The headlines were shocking. 'Tesco crown slips'. 'Tesco shares crash'. Yet, in all the coverage and analysis of Tesco's recent profit warning, one thing was missing: mention of its Clubcard loyalty programme. If Clubcard, and the data it generates, is Tesco's not-so-secret weapon and engine of success, why hadn't it seen its problems coming and acted to head them off? Is Clubcard, once the star of loyalty marketing, losing its way?
The standard commentary speaks of Clubcard solely as a game-changing marketing achievement. The scheme provides Tesco with ongoing, detailed insight into its customers' behaviours, helping the retailer decide what products to stock, when and where to tweak prices, what sort of promotions work best and when, what the key customer segments are, how to target them and how to influence their shopping and purchasing habits.
There's more. Not only does Clubcard deliver competition-beating customer insight, according to Tesco insiders, it also makes a profit. Its substantial costs are more than covered by the money suppliers pay the retailer for data about their brands' sales and promotional performance.
On top of that, there are direct customer benefits: the way in which Clubcard points drive loyalty while generating positive sentiment toward the brand.
Looking back on the phenomenon at a European conference in late January, former Tesco chief executive Sir Terry Leahy said that one of Clubcard's biggest effects was an emotional impact, its mailings giving customers a sense of being recognised. 'They loved that they were known,' he declared.
In short, Tesco was one of the first major retailers to treat its customers as individuals.
So what has gone wrong? Many factors are combining to reduce Clubcard's relevance, cut-throat competition being only one. With about a third of all grocery volume now sold on promotion, the rewards customers get in their Clubcard mailings are 'drowned out by coupon noise', complains one insider.
Tesco recognised this when, last September, it pulled £350m out of its Clubcard points budget to help fund its 'Big price drop' campaign. Its recent coupon activity includes 'Spend £40 this week, get £5 off next week's £40 shop'.
There are two points here. First, compared with new online mechanisms, loyalty schemes are an expensive way to run sales promotions. As Clive Black, an analyst at stockbroker Shore Capital, notes: 'In the face of this scale of promotional activity, loyalty points are less rewarding as a tool. As customers get more promiscuous, the data's value eases off.'
Consumers now want their discounts to be instantaneous and lack the patience required to accrue multitudes of points.
The data environment is also changing. When Clubcard launched, loyalty schemes were the only customer data show in town. Today, marketers are awash with streams of data: online retailing itself (which mines vast seams of rich customer information without the need for loyalty schemes); online behavioural targeting; and social networks.
'There's a prevalent attitude that says "Why waste money on a database when a fan base is more valuable, more immediate, and is a fraction of the cost?",' notes Andy Green, director of The Customer Framework, who has helped run many loyalty schemes.
There are also limits to what loyalty data can do. In its early days, a scheme can deliver step-changing strategic insights, but over time, diminishing returns set in. The first time you act on a new insight into pricing or promotions, the benefits can be big.
As time goes on, though, the major new insights grow rarer and incremental benefits smaller. The data becomes less of a strategic game-changer and more of an ongoing 'touch on the tiller' - still valuable, but not as much as it once was.
In addition, there's an ongoing disconnection between the insights the data reveals and day-to-day operational realities. It is relatively easy to use data to personalise a mailing, but much harder to personalise the in-store experience, notes Martin Hayward, former strategy director at dunnhumby (which was instrumental in the creation of Clubcard) and now founder of strategic consultancy Hayward Strategy and Futures. In retail loyalty schemes, 'the sensitivity of the insight vastly exceeds the sensitivity of the store to act on it', he adds.
There are also growing doubts about the unique role of loyalty schemes as data-gathering mechanisms. Take e-receipts. Currently, they're a blip on the horizon, but within a few years, they will be mainstream. As this switch occurs, the same will happen to customers' own databases, where they keep records of their own purchases.
The big difference between this type of truly customer-centric database and loyalty programmes is that the former gathers data from all retailers from which the customer buys, thereby creating an integrated picture that no siloed scheme can rival.
The UK government is backing this vision with its 'midata' initiative to encourage companies holding customer data to release it back to those customers. If new draft EU data protection regulations, published last month, survive the consultation process, this principle will be enshrined in European law via a new consumer right to data portability. Under this right, if customers were to go to Tesco and say 'Can I have my Clubcard data please?', Tesco would have to give it to them, to use as they wish - including, potentially, giving it to competitors.
