations of young mums. to generate goodwill amongst a very special audience. to identify which Tesco stores offer the greatest potential for the service. Baby Club was a move to introduce active choice into Clubcard. today. when stores carried the full range of products and brands. Tesco was a lot stronger position than rivals – it knew the names . Its data management skills as a company was way ahead. Its aim is to create the degree of trust in Tesco brand. Thus. the Clubcard database generated a fantastic list of people to go after . Boots was their ‘inner circle’ . addresses and shopping habits of millions of possible customer already. 2001) Tesco’s plan to target online shoppers via Clubcard . Clubcard helped Tesco identify a group of shoppers but Tesco had to look into why parents chose not to buy their baby products at Tesco . Using best practice direct marketing techniques learnt from marketing Clubcard over the years . was more rational. and a sophisticated understanding of those customers. This was a huge built-in advantage when starting up a business in the form of Tesco.com shoppers could be found.com. it also makes it easier for Tesco to keep its online customers. the home shopping team uses Clubcard data to the full.( Carolyn Bradley. From the earliest days. we look after them. They trusted Boots as a source of expert help and advice. By analyzing the Clubcard. 1997). Customer feedback told Tesco that mothers were looking for emotional security. and the Clubcard idiom of saying ‘Thank you’ to members in a relevant and value-adding way. but which has its on strengths.com When it came to home shopping. which stores offer the best potential to expand the service. Tesco can easily identify the types of shopper who have the highest likelihood of actively using the online service. the company would have had all the risk and the same unsustainable cost of customer acquisition. Clubcard has also helped in planning exactly what message needs to be communicated at each stage of the relationship. When launching the internet shopping trial. Without Clubcard. Tesco had means to make a difference to this customer segment . Tesco can easily target outside sources of data and market more effectively to shoppers who are not yet Tesco customers. is the third most trusted in UK. It uses the successful medium of personalized direct mail . Tesco’s brand. Tesco’s dot com marketers have increased their success rates.by basing the expansion of Tesco. Clubcard provides the means to understand how to target customers and gives the ability to validate what is right.2004) Tesco. create goodwill… show we really care for our most loyal customers . It has since deepened customer knowledge than any of its rivals and has membership relationship with its customers that was proven in establishing new behavior from them. the strong bond that Tesco brand had with loyal customers.’( Scott. one that is true to the principles and the methods of the Clubcard and piggybacks its infra-structure. where the greatest concentration of prospective Tesco. it discovered a useful potential source of revenue :families with young children. more targeted club specifically for customers at a very special and challenging life stage.. parents shopped at Boots for their baby products. what take-up would be and what sales value could be predicted. ‘We want to create a sense of what we would call emotional loyalty. Clubcard gave Tesco a huge head start.(survey conducted by Marketing Magazine. but more than that. combines with other data sources.Syed Sameer Rahman ST03004496 When Tesco Clubcard team was looking at the shopping habits of young families with babies.
each retailer is restricted in its access to useable customer data . the biggest disadvantage of Saver Card was it could not promote it widely and could not generate national news coverage and advertise on national television as Tesco. It had some key differences to Clubcard. The pool of Nectar users will always contain shoppers who are strangers for each retailer. While Tesco told shoppers that it wanted to say ‘Thank You’. there is a lack of control over promotional activities and there is the potential for inter-brand disputes. Tesco can use Clubcard customer data to prioritize those stores offering the best potential where the greatest concentration of prospective Tesco. Adams and Threshers.. Tesco tries to give consistent service whether coming into the store. who is coming back several times a week. as Page 70 of 88 . It shows in which neighborhood competition is biting. The scheme lacked the simplicity that Clubcard offered. All this information helps Tesco to plan the location of its stores. Convenience of location (New store formats) Convenience of location is a major determinant in the loyalty process. 