July 01, 2009

Tesco Launches New Bid for Customer Loyalty

Tesco UK’s relaunch of its 15 million member Clubcard loyalty scheme is symptomatic of the rearguard battle to retain customers in an environment of increased competition and customer price sensitivity. It raises two questions for every business:

- How to respond to changing customer buying patterns in light of tighter budgets and increased price sensitivity.

- How to protect existing customers from poaching from increasingly hungry competitors.

Tesco Seeks to Claw Back Business Lost to Competitors.

At a cost of £150 million, the Tesco initiative is, according to the Guardian newspaper, aimed at encouraging shoppers to spend more in its stores and to claw back business lost to rivals. That is equivalent to an investment of £10 per clubcard scheme member, part of the cost of which will no doubt be shared with suppliers through the distribution of price coupons and other incentives.

Tesco has taken action to prevent customer poaching by competitors, but is it enough and will it work?

Just how important are loyalty cards?

Well, during the 1990s I worked with hundreds of smaller specialized retailers. With increased concentration in so many aspects of retailing, I regularly produced the Tesco ClubCard from my wallet, asking retailers if the technique was relevant to their business. Most answered ‘yes’, but I disagreed.

My argument was that Tesco relied on a card to engender my loyalty, but that the smaller retailer could do this in other more effective ways. Similarly, Tesco relied on a card to find out about its customers and their needs, while most small retailers already knew their customers, or could ask.

Your customers may not have a loyalty card with your logo on it, but how can you ensure that they are not poached by your competitors? My argument was that the smaller retailer’s weapon against the growing number of loyalty cards was individual attention, personalized service and good old fashioned customer service.

Issues of Strategy and Positioning.

Clubcard aside Tesco has also sought to deepen its relationship, or at least sell more to them, by means of offering an ever wider array of services, such as; insurance, finance, telecoms and so on. But has that blurred the lines in terms of how it is positioned by consumers?

It is interesting to compare TESCO’s strategy with that of other retailers, such as Aldi and Lidl for example. They don’t have loyalty cards for UK customers, but even without coupons are more clearly positioned in the mind of consumers on the basis of low prices. In the present economic climate this clear positioning is a strong advantage.

Over a decade of fast growing consumer spending, Tesco’s Value range of low priced items received less and less shelf space. The club card push could be seen as the marketing push is aimed at adapting to changed customer priorities and buying patterns of a recession.

Time for Loyalty Cards to Join Web 2.0.

Now loyalty cards are nothing new, they swept across the Atlantic in the 1990s leveraging new technologies that scientifically married couponing and other features to the specific purchasing patterns and demographics of customers. However, perhaps TESCO’s relaunch plans will represent the next generation of loyalty card.

The present card is pretty one dimensional and flat, the challenge is to build a community around its brand and that requires more than envelopes with coupons and discounts. On one level, I am thinking of the type of customized retailing provided by Amazon, but even that is not fully exploiting the potential of Web 2.0 methods in building a community around the TESCO brand.

For example think of the computers for schools programme ran by Tesco and imagine being able to use your clubcard ID to log on to the web and view an up to date account of how many vouchers have been presented and how many more are required for your child’s school computer programme, as well as a message from the school principal. Imagine, consumers with special food interests being able to form communities online, for example around the stores glutten free products, etc.

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