LOYALTY WARS IN THE UK

Presented By :
Mehul Jain ( 114 ) Vaibhav Singh ( 146 ) Nikit Tekriwal ( 155 ) Kshama Singhania ( 148 ) Sumit Saraogi ( 142 ) Rahul Awasthy ( 05 )

Why Case???
In 1995, TESCO launched Clubcard – the first

Loyalty Card in the UK Supermarkets Questions to be answered?

 Should the chains, especially Sainsbury’s –

the market leader – react or just wait?  If they react, should it be with traditional pricing, merchandising, promotional and service initiatives or with a loyalty programme of their own?

UK Grocery Environment
During 1985 – 95, supermarkets were fed from

sales from new outlets However, currently market saturation & static sales Thus, now had to increase sales from existing stores & customers Increased pressures on margins

Major Players
Store Sainsbury’sTesco Sales £m 10,719 10,120 Operating 859 589 Profit £m Market Share 12.6% 11.7% (Dec 94) from 66% Turnover 65% Loyal of own 53.4% Share 45.2% customers Brand Argyll / Safeway 6,218 383 7.8% 56% 41.2% Asda 5,683 251 6.9% 67% 38.6%

Sainsbury’s
No. 1 grocer in the UK Market Public company since 1973 however managed

mainly by the family Opened around 14 stores every year – 355 food stores locations Highest operating margin – 8.1% Focus on stores rather than customers

Sainsbury’s
Measures taken to improvise
 Improved trolleys  Reducing the checkout scanning speed  Warm & friendly staff behavior  Feedback systems  Anonymous questionnaires

However, these improvements were not

communicated to the customers

TESCO
Second largest UK supermarket chain Opened on an average 17 stores per year – 544

stores overall in UK Lower sales per square foot per week (£17.00) & operating margins (5.7%) Introduced the campaign – ‘Every Little Helps’ Innovative store format – Tesco Metro, standalone petrol forecourt

TESCO
Differentiation measures by TESCO
 No sweets at check out  Multiple checkout points  Newer convenient trolleys  Baby changing facilities  Widest choice of private labels  Food Technology Centre – R&D

Tesco communicated measures to its

customers with its ‘Quality Guarantee’ label

Argyll / Safeway
Third largest player in UK with a market share

of 7.8% Opened around 23 stores every year – 547 outlets by 1995 Focusing from other formats – Presto to Safeway ‘Safeway Culture’

Argyll / Safeway
‘Safeway Culture’
 Value added approach  In store post offices, dry cleaning services  Consultation of customer panels  Specialist departments- pharmacy, bakery, etc  Photo processing  Extra attention to families  Self scanning system – forerunner in

technology

ASDA
Market share of 6.9% - fourth largest Focus on Value for money with sharp pricing Not much emphasis on opening new stores –

203 superstore outlets Prices 5-7% below competitors New services initiatives
 Diaper changing rooms  Shopping Carts  Extra checkout counters

LOYALTY WARS IN THE UK Part 2
After the implementation of Loyalty Club Cards by TESCO

Facts & Figures of top four grocers in UK 1995-1996
Store Sainsbury’s Tesco Argyll/ Safeway Asda

Sales £m Operating profit £m Market Share Food & Toiletries April 1996 Turnover from Loyal Customers*, w/e March 1996

12,037** 11,821 6,600 803** 12.6 % 66 % 677 418 13.6% 7.5 % 65 % 58 %

6,531 317 NA 62 %

Sources : Company Annual Reports , Institute of Grocery Distribution In Watford , AGB Superpanel . * Loyal Customers are here defined as customers who spend more than 70 % of their total grocery budget at one store . ** Sainsbury ’ s sales and profits include revenues from non business units such as do - it - yourself and furniture outlets . grocery

After effects of loyalty club cards launch
•Tesco’s like- for –like sales increase in April was 8.9 percent whereas Sainsbury’s saw an increase of only 2.6 % • •For the first time in 22 years, Sainsbury’s had to announce a fall in profits while Tesco’s rose by 14 percent. • •Asda’s like- for – like sales increased even more than Tesco’s they were up 12 percent and their profits increased 26 percent. • •Argyll/Safeway’s reported 7.8 percent growth in like – for- like sales and 9 percent growth in profits.

Sainsbury’s Response
•Increased its distribution and offered more own brand products and cheap regional pricing. • •Extended old saver card scheme to 50 % of the stores in September 1995 instead of scheduled December 1995. • •Invested in communicating its customer service initiatives •Alliance with British Airways to offer its customer Airmiles in addition to discounts. •Reward vouchers were handed at the check out counters instead of mail to reduce administration costs and create opportunity for customer contacts. • •From its loyalty programme, it had to raise turnover by 3 % to breakeven.

Argyll/Safeway’s Response
•Focused on cutting costs, boosting productivity and attracting more family shoppers. • •Its own brand range of baby consumable products and Kidwear range. • •Introduced cartoons on in-store signs to send the message that Safeway is the only superstore with human face. • •Introduced its own loyalty Cards • •Various redemption measures to provide more choices to the customers : cash, gifts, in-store services or buying promotions in and outside the stores (Madame Tussauds). • •Self Scanning for ABC card holders for quicker checkouts.

Best Competitor Response ASDA
Emphasis on Value for money – lower margins Registered growth rate higher than TESCO

itself Effective PR initiatives Positioning as ‘Champion of Consumers’ Innovative activities – Singles shopping nights, redeem competitors shopping vouchers Not a firm believer of Loyalty cards

Sainsbury’s – Am I a ‘me-too’
Similar loyalty programs would perhaps attract

the ‘me-too’ tag Due to higher saturation of market, need of increasing the sales from existing customers through increased loyalty Also, after a period, when all others are providing loyalty programs, such initiatives become necessity for survival in the industry

Is it worth the efforts???
Loyalty programmes can be evaluated on two

basis:

 Cost Benefit Analysis Monetary gains through increased sales Cost of running loyalty programs Intangible brand equity creation  Opportunity Cost Loss of sales to the competitors Shifting loyalties of the customers Late mover disadvantage

THANK YOU

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