2004). Tesco was the first one to start the ‘Metro’ format . There will always be a question of loyalty to what? (Levy. Sainsbury’s told shoppers that it was ‘A new way to save’ which meant that the Reward Scheme gave the impression of being just a margin-sacrificing discount scheme. not simply the fact that someone has joined a loyalty scheme. Tesco has profited from the cash-rich time poor phenomenon in Britain.Sainsbury’s also promoted a ‘sliding scale’ of loyalty rewards in order to give proportionately higher benefits to the highest spenders. It is more of an outsourced scheme created by Air Miles that Sainsbury’s is a part of. as well as the largest online grocery sales in the world .Syed Sameer Rahman ST03004496 warehouses. customers could not present their card at any Sanisbury’s store and earn their points . Helped with Clubcard data. there is an imbalance of commitment from the participating brands. store by store of how far valuable customers are willing to travel to shop. and who saves up their shopping for a weekend. Debenhams. deciding to let customers take rewards on demand which did not provide it the opportunity to be valued highly both by customers and in stores. 4. British Petroleum and it was soon joined by Vodafone. Thus with not great success behind it the Saver card was abolished and Nectar Card was launched with a line up of founding partners including Sainsbury’s . situated in the middle of town because it realized that busy customers didn’t want to travel a lot for their grocery shopping . In this sort of loyalty scheme.com shoppers can be found. the chances to introduce tactical marketing initiatives swiftly is reduced and innovation limited.7 Competitive Pressures: Comparison with other supermarket loyalty schemes Sainsbury’s loyalty scheme (The partnership puzzle) Sainsbury’s local store-based scheme ( Reward scheme) reached its greatest coverage in June 1996. It internally coordinates sales and service across multiple channels so customer preferences are accessible no matter how the customer chooses to interact. Also. Tesco’s Metro format makes sure that these customers are not alienated. The Reward programme also rejected the concept of accumulated value. Each customer’s Saver card could only be used at a single named Sainsbury’s store.2001) By analyzing the penetration of Clubcard membership by postcode. the Clubcard data gives a sharply defined picture. or calling the service center is concerned. Also. logging on the Web site. Barclay Card.(Berman et al. Research suggests that customers who engage with a firm through multiple channels exhibit deeper loyalty than single channel customers. With multiple ranges and unparalleled spread of formats.
’ We haven’t got enough customers and loyalty cards are not good for getting new customers’ Finance director Martin Laffin (2000). the company simply decided to siphon off what it could deal with at any time.Syed Sameer Rahman ST03004496 decisions have to be agreed between member companies. discussing the effectiveness of each one of them is beyond the scope of the research. or something you just bolt on when it is convenient?’ Advantage of the Tesco Clubcard over the Nectar programme is that it directly enhances the Tesco brand. Page 71 of 88 . Sainsbury’s doesn’t have a clear cut direction as far as the loyalty initiative is concerned and as SunTzu points out in the art of was ‘A confused army leads to another’s victory’. When Safeway abandoned the ABC card. whereas in a coalition programme of the type of ‘Nectar’. Safeway card was scrapped. Both Sainsbury’s and Safeway loyalty scheme did not create specific goals that were relevant to three strands of DNA of loyalty ( Brand value. In April 2000. and failed in using its technological expertise to gain a truly customer focused approach. It also points out the scope of the research and the areas where further research may be taken. unfortunately the companies strict interpretation of which customers it wanted to become most loyal tended to alienate the other customer segments. the programme itself is the brand and as a result. it complained that trying to generate useful insights from the data was ‘like drinking water from a fire hose’. It was the same for Tesco but instead of drowning. There wasn’t in it for affluent retirees. business dynamics. customer behavior) and thus had less chance of succeeding and little chance of surviving beyond the first few years. Where ABC was a departure from the Clubcard model was that Safeway customers could redeem points outside of their store. Several retailers have their respective loyalty schemes. It had the skill but not the will. But. After analysis and in-depth examination of Tesco’s loyalty cards. Mason asks ‘ Is a loyalty scheme an integral part of your business . or metropolitan childfree yuppies. using the dividend from their supermarket shopping to buying from a mail order catalogue of toys and clothing. the customer’s loyalty is typically to the programme itself and not necessarily to any specific partner in the programme (Rogers. Safeway wanted to create a data driven view of its customers and wanted to use the single customer view to identify and provide what customers wanted with ever greater accuracy and relevance. Safeway’s ABC loyalty concept (The skill: will imbalance) Safeway’s ABC card. 2002). the study now summarizes the important findings in the form of conclusions and gives the appropriate recommendations to overcome the gaps spotted.Safeway didn’t make a priority of the ABC card. or taking family days out at theme parks. launched on 23 Oct 1995 was backed by £7 million in advertising. and get on with the real work of selling to customers. Like Tesco.
