Customer Relation Management - TESCO

The ideas behind customer relationship management are not new. Today it’s widely acknowledged that how you treat your customers goes a long way to determining your future profitability and companies are making bigger and bigger investments to do just that. Customers are savvier about the service they should be getting and are voting with their wallets based on the experience they receive. The concepts of customer relationship management have been in the air ever since one caveman had a choice of buying an arrowhead from either Og or Thag, but CRM as a term gained currency in the mid-1990s.

This dissertation basically aimed to achieve an understanding of whether the concepts of customer relationship management which are so effective in industries like banking, airlines etc can also be as useful as they are for the said industries. This research therefore focused on the broad categorization of whether CRM has the power to create customer loyalty and if yes can the same concept be imitated for the retail industry.

The Dissertation describes the customer relationship management (CRM) initiatives undertaken by Tesco, the number one retailing company in the United Kingdom (UK), since the mid-1990s. The company’s growth and its numerous customer service efforts are discussed. The dissertation then studies the loyalty card scheme launched by the company in 1995. It examines how the data generated through this scheme was used to modify the company’s marketing strategies and explores the role played by the scheme in making Tesco the market leader. This dissertation also takes a look at the various other ways in which Tesco tried to offer its customers the best possible service. Finally, the company’s future prospects are commented on in light of changing market dynamics, the company’s new strategic game plan.

The research method adapted for this research included both the primary as well as secondary research methods. These methods involved conducting interviews, filling of questionnaires etc.

The major findings of this study suggest that the customer loyalty for Tesco can further be developed if company improves upon its efforts for increasing the rewards on its loyalty card.

Introduction: –

Customer relationship management is not a new concept as many organisations have successfully implemented it to achieve better results. The business model of the Dell suggests that how delivering directly to the customers can create strong customer loyalty and help develop the effective customer relationship management within the organisation.

In its essence, Customer relationship management is considered as an activity through which organisations try to maintain customer retention and try to develop customer loyalty through that. However information technology has played an important role in the development of CRM not only as a concept but also as a practical reality. However traditionally CRM has remained the domain of some typical and particular industries such as banking, airlines, automobiles, hotels as well as electronic commerce. Retail Industry such as large super stores such as Tesco, ASDA etc has not been able to initiate the same level of CRM as it should have been.

As a case study we have chosen Tesco as our reference point for discussing the CRM with specific reference to Tesco.

This study will aim to analyze and understand the role of CRM into retail industry and whether CRM can prove useful in Retail Industry. Accordingly research objectives such as the ability of CRM to create customer loyalty, whether CRM has the ability to create the same for retail industry and to finally evaluate the extent of CRM into current industry.

Company History

History of Tesco can be traced back to the second decade of last century when Jack Cohen started to sell grocessories from a stall in London. The business survived and soon it emerged as the leading grocery providers in the country. Tesco is now the largest retail organisation in UK in terms of its global sales as well as the domestic market share. Over the period of time, it has withstand many fierce competitive forces in the shape of more robust and active competitors however it has been able to manage itself in order to emerge as the leader in the grocery business in UK.

Tesco initially started to sell food and drink however over the period of time it has been able to diversify into many important businesses such as clothing, consumer electronics as well as financial services.

Tesco in the 21st century:

Tesco in 21^st century has evolved as a business comprehending many new management practices and tools in order to successfully manage and maintain its traditional grip over the UK’s retail market. This transformation of Tesco’s, from the bottom of the UK superstore list to the top transpired over the last six years, with Leahy at the helm. Tesco is fully aware, however, that it cannot rest on its laurels, or stay focused solely on its existing markets. Relatively limited growth opportunities exist in the UK food retail market for businesses this size. Leahy has chosen to create new growth in two areas – both posing new challenges. Tesco in the UK is striving to break down the traditional boundaries between retail markets. It is aiming to become a general merchandiser as well as a food retailer – again, building on the trust element of its customers.

It is significant that since 1993 Tesco has introduced several market ‘firsts’ – including the first to offer widespread 24-hour shopping, a nationwide home shopping service, and the nationwide introduction of a Loyalty scheme ‘Club card’. These initiatives have been backed by “value” and “price cuts” to customers over the years.