Lastly, there are many ways in which Clubcard simply cannot assist Tesco with its current problems. For many years, the scheme's role in Tesco's success was exaggerated. Many factors helped the retailer seize market leadership. Competitors lost their way. Tesco had an aggressive and far-sighted landbank-building strategy. It transformed its supply chain using 'lean' principles adapted from Toyota. It introduced 'value' lines.
Today, the things Tesco needs to do to freshen its offering, such as improving check-out service and in-store experience, are more 'people things' than 'data things'. Meanwhile, Tesco's rivals have got their act together as Tesco grapples with the problems of success. When you have 30% of the market, growth becomes more difficult. Tesco has, therefore, sought growth abroad, sucking up management attention.
When you are trying to build, or mend, strategically crucial businesses in the US, China, India and Japan, it's easy to take your eye off the ball back home.
Tesco's previous formula for success - offering something for everybody, to create mass appeal - could now be working against it. It is hard for one store to have appeal across the board, from a cash-strapped family, whose main breadwinner has lost their job, to cash-rich professionals who have never had it so good in a time of low interest rates.
At the moment, competitors at both ends - discounters such as Aldi and higher-end retailers like Waitrose - are gaining ground.
Another challenge is culture and mindset. Tesco achieved domination by listening, analysing, thinking and out-manoeuvring its competitors, notes Black. 'But perhaps it got complacent and stopped listening. That meant the analysis, the thinking and the manoeuvring wasn't as sharp as it once was.'
None of this means that Clubcard is now an irrelevance. Tesco says the programme enables it to continue to make its range and services relevant, and in 2010 (the most recent year for which figures were available), Clubcard was the top reason customers gave for switching to Tesco from competitors.
The current vogue for coupons will eventually subside, and customer data remains important: if Sainsbury's chief executive Justin King is correct, there will be a growing divide in retailing between the data-haves and have-nots. Information derived from loyalty schemes will have an enduring role in the emerging digital data ecosystem.
'With loyalty schemes there is real clarity around the value exchange. It's a very transparent situation,' argues Jan-Pieter Lips, managing director of Nectar. 'Not many people realise how much data is being tracked online and, at some point, consumers are going to start resenting the lack of transparency. It's definitely not about one data set replacing another. It's about connecting the dots between data sets.'
Deep down, however, there is a much bigger question facing the Tesco brand. 'Before, Tesco was a force for good for consumers. It used market forces to benefit the consumer,' observes Black. 'The big question for Tesco now is, is it still doing that?' Just as important, though, is what role Clubcard is playing.
15m active users in the UK
- With 20m non-UK users, Clubcard is now bigger outside the UK than in.
- It offers more than 600 partner rewards for customers to choose from.
- The value of points redeemed was £780m in 2010/11.
18.5m active users in the UK
- 22 cards are swiped every second.
- £1.5bn-worth of points have been redeemed since Nectar's launch in 2002.
- Nectar is the main multi-retailer loyalty scheme. Users can collect points when they spend with dozens of retailers and brands, including the Apple iTunes Store, BP, British Gas, Ford, Sainsbury's, Ticketmaster, Vision Express and 500 eShops.
- Nectar claims users can earn points on 49% of their household spend.
Boots Advantage Card
16.8m active users in the UK
- Boots is the only retailer to use a personalised smartcard. This enables it to react to the holder's history instantly at the point of purchase.
- As the most-generous scheme, it offers 4 points (4p) in the pound, but does not allow points to be used as part-payment.
- Users can collect points when shopping online at more than 70 retailers and brands via its Treat Street service. Participants include Adidas, Boden, Carphone Warehouse, Dixons, Dell, eBay, EDF, Halfords, JD Sports, Legal & General, LoveFilm, Sky and Vodafone.
This article was first published on marketingmagazine.co.uk
A useful study here from the ‘Pew Research Center’ taking a look at the demographic make-up of US social media users across Twitter, Tumblr, Pinterest, Instagram and Facebook. No data on LinkedIn of Google+, but great stats all the same.