Syed Sameer Rahman ST03004496 Page 72 of 88 .
not a logical response based on bribery which seems to strengthen Oliver’s (1999) views discussed in Chapter 2. based on a real understanding of what their customers actually want from them. The chapter also encapsulates Clubcard specific recommendations and discusses the limitations of the study and areas where further research may be carried out. all customers are value sensitive). customer satisfaction does not necessarily imply customer loyalty (customer satisfaction is at an all time high. it’s the prerogative of every study to point out how the aims and objectives of the research were met. • As pointed out by Oliver (1999) in Chapter 2. Focus on intrinsic rather than extrinsic awards The reward should be genuinely valued and perceived as taking some effort on part of the company to deliver. Loyalty is an emotional response based on empathy. Page 73 of 88 . satisfaction relationship is asymmetric. the loyalty.Syed Sameer Rahman ST03004496 Introduction After careful examination." (Jeremy Braune. evaluation. Objective 1 Analyze and define the concept of loyalty and identify the relationship between customer satisfaction and customer loyalty. customer loyalty is probably at an all time low).organizations need to adopt a more structured and rigorous approach to development. It points out how the respective objectives were realized and tries to give an answer to the research question. superior loyalty schemes offer the consumer considerable choices in respect of how their reward may be redeemed. • Customer data from loyalty programs are often more valuable than the loyalty programs themselves Win the hearts and the heads will follow Objective 2 Examine the conditions under which customer loyalty enhances profitability ". Head of Customer Experience at Detica) As pointed out by Morgan and Hunt(1994) and Dowling (2002) in literature review . which is what this chapter aims to do.. Those that will ultimately be successful are those that add value to the core experience the consumer is buying . assessment and analysis of data. for loyalty programmes to be successful and enhance profitability companies should:- 1) 2) 3) Have a good base product that performs well in the market and is in some way differentiated. The bottom line must always be to start with the basics of what is most important to the customer and build from there. • Loyalty programs do not necessarily make customers loyal. • Loyalty does not imply low price sensitivity (Some customers are price sensitive.. 4) Offer a strong personalization factor. • Loyal customers do not necessarily increase company profitability.
its Clubcard is: A tool to understand the customer A way to communicate value A symbol of commitment More than the skill. Tesco views its loyalty scheme as an integral part of its business where the customer is allimportant. literally every version of the Clubcard magazine is personalized . Just introducing a points program in the hope of profitably increasing sales and not using the customer data is like a dairy farmer. and the better equipped they are to push relevant offers and rewards out to their customers. ‘ My role as Clubcard director is sprinkling the chocolate on top of the cappuccino.Once a decision to launch a loyalty initiative is made. fresh. cited in Web 11). full commitment and a shift in corporate culture is Page 74 of 88 .2001 cited in Web 10). where doing everything possible to please them is paramount.Syed Sameer Rahman ST03004496 For example. not just what it does. A successful loyalty initiative depends upon a marriage of clear objectives from the outset. In essence. hot coffee. it is not run on last week’s results. An effective loyalty program should have the opposite effect and actually decrease consumer sensitivity to price as a genuine affinity with the brand is engendered. It is how it does that counts. Leahy’s insistence that successful retailing is the result of ‘listening to what customers tell you they want’ is real in the Clubcard programme. The danger with this approach is that whenever the competition comes up with a better scheme. and significant investment in expert personnel( Harris et al. all too many loyalty programmes are little more than discount schemes designed on the principle of the more you buy the more you get. A good company is run on principles and values. maintain and build upon a loyalty programme. Value is ‘Co created’ by producer and consumer Crawford Davidson. what matters in building a business is how the company conducts itself. which is responsible for the greater payback.. It acts as a vehicle for Tesco to add value to customers in the form of services. buy-in from board level to front-line staff. and prices as well as enabling the company to say “thank you” to its customers. The success of a loyalty campaign is intimately connected with the conviction that lies behind the decision to launch. it’s the will The longer a loyalty scheme is running. it is not brand loyalty that is being built up. It’s the great amount of conviction that underpins the programme. where keeping in close contact with them is vital. Essentially. Clubcard has helped Tesco’s business grow based on a strength of a listening relationship. The richest part of the program is being wasted (Cuthbertson et al. 2002). ’We have values in this business. Marketing provides the froth to the milk. consumers will defect in their thousands.’ It’s Tesco’s ability to cut through the jargon and focus sharply on what really drives their customer behaviour that makes it different. pours the cream down the drain.2001. and treat people how they like to be treated’ are made real in Clubcard. Over the long term. product range. 5) Distance itself from price discounts. value increases as the loyalty scheme gathers momentum. Its core purpose and value ‘To create value for customers to earn their lifetime loyalty’ and ‘no one tries harder . the richer and more rounded an understanding the company has of its customers. director of Clubcard uses the analogy of a cappuccino.. but transactional loyalty. But both have to be based on the good. who after separating the cream from his milk. Clubcard is entirely consistent with that (Leahy. In that case.