Tesco’s Rise to Leadership in the UK:

Tesco’s success in the 1990s can be attributed to the legacies of earlier managements. The portfolio of stores and sites already acquired has, without a doubt, proved to be a great asset. Tesco has 370 superstores (stores of over 20,000 sq. ft.) in the UK – more than any other competitor. Another asset has been good employees who have been with the business a long time, and know it inside out. It is remarkable that not a single executive main board Director left the company for a better offer from elsewhere, during the whole of the 1990s.

The overall success of the company as a top retailer of UK is therefore largely due to extensive efforts to manage the value for all the stakeholders of the company including consumers.

Literature Review

CRM has mainly emerged as a result of the increasing demand from the customers for high quality goods and services offered by various industries. (Smith, 2006). The core of the business success largely now depend upon the relationship of the company with the customers therefore it is largely now pereived that the CRM is the key to the success of modern businesses. (Nguyen, Sherif, & Newb, 2007).

The changes in the preference of the customers and fast moving businesses have made it difficult for companies to retain customers and generate loyalty just through keeping a cordial relationship with them. Organisation now need to come forward to offer better experience for their spending. It is because of this reason that the organisations are adopting CRM.

REASONS FOR ADOPTING CRM

It is intense for organizations to have competition. The reasons may be different however economic reasons are considered as the most important reasons for implementing CRM. It is also being argued that in industrial sales, it takes an average of 8 to 10 physical calls in person to sell a new customer; 2 to 3 calls to sell an existing customer therefore building on the same example, CRM may be an efficient alternative to sell and retain the customers.

It is 5 to 10 times more expensive to acquire a new customer than obtain repeat business from an existing customer. A typical dissatisfied customer tells 8 to 10 people about his or her experience. Although often repeated, sources for many of these numbers could not be found. A 5% increase in retaining existing customers translates into 25% or more increase in profitability.

The above benefits suggest that implementing CRM is of critical nature to the organisation. The implementation and adaptation of CRM is also therefore necccessary in the sense that it provides it helps identifying a group of customers on which the organisational resources can be spent to develop strategic relationships. (Bull, 2003) this in return therefore help organizations to tailor and furnish right products aimed at right customers.

Problems in Adopting CRM: –

The most crucial problem facing CRM is the adoption problem. The decision to adopt this technology has to be made before implementation can begin. While the major suppliers of CRM related products and services have some experience in dealing with the adoption problems at large firms, research suggests that the adoption process within small and medium firms is likely to be dramatically different. Research is needed to gain a better understanding of what motivates CRM adoption by these firms. In this study, a series of hypotheses pertaining to the adoption of customer relationship management (CRM) technology by small businesses are developed and tested. Seven hypotheses are proposed that addresses the influence of environmental turbulence (market uncertainty and environmental hostility), product class knowledge, relative advantage, switching costs, attitude toward change, and firm size. The model helps explain how environment, product related factors, and owner characteristics influence small retailers’ CRM adoption behaviours. (http://www.the-dma.org/dmef/proceedings04/10-Peltier-Schibrowsky.pdf)

Major cost goals of CRM include:

• Increase revenue growth through customer satisfaction.

• Reduce costs of sales and distribution 1

• Minimize customer support costs

The following examples illustrate tactics to achieve these goals;

1. To increase revenue growth

• Increase share of wallet by cross-selling

2. To increase customer satisfaction

• Make the customer’s experience so pleasant that the customer returns to you for the next purchase.

3. To reduce cost of sales and distribution

• Target advertising to customers, to increase the probability that an offer is accepted.

• Use web applications to decrease the number of direct sales people and distribution channels needed

• Manage customer relationships rather than manage products (a change in marketing)

4. To minimize customer support costs

• Make information available to customer service representatives so they can answer any query

• Automate the call centre so that representatives have direct access to customer history and preferences and therefore can cross

Multi channel Customer Management: –

One of the most dramatic trends in the shopping environment has been the proliferation of channels through which customers can interact with firms. The Internet, kiosks, ATMs, call centres, direct marketing, home shopping networks, and catalos, as well as bricks-and-mortar stores, are now commonplace means by which consumers shop. This proliferation has created a challenge for firms to manage this environment effectively and opportunities for academics to produce insights that can help address these challenges.

