How knowing its customers drove Tesco’s success
By Tim Mason
Tesco launched Clubcard in 1995 as the apotheosis of its customer-centered growth strategy. The program led to my realization of how important data would become to winning with customers. At the time, Tesco was already one of the UK’s largest grocers and I was chief marketing officer. Clubcard wasn’t the only initiative responsible for growth. But its impact was transformative.
As the world’s first mass grocery loyalty scheme, the program asked customers to swipe their Clubcard at checkout in exchange for point per £1. Customers received discount vouchers based on the number of points accrued, sent quarterly by direct mail.
Over the next 15 years, Tesco’s UK market share grew from 25% to 33%. By 2014, Tesco had become the second largest retailer in the world by revenue. In 2017, Clubcard still had some 17 million members; however, it would never have been as successful as it was had the business not gotten its own house in order first.
To get to the stage where we could put the customer at the heart of everything Tesco did, the previous two decades were spent benchmarking against competitors, modernizing the business, and updating store formats. By the time the recession hit the UK in the early 1990s, there was less to learn from competitors, and modern IT-based systems and processes had taken the business as far as possible.
Fuelled by a customer focus, Tesco’s “Every Little Helps” strategy was established in 1990 as the next phase in the grocer’s development. Its aim: ‘To create value for customers to earn their lifetime loyalty.”
That was when I realized that, in order to create value and earn lifetime loyalty from customers, you must earn it. If you want to earn it, you must measure it. This was why Tesco launched Clubcard.
Within days of the launch, over 70% of all Tesco sales were being recorded and matched to Clubcard holders. After the first mailing, Tesco like-for-like sales grew by £17.8 million, with 40% being driven by Clubcard.
The direct mailings enabled us to track and attribute spend against marketing investment far better than before. The data gathered then helped us refine our ranges, prices, and overall customer proposition.
Tesco gained its first-mover advantage through this use of customer data, which set the industry standard. Knowing who Tesco customers were allowed us to serve them better, which, in turn, drove growth.
It also proved that some 80% of all Tesco sales were being driven by a loyal base of about 50% of our customers. So it didn’t take long for others to jump on the loyalty bandwagon.
But with loyalty harder to foster today, given competition from online and mobile commerce, retailers can no longer afford to market to an anonymous customer base.
Given the ease with which any retailer can connect with customers digitally, online and via mobile, they should be looking to Tesco’s early digitally enabled and data-driven best practice and adapting it for the modern age.
Tim Mason is CEO of Eagle Eye Solutions Ltd. and co-author of Omnichannel Retail: How to Build Winning Stores in a Digital World.