automatically increases customer loyalty.Syed Sameer Rahman ST03004496 required to take the scheme from an added extra to long-term programme that will deliver return on investment in spades. but information can be bought with a loyalty programme. It uses its knowledge of its customers to improve its service and products but it doesn't rely on the Clubcard to keep its customers loyal. it must inspire loyalty by demonstrating that it cares about its customers. rather it is the result of a game. innovative products and customer care. They are starting point for deepening the customer relationship. and that information will highlight the strengths and weaknesses of the business which can be used to improve the core offering of the business. once introduced. loyalty can be earned. offering excellent service. Loyalty programs create relevance for the customer which may create an emotional bond.Customer loyalty is not a game. as individuals that should truly be at the center of all that a company does. not customer profitability. Tesco is very good at doing what it does. Page 75 of 88 . a customer must feel that all his need and desires are not only satisfied. In order to feel loyal to an organization. It is about behavioral and attitudinal change and combined together these two things add up to genuine customer commitment. the individual customer can truly begin to be understood and valued. Once this customer-centric vision has truly been established. Before an organization can expect loyalty. A loyalty card is not a replacement for any of the basic loyalty drivers but is a supplement to them. it’s the customers themselves. Serve first. (Woolf.(Woolf. but intelligently predicted and understood. Sell second Objective 3 Assess the role of loyalty programs in promoting loyalty and building favorable customer relationships. It caters to both emotional and rational aspects of behavior. Positive shift in shopping behavior and emotional commitment is the goal for Clubcard. Loyalty schemes supplement service and its important to understand that these initiatives and a card-based loyalty scheme are not mutually exclusive. not loyalty programs or cards. reward later. Organizations that labour under the illusion that loyalty schemes offer a quick-fix to a customer retention problem soon founder. Loyalty comes from a firm’s core offering and their products and the way it satisfies its customers. Tesco’s loyalty programme is designed to appeal to customers ‘heart as well as heads’. 2004) Recognize first. 2001) Loyalty cannot be earned with a programme. and the improved core offering can bring loyalty. ‘It’s not the technology. Customers must be at the center of the CRM strategy (as well as the focus of the business itself). A loyalty card program is not something that. A card-based loyalty scheme is not a credible alternative to being the right price. which flourishes in many ways . because any business that neglects factors like these is extremely unlikely to have long-term success in achieving customer loyalty.
As Jack Welch puts it: "We have only two sources of competitive advantage: The ability to learn more about our customers than our competition.’ Tesco’s spin on loyalty is different Factors that differentiate Tesco from its competitors are Marketing savvy . help bring the architect’s blueprint to life. its committed. 1999. diverted from traditional forms of communication and promotion – for example door to door distribution or TV advertising. focused and incredibly ambitious leadership . The Clubcard mailing communicates economically and effectively with millions of customers at a time which means that Tesco is less reliant on bought-in media to reach those same customers at a time. It has provided unprecedented levels of hard information to Tesco that no other source could provide." According to Sir Terry Leahy ‘What creates loyalty is how much we understand your life and what we do about it helps your life.. It has helped Tesco develop an emotional connection with a customer which has made the customer less susceptible to competitor attack .Syed Sameer Rahman ST03004496 ‘Just as a hammer doesn’t build a house. Tell me what you eat and I will tell you what you are The information Clubcard provides has been one of the special gold-tipped arrows in Tesco’s quiver for building its highly successful business. depth of customer knowledge. you’re always going to wonder why you are making the effort. but if you don’t have the vision as a retailer that you are doing this is to understand customers better. Clubcard has helped Tesco increase the value of customer experience as the needs of the customer are satisfied. Our competitors had all the details of what their customers bought too. a loyalty card doesn’t build customer loyalty. its simplicity and consistency. and deepen that relationship. profitability and segmentation and the organization-wide dispersal of customer information. its analytical ability. when properly and appropriately used. Page 76 of 88 . Both the hammer and the card are tools that. Objective 5 Assess whether loyalty marketing should form a part of a retail firm’s overall business strategy. Clubcard has formed a firm foundation for enduring success. cited in Web 13) Objective 4 Evaluate the extent to which loyalty marketing makes its contribution to TESCO’s success and identify key areas where TESCO outwits its competitors Clubcard has transformed customer behavior and attitudes. it has customized the customer experience for its customers. 2003) Clubcard has demonstrated that the investments needed to set up and maintain a loyalty programme are not at all additional spend. Much of it is replacement spend .’( Egan et al. and made customers less likely to defect to a competitor. its technical superiority. Incisive and leveraged customer data has enabled Tesco to put distance between themselves and competitors. a focus on retention. in both traditional and non-traditional retail markets. (Mayne. its audaciousness. and the ability to turn that learning into action faster than the competition.