“Channel” in marketing terminology means a customer contact point, or a medium through which the firm and the customer interact. Thus emphasis on the term “interact” reflects that it does not include one-way communications, such as television advertising, though it includes home shopping television networks and direct response advertising in mass media.

Multi channel customer management is being defined as the design, deployment, coordination, and evaluation of channels in order to enhance customer value through effective customer acquisition, retention, and development. A key point is the emphasis on the customer as a strategy for creating more value for the firm (see Payne and Frown 2005 and Boulding, Staelin, Ehret, and Johnston 2005). Multi channel customer management is a customer-centric marketing function, unlike traditional sales channel research, which focuses on the firm and distributors (Rangaswamy and van Bruggen 2005).

Relationship marketing, CRM and customer-centricity: –

There is confusion regarding the nature, scope, role and influence of customer relationship marketing. From a functional perspective, many marketers believe that the route to customer loyalty is through the operation of a number of mechanistic, tactical initiatives such as loyalty cards, point’s schemes, events and promotions. It is hoped that customer incentives and rewards are a sufficient basis to build loyalty, generate knowledge and change customer behaviour. On the other hand, an organisational perspective views relationship marketing as a total firm customer orientation – one that seeks to integrate and align multiple sources, processes and activities for creating superior customer value on a consistent basis. (Sin, Tse, & Yim, 2005).

IT FACTORS OF CRM:

The success of CRM largely depends upon how successfully companies manage to implement and integrate information technology into its folds. (Nguyen, Sherif, & Newb, 2007). The dependence on IT however has ushered a new era of outsourcing also as more and more organisations are now viewing IT as the backbone of effective CRM.

IT Factors in CRM

Tesco & CRM

CRM introduced in Tesco to increase revenue. For this reason Tesco started Club card. According to Tesco’s Chairman Sir Terry Leahy Tesco’s Club card program boasts 10 million active households and captures 85% of weekly sales In the five year period following the implementation of the Club Card program, sales have increased by 52% and still grow at a rate higher than the industry average. Store openings and expansions have increased Tesco’s floor space by 150%.

The 13^th February change the way Tesco makes decision, develop products manage it stores the most importantly the way it serves its customers. On the day Tesco launched Clubcard, its customer loyalty programme. Clubcard has given Tesco a way regularly to show its appreciation to customers. Tesco designed Club card not just to show customer loyalty to Tesco, but more importantly to recognise Tesco’s loyalty to its customers.

Today because of CRM Tesco in not only UK’s largest grocery store but also the world’s most successful internet supermarket.

Beginning with the Customer Insight Zone because exploiting customer data is of critical importance for identifying new value, balancing resources and building closer relationships with customers.

The Tesco Club card statement is sent to ten million customers every quarter, itemising the points they earn from their shopping. Each statement also contains additional coupons and vouchers, targeted to reward and provide incentives for shopping behaviour. In fact, there are now over 250,000 different targeting variations. The programme is highly sophisticated, yet it consistently achieves sales uplift results. Yet the application of Clubcard shopper data is much broader than the customer reward statement alone. The major benefit of the scheme for Tesco (and ultimately its customers) is that the data and analysis drive organisation-wide customer decision-making to direct promotions, category management, local store ranging and even store location. (http://www.loyalty.vg, 2005)

Indeed, customers are analysed and grouped into hundreds of different segment permutations and combinations, according to factors such as regency, frequency and value, lifestyles, lapse rates, promotional responsiveness, coupon redemption behaviour and many others. (http://www.loyalty.vg, 2005)

Obviously, Tesco clearly recognise the value of the customer knowledge created by the scheme yet there is another significant dimension to their success at applying customer data. Rather than analyse the data in a random fashion, Tesco maintain a carefully constructed “knowledge profit and loss account” to measure customer investments in the scheme, the amount of analysis resources applied and the additional returns and new customer value created. (Temporal., 2008)

Tesco’s approach to advanced data mining has helped them to drill to the earth’s centre and beyond. Yet, many other companies, in comparison, are still tending to their company’s flowerbeds! Indeed, for every one Tesco, there are a hundred companies that do not exploit the customer data they own or have the potential to own.

