Ian Stockley, managing director, Indicia
Ian Stockley, managing director, Indicia
A view from Ian Stockley

Think BR: Why Tesco's foray into mortgages is a lot smarter than you think

Tesco's Clubcard database is key to the success of its new mortgages, writes Ian Stockley, managing director, Indicia.

The news of Tesco’s venture into the mortgage market has been met with a level of cynicism we’ve come to expect with new product ranges from the supermarket giant.

From phone contracts to insurance to even double glazing, Tesco’s reach keeps expanding. Now it’s loans and mortgages, and is soon to be followed by current accounts and cash ISAs.

With each new launch, we hear the same jokes: "Did you hear that you can now pick up a loan from Tesco? It’s in the aisle next to the bread and milk..."

The howls of derision this time came as news broke that customers would be rewarded for taking out a mortgage with Clubcard points.

Rather than consider the competitiveness of rates or the legitimacy of the products, commentators seem fixated on finding any small anomaly and holding it up as conclusive proof as to why the supermarket chain is out of its depth.

However, putting stigma aside and looking at this proposition objectively, Tesco’s foray into mortgages should be welcomed - even during the economic recession we’re currently experiencing. Why? Because of Clubcard, and more importantly what it stands for: loyalty.

Chief Executive Benny Higgins’ announcement of his intent to apply the ‘Tesco DNA’ to banking smacks slightly of hyperbole, but Tesco’s strategy is actually one that’s intelligent, insightful, and worryingly unique for the banking industry, because it’s putting the customer first.

The key to this is the Clubcard database, which contains a staggering amount of data about the spending habits of some 15 million customers, probably the largest database of its kind in the UK.

The marketing industry frequently debates how exactly big data can be leveraged, but I imagine there isn’t a retailer in Britain that wouldn’t dream of having such an immense level of insight.

This is where Tesco is stealing a march on its high street bank counterparts. With the banking industry suffering PR crisis after PR crisis, many banks still continue to be guilty of oversight when it comes to using data intelligently to improve its service and image.

Rather, they continue to stand by old-fashioned, archaic models that revolve around sales targets, whilst vaguely grouping consumers by a demographic classification.

These institutions are too focused on product-centric processes, a short-sighted vision that places value on sales, rather than potentially more fruitful long-term relationships.

Higgins, on the other hand, has banned sales targets completely, instead using the insight available to target customers with appropriate offers, and assess risk by evaluating current spending habits.

This goes beyond the traditional ‘single customer view’, incorporating a true value exchange through the Clubcard system that rewards with experiences and value in return for data and custom.

Our own research shows that customers are already becoming incredibly savvy themselves with regards to the value of data, understanding the value of their consumer habits and marketing themselves to brands in the hope of attracting offers – becoming brands in their own right (Bior) and actively looking to engage in value exchanges.

In fact, 20% of consumers believe themselves to be ‘Biors’, with a further 15% feeling they will be in that position by next year. It only serves to make it more unfathomable that banks continue to operate with a focus on attracting new customers, and shifting product.

Thus, I think Tesco deserve applause and high praise for their approach. In fact, perhaps a truly customer-focused competitor such as Tesco will finally deliver the impetus required for wider organisational change across more traditional financial services providers.

Ian Stockley, managing director, Indicia