and the nature of the relationship that the brand has with the customers . a program has to be loved by the business. Tesco’s customer information assets uses to allow it to take a strategic approach to customer management. it changes the dynamic. category management.: life-stage. constantly searching for ways to act as the value-adding agent for its customers. brand advocacy and profitability. Program design requires consideration of four key variables. basket topology (what they buy). the development of better targeting. and then measured. information and the subsequent knowledge generated has become a part of the company’s culture. acknowledges the strategic importance of the loyalty cards. that a loyalty scheme can only have a sustained impact on the bottom line when. relevant and recent . its the insights that preserved customer interest and have driven results for the business. primary channel (how they like to buy). the marketing power of statement mailing. (2000) in chapter 2. a clear strategy and the ability to adjust to changing circumstances. including the element of cost to serve and then they follow a “plan → act → measure” approach. Loyalty marketing should be a strategy. and to test. which is right for them. richness of data that help to run Tesco on a daily basis and Page 77 of 88 . reaping the benefits requires a high level of analysis. The data. promotional promiscuity. Tesco is recognized as the epitome of best practice loyalty. David Reid. It solves real problems and is not just associated with marketing strategy. Just as marketers and managers have to love the brand. Tesco builds an image of a customer built from seven pieces. To tackle this uncertainty. Tesco uses its card data to basically run the business: it is used for pricing. stating that without them ‘it would be like flying blind’. Customer insights define corporate strategies and are acted upon by implementing customer-focused plans. Tesco’s loyalty marketing project has become a pillar of its business strategy and has helped Tesco evolve in its strategic thinking and direction from being an outstanding food retailer to being an information-driven business. rich. Each loyalty programme has to be tailored to the brand. format development. local store ranging and even store location. Tesco’s deputy chairman. It is an approach that enables Tesco to evaluate its success. shopping habits (frequency etc. The design of a loyalty program must take into account the nature of the business.(Palmer et al. its market position and strategic goals. never strategic.Syed Sameer Rahman ST03004496 As pointed out in Chapter 2. Tesco board recognizes that loyalty scheme data is the bedrock of their business. they have to equally commit to the loyalty programme that represents its brands to its members. smoothing out spikes and troughs. True value of a “customer-centric” business is found in its customer knowledge . for customer acquisition for new products like Tesco Personal Finance and a host of other purposes. Tesco’s loyalty scheme strengthens the view put forward by Morgan et al. retailers must align any scheme with their strategic objectives and should have in place a durable analytical framework to develop a scheme. reapply and learn as it goes. so the loyalty programme has to reinforce and live up to these perceptions. not a tactic and this strategy should be driven by knowledge which comes from data which should be good quality customer data. It’s the fundamentals of the Clubcard programme that have formed such a firm foundation for enduring success. and the competitive landscape. Incorporating Clubcard data as its core business strategy allows Tesco to change business practices to respond to the individual customer and therefore. from its inception. to practice true CRM. having put Clubcard at the heart of its corporate strategy. to plan store re-launches when they’re refitted. reflecting the brand’s core strengths .). 1999 cited in Web 14). the whole culture of the organization. Majority of loyalty schemes are sales promotion programmes in disguise and sales promotion has always been tactical. The data and analysis drive organization-wide customer decision-making to direct promotions.Since. Most importantly . if loyalty is to be a long term success it has to be regarded as a strategic tool of the business. a brand is a collection of defined perceptions in the mind of the consumer. or consider rejecting the concept altogether..