At Tesco, the leading grocery retailer in the United Kingdom (U.K.), there is a permanent drive to improve customer service. The organisation is constantly gathering customer feedback for improving existing offerings and delivering new services for the future. As a result, Tesco now runs the world’s largest online grocery store, Tesco.com. With several million registered customers, it processes more than 4,000 orders an hour, generating sales of over £1 billion (U.S. $1.83 billion) in the 2005 fiscal year. (Temporal., 2008).

Conclusion & Recommendation:

Chapter Overview:

This chapter presents the conclusion and recommendation of the research. The information collected in this chapter will provide information conclusion of what Tesco has done till now. Some recommendation will be given that how it can improve its CRM more effectively.

Methodology:

Secondary Research:

The title of the paper indicates the use of a case study research method. Case study research is the most common qualitative method used in information systems especially. (Orlikowski and Baroudi 1991). Yin (2002) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident” The use of case research can be best understood by comparing it to other qualitative methods often used in IS – ethnography, action research, and grounded theory. These methods differ in several ways. The ethnographic researchers are required to spend a significant amount of time in the field, mix with the people they study, and place the phenomena studied in their social and cultural context. In action research the focus is more on what practitioners do, becoming fully engaged participants rather then observers (Avison et al. 1999). Grounded theory is a research method that develops a theory that is grounded on data systematically gathered and analyzed. The major difference between grounded theory and other methods is that there should be a continuous interaction between data collection and analysis (Myers 1997).

Case study research can consist of either a single case or multiple cases. Single-case studies are appropriate in circumstances where, for example, the case represents a case for testing a well-formulated theory. In multiple-case studies, a multiple design must follow a replication rather than sampling logic (Yin 2002). When no other cases are available for replication, the researcher is limited to single-case designs. This study represents a single-case study design, which means that only one case has been taken under investigation. The choice between single-case design and multiple-case design should also be kept open during the research process. The reasons for this are that the selected single-case may turn out to be a misrepresentation of the research phenomenon, or that the case does not work out well for some reason (Yin 2002).Depending upon the researcher’s philosophical assumptions the case study research can be positivist, interpretive, or critical (Dubé and Paré 2001). Positivist studies generally attempt to test theory, in an attempt to increase the predictive understanding of phenomena. Orlikowski and Baroudi (1991) classified IS research as positivist if there was evidence of formal propositions, quantifiable measures of variables, and hypothesis testing. Just as case research can be positivist, interpretive, or critical, it can also be exploratory, explanatory or descriptive. In exploratory case studies, fieldwork and data collection may be undertaken prior to definition of the research questions and hypotheses. This type of study has been considered as a prelude to a research. However, the framework of the study must be created ahead of time. Descriptive cases require that the investigator begin with a descriptive theory, or face the possibility that problems will occur during the project (Bryn 2004) The proposed case study adopts the explanatory approach that is suitable for doing causal studies, mainly to test the theory (Dubé and Paré 2001).Case studies typically combine several data collection methods such as interviews, documentation, observations, and questionnaires that are a source of qualitative and/or quantitative data (Dubé and Paré 2001). A key strength of the case study method involves using multiple sources and techniques in the data gathering process to strengthen the research findings and conclusions. The researcher determines in advance what evidence to gather and what analysis techniques to use with the data to answer the research questions. Data gathered is normally largely qualitative, but it may also be quantitative. A frequent criticism of case study methodology is that it is dependent on a single case and so it is incapable of providing a generalized conclusion (Tellis 1997). Yin (2002) argues that the relative size of the sample, whether 2, 10, or 100 cases are used, does not transform a multiple case into a macroscopic study. The goal of the study should establish the parameters, and should then be applied to all research. In this way, even a single case could be considered acceptable, provided it met the established objective.

Primary Research: –

Primary research is information collected on your own by interview, questionnaire and observation for a specific subject.

Questionnaire: –

Firstly quantitative research was carried out, which was part of the primary research. Quantitative research consisted of creating and developing a questionnaire and distributing them among people. As a method of data collection, the questionnaire is a very flexible tool. The advantages of questionnaire are that they are relatively easy to analyse. They can be used for sensitive topics which users may feel uncomfortable speaking to interviewer about. Also many people are familiar with the format of a questionnaire and to find it easy to fill them out. The disadvantages are that the responders may ignore certain questions which will have an impact on results. Also questionnaires are standardised so it is not possible to explain any points in the question that participants might misinterpret.

