What does Tesco gain from Clubcards?

The Tesco Clubcard is a loyalty card of the British supermarket chain Tesco, which offers significant discounts on many products throughout the store. An example includes the Clubcard holders price for a 1L bottle of Baileys being £9.50, as opposed to the normal price of £20. These discounts mean that Tesco is cheaper than their competitors such as Asda and Morrison, however only when using a Clubcard. However, the big question remains, how and why is Tesco offering such large discounts for its Clubcard holders?

The strategy behind the Clubcard was largely devised by Clive Humby, a customer insight specialist. He stated that ‘the main factor in Tesco’s success has been the commitment to use the data gained to drive the business.' Contrary to popular belief, the benefit of loyalty cards to firms are not the quick promotion tool it acts as, but the rich data it collects about customer behaviour. Since around 80% of transactions at large Tescos are by Clubcard holders, the volume of data collected is enormous. The personalised data allows Tesco to create a more compelling shopping experience for the user, to promote products to consumers who are most likely to purchase them.

The difference between other supermarkets loyalty schemes’ data collection is that Tesco invests in analysing the information gained. Other supermarkets gain the benefits of sales but the sales achieved from the scheme are stagnant, whereas with Tesco the sales are growing. This is due to the analysis used, which reveals patterns and long term trends (e.g. when children have left home for university because purchases of pizza stop). It highlights patterns in the data that give Tesco a commercial advantage over its competitors, such as buying trends and the results of promotions. Before, supermarkets could look at promotions to see the sales but would be unable to tell whether a rise in sales was the result of more people buying the same number of products, or the same people stocking up while the promotion ran, completely new customers, or those switching from one brand to another. This distinction is fundamental to working out which promotions work and then identifying which people are brand-loyal, those who focus on quality food, or those who have a tight budget and then catering to all these categories of customers.

The data also show repeat purchase rates, which indicate whether the new product can be considered a success. Since purchasing data are collected in real-time from such a huge number of customers, they give Tesco an immediate and better insight into their products and range. The Clubcard is allowing Tesco to analyse the buying habits of 10 million customers, which is better than any market research they could perform.

Apart from making the scheme simpler (a straightforward £1 per point), Tesco developed a number of clubs within the club to respond to particular interests: such as wine, organic foods as well as baby products. All of these are “opt-in” clubs that offer additional communications and are focused on a dedicated website. If e.g. you sign up to join the baby club, you will receive £150-worth of vouchers for items that you would not normally buy from Tesco, such as prams. This widens the appeal of Tesco, making its service relevant to that customer's stage of life and interests.

But how does Tesco work out the returns they get on the scheme? They know how much money they give back to Clubcard customers, how much it costs to run the programme. Then they can look at the difference to work out whether customers with cards remain more loyal to Tesco and whether they redeem the offers and spend more when given money-off vouchers. The Tesco brand is very strong and this image is reinforced because Tesco is perceived through Clubcard as offering value for money and giving the impression of caring about customers. Moreover, Clubcard data helps the customer wishing to buy online from Tesco. By giving a Clubcard number, items purchased on the customer's most recent visits to Tesco stores will be listed as a useful memory jogger, urging them to purchase again.

All in all, the Tesco Clubcard scheme has been largely successful and has acted as a large contributor to Tesco’s growth and increasing market share as one of the largest supermarket chains in the UK.


Written by Sanjana Iyer

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