the “one in.front” programme was launched to eliminate queues at the check-out counter.Syed Sameer Rahman ST03004496 the opportunities that have given Tesco to think creatively about its customers. convenience stores usually linked to petrol stations. loyalty as brand enhancing strategy is sanity Although Clubcard forms a part of Tesco’s success . Page 78 of 88 . Tesco introduced new formats for inner-city locations. it cannot be claimed that Clubcard was the exclusive reason for Tesco’s success. its may not encourage the required amount of loyalty which Tesco wants but gives Tesco enough information which after properly handling and analyzing helps to change customer behavior. was launched as a direct response to the discounters. Nonetheless Clubcard is fundamental to Tesco’s accelerating business success . With less scope for building out-of-town stores. Figure 22 encapsulates Tesco’s success factors. A stand-alone loyalty scheme is vanity. the secret marketing project from ‘the bunker’ has become a pillar of Tesco’s business strategy. for example. It’s Tesco’s philosophy of Circle the Customer which is doing wonders for it. to purchase Scottish supermarket chain William Low. Almost simultaneously with the introduction of Clubcard. Tesco Metro for small high street stores and later Tesco Express. Tesco also made its stores more customer-friendly. transforming Tesco into a truly national retailer. Ten years after its launch . Tesco Value. Tesco beat competition from other supermarket chains notably a strong bid from Sainsbury’s. A new low-price label.
Finance. Operations. Operations) diagram Page 79 of 88 .Syed Sameer Rahman ST03004496 Adapted From Financial Times( 03/06/2005) Figure 22 COFP (Customer.
an increase in advertising spend. amount of transactions involving loyalty program ID numbers. such as establishing a policy of everyday low prices. or improvements in the channels of distribution. more direct forms of brand extension. it did not examine the loyalty effects in terms of the financial impact of the programme. since its true meaning may only be partially captured due to the fact that its measure was self-declared by respondents (who are not necessarily objective in regards to their purchasing behaviour. awkward. Keeney and Raiffa 1999). Also. the comparison is made on evaluations based on one alternative (introducing the loyalty card) versus the status quo.Syed Sameer Rahman ST03004496 5.2 Limitations A more exact test of the effectiveness of the loyalty program would be to compare the post-program results with what may have been achieved had the full costs of the program been used in another way. (Hammond. In this research. unreasonable people who want things done on their terms. since people do not necessarily like to admit being influenced) no database information could be used as input for measuring actual purchasing behaviour. Some of the things they can look at are changes in the size of the market basket. and the amount of redemptions being made. Another potential shortcoming in the study is related to the measurement of purchasing behaviour. following questions need to be clearly answered… What demand-side goals are there for the loyalty program – maintaining customer loyalty or enhancing it? How will these goals be set and assessed? In general. a new product introduction. increases in use of products or services. company’s should not only think in terms of appropriate service and quality strategies that match the most important needs of the target customers but also should have the ability to deliver. Understanding what things really matter most to the customers. All too often programs are started and then left to run by themselves. 5. Companies should quantify the success of benefits in driving shopping behavior . will the program focus on the most profitable customers? What time frame is to be used to assess the program profitability? What is the appeal of the program for these customers? How will the program be used in combination with other marketing activities? Will these initiatives grow share and sales revenues? Can the customer data be analyzed in useful ways? Are the sales and cost data reliable? Is the evidence contradictory? What benchmarks have been chosen to assess the loyalty program and are these appropriate? How will the overall profitability of the program be calculated? …and the following questions need to be looked at to avoid major traps Page 80 of 88 . Customers are perverse. do companies go back to see if they were successful in changing their customer behaviors as planned. Performance of loyalty program should be continually measured. emotional. Before embarking on a loyalty program.3 Recommendations Data should be analyzed with an eye on desirable economic outcomes and companies should make sure that they establish what they are trying to accomplish with the program. Rarely. it should be noted that this study only examined the loyalty effects of the Tesco Clubcard in terms of its marketplace impact.