The questionnaire was designed keeping in view the different variables and distributed and before the format was finalised. The questionnaire was designed keeping in view of our research aims and objectives especially that of researching the capability of CRM to generate customer loyalty.

The questionnaire was first piloted on 8^th march 2006. Five people were involved in the pilot study. Once the feedback was received the comments were analysed and it was decided to alter and reformat some question because the original questionnaire provided a limited insight to the problem. Some questions were answered using close format (Yes/No). The close format was change to open format. So that respondents could describe in their own words. Open format questionnaires elicit a whole range of replies of varying length and articulation.

Example (Pilot Questionnaire)

Have you used Tesco’s website to shop?

Was changed to (Original Questionnaire)

Have you purchased goods through Tesco website, if yes how was your experience? Yes □ No □ please describe below why

After review, the format of the questionnaire was finalised. The questionnaire was again distributed to twenty people on 11^th march 2007. This sample was taken from the customers, both male and female customers who shop at Tesco. The two basic methods delivering questionnaire were considered: personally or by post. After a lot of consideration I decided to distribute the questionnaire personally. The advantage of this method was that it would allow me to help the respondents to overcome any difficulties with the questions. This personnel involvement enabled me to find out the reason why some people refuse to answer the questionnaire. Feedback from 16 respondents was received. From which 10 were male and 6 were female.

Interviews:

Two interviews were carried out for obtaining information and opinions from experts as part of primary research. The advantage of an interview is that the interviewer, can probe for deeper answers, ask for elaboration and examples, discover new areas, and modify questions as time goes on. Another advantages of the interview technique is that you can plan the in advance to gain the information require. The disadvantages are that interviews can be time consuming, as the interview goes on there is possibility of irrelevant information.

The two main methods of carrying out the interviews were considered: face-to-face and telephone interview. After a lot of consideration I decided to carry out an interview face to face. Interviewing face to face will allow me to be in a good position to judge the quality of response, to notice if a question has not been properly understood and to encourage the correspondents to be full in her/his answers. In my case telephone interview was not an appropriate method to use because you can not use visual aids to explain question. Also the voice quality is very important factor of a telephone interview.

Observation:

This method used to record conditions, events and activities through looking not asking.

The advantage of this method is that observation can reveal valuable unexpected findings since there are no questions to restrict what is learned. Also another advantage of observation research is that often the respondents and consumer are unaware that they are being observed, allowing their behaviour to observe naturally. The disadvantage of direct observation is that it is time consuming for the evaluator. According to Burton report (2006), the presence of an observer can alter events and have an effort on results; this is known as Hawthorne Effect. Because the participants of the observations know they are participating in the observation. Recording events concurrently can also be difficult.

The reason of choosing this method was sometimes people could demonstrate their understanding of a process such as Tesco Club card better by their actions than verbally explaining their knowledge. For example I could easily observe a customer’s point of view about Club card while they use or not club card while checkout. Usually person at till asks about to use club card. Also the first hand experience with observing will give me the opportunity to see things that may escape the awareness of the staff and it will enable me to compare my own observations to the perceptions and understandings of the people I have interviewed earlier.

This chapter has summarised the choice of the methods for primary and secondary research and justification for the choice made has also been explained.

The chapter then goes through the implementation of the primary research by conducting questionnaires, interviewing and observing the retail staff of Tesco’s. Finally, the secondary research conducted by various resources has also been added in this chapter.

Research Findings:

This chapter presents the results of primary and secondary research, which consist of questionnaires, interviews and observation. The information collected will provide the basis of analysis. Suitable methods to display data will be used in forms of graphs and charts, which will make it easier to analyse data.

Questionnaire:

The questionnaire proved to be very useful method to collect data. (Some discussion needs to precede this statement to show how you arrived at this view.) Constructive and destructive feedback from questionnaire was received. (Explain.) Results from the questionnaires illustrate that 90% customers are satisfied with the Tesco’s CRM programme. 10% suggested it be improved.

These research findings were achieved by analyzing the customer responses obtained through the said questionnaire. From the analysis of the data it emerged that 90% of the customers are satisfied with the current level of CRM initiatives by the company whereas 10% still feel that there is a need to improve.