but consumer attitudes and habits in other markets often differ in subtle but important ways. personal media like SMS text messaging to the customer’s mobile phone could be an option in the future. there are common shopping traits around developed world .3. the challenge for Tesco is to take the loyalty program into its overseas market to give itself a competitive edge. Eye catching promotions on specific products have been the trusted weapon in the retail armoury. With having done the ‘hard bit’ with hosting the world’s most sophisticated loyalty program. so customers are far more likely to graze for bargains across a number of shops in their area. Germany has a number of uniquely restrictive laws such as Free Gift Ordinance and Discount Act. Since the days of true loyalty Page 81 of 88 . even if the ultimate deal is better. has the scheme been too indiscriminant – perhaps all three types of customers have joined because they see it as a (relatively) free option and/or a reward for their current purchase behavior? Are customers more loyal to the scheme than the brand? What are the chances of a competitor retaliating to nullify the impact of the program? Have competitors already launched a counter-initiative Is the need to service large numbers of members driving up running costs? 5. but customer research suggests that customers value some acknowledgment for their loyal custom in the store. Though. They also like the freedom to claim membership benefits as and when they choose. Superficially. perhaps by the addition of more brand assortments in store or adding more associate partners to its Clubcard scheme. Customers are losing interest in loyalty schemes and its very difficult to get them involved. the emerging question is . Issuing Rewards One of the hidden strengths of Tesco Clubcard has been the way that customers accumulate their rewards rather than redeem them on an ad hoc basis. So.Syed Sameer Rahman ST03004496 Are there too few customers who will actually be interested in loyalty programs? Does the scheme have little appeal for customers? Or. its all the more difficult to make the customers move away from the mindset of discounts. which make loyalty marketing more difficult. In today’s world . Real loyalty is elusive as customers have become more fickle than before. For example. Other regions have under-develop retails brands and more fragmented markets. Even. Loyalty or ‘lock in’ Supermarkets and discounting have always gone hand in hand.1 Challenges for Tesco Clubcard as a Global scheme With Tesco going global at a rapid pace (almost half of Tesco’s retail floor space is now cited overseas). Tesco may be better off designing some onthe-spot discounts and promotions and catching the customer in the shop to reinforce Clubcard when they are thinking about their shopping. Tesco should constantly work to keep refreshing the Clubcard and add value to it . A perception against the concept of loyalty schemes is slowly developing with proliferation of loyalty schemes. Perhaps. the quarterly mailing program works well for Tesco. Shoppers in some countries are moved by immediate discounts and have no patience with accumulating rewards. In such a scenario . will Clubcard work as effectively in the company’s new markets? Past researches have shown that loyalty programs travel poorly. the legal environments may be significantly different.
Until and less. the staff knew the importance and the relevance of the Clubcard to the firm. if a firm’s biggest advocators are themselves uninformed or less informed of the actual benefits that Clubcard has on offer. they were too busy to be bothered. When new customers do not sign up for the Clubcard. otherwise Clubcard may fail to reap the required benefits and slowly start becoming a financial burden on Tesco. how will they be able to promote it successfully? More astonishingly. both for the organization and for the customer. no information about them can be gathered which defeats the whole purpose of the loyalty scheme and may lead to its premature death. Evidences do seem to suggest that some sort of complacency and increasing arrogance is developing with regards to the Clubcard which Tesco has to watch out for in future. Interviews with them revealed their lack of awareness and knowledge regarding the loyalty scheme. It should be remembered that Loyalty cards do not go a long way generate loyalty but generate information which can be used in a powerful way. The loyalty warriors Tesco’s front-line (check-out) staff who deal directly with the customers are the greatest advocators of the Clubcard and can be termed as the loyalty warriors. Partly. it was found out that as far as the benefits of the Clubcard was concerned. Now.Syed Sameer Rahman ST03004496 may be over. the staff knew no better than the customers. therefore should work hard to make its staff realize the importance of Clubcard. Awareness regarding the Clubcard should also be increased . none of the front line staff were sure of the benefits of the Clubcard to the organization. Tesco should perhaps concentrate more on ‘locking-in’ the customer with its Clubcard than trying to develop true loyalty. It’s of utmost importance that Tesco keeps adding more and more shoppers to the Clubcard. because they didn’t knew what Clubcard meant to the organization and partly because as they treated the Clubcard as secondary . Focus groups with Tesco shoppers revealed that certain shoppers weren’t even sure if Clubcard was an open CLP and thought it was an opt in scheme where they had to pay for it. as at present the Tesco staff and the ‘word-of-mouth’ publicity are the only two ways in which it gets advertised. they won’t be promoting it with the required vigour and enthusiasm. Tesco. which perhaps isn’t sufficient in itself. Page 82 of 88 . Efforts should be made to include majority of Tesco shoppers under the Clubcard umbrella. Observations did reveal that staff seemed hardly interested in promoting Clubcard and lacked motivation to insist non-Clubcard customers to sign up for it.
Syed Sameer Rahman ST03004496 Page 83 of 88 .
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