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Analysing the Tesco Loyalty Scheme

Tesco is a global grocery and general merchandising retailer headquartered in Cheshunt, United Kingdom. It is the fourth-largest retailer in the world measured by revenues (after Wal-mart, Carefour, and Metro) and the second-largest measured by profit (after Wal-mart). It has store in over 14 countries across Asia, Europe and North America; and it also the leader in UK (where it is up 30% market share), and in Malaysia and Thailand.

In the last decade, Tesco has made lots of breakthroughs in its marketing strategies and has grown to become UK’s number one retailer. It is also considered to be one of Europe’s fastest growing company and probably the most successful internet supermarket in the world. According to TNS World TNS Worldpanel, Tesco's share of the UK grocery market in 2009 was 30.5%, up 0.1% on 12 weeks to 27 December 2008 in line with the increase of the other four largest supermarkets.

Supermarket

Market Share

December 2009

+/- from

December 2008

Tesco

30.5%

 0.1%

Asda

16.9%

 0.1%

Sainsbury's

16.3%

 0.2%

Morrisons

12.3%

 0.5%

Tesco is listed on the London Stock Exchange under the symbol TSCO. Despite being in a recession, Tesco made record profits for a British retailer in the year 2010, during which underlying pre-tax profits increased by 10.1% to £3.4 billion.

What makes Tesco become Britain’s top supermarket may be a long story. However, there is an undeniable fact that the customer intelligence is the key factor to Tesco’s great success. With the philosophy behind “EVERY LITTLE HEPS”, Tesco always seeks to provide customer service and ensures the high levels of customer satisfaction. “EVERY LITTLE HELP” that goes far beyond a marketing slogan is what makes them different.

II. THE KEY REASONS FOR TESCO’S LOYALTY SCHEME – CLUB CARDS

WHAT IS TESCO CLUB CARD?

Tesco Club Card is the loyalty card of Tesco. It serves to collate data about individual customers (address, age, which stores they use, what they purchase regularly etc) in order to send out targeted advertising mailings.

When shopping at Tesco or using Tesco services (such as services from Tesco Finance), Club card holders receive one point for every £1 (€1 in Ireland) they spend. Holders can also get double points on special offers and receive one "Green Club card Point" for every carrier bag they re-use (UK only), as part of Tesco's green initiative. These points are stored and built up and four times a year the holder receives a statement and vouchers to the value of points they have saved. Vouchers can be spent in store on shopping or used on Club card Deals where they are worth four times their face value. These can be used to obtain discounted day trips and magazines.

While this loyalty scheme is launched by most of retailer over the world, Tesco’s initiative is still the most successful with the increasing the number of active cardholders from 14 million to 15 million in the market year 2009/10. The research showed that customers spent 28% more at Tesco while cutting their spending at Sainsbury’s by 16%. This had a major effect on the market shares of the two companies with Sainsbury’s having a 19.4% share in January 1995 compared with Tesco on 18.1% but by May of that year the former’s share had slipped to 18.8% while the latter had grabbed a 19.4% share. This trend has continued to this day and Tesco now commands a 31.3% share against the 16.5% of Sainsbury’s.

WHY IS TESCO CLUB CARDS SUCCESSFUL?

A reason behind Tesco’s success with Club card can be the fact that Tesco has established relationships and partnerships with popular companies like Powergen that supplies electricity and gas, Beefeater restaurants, Avis car-hire, Marriott Hotels, National Tyres, Johnsons dry-cleaners, etc. Therefore, customers not only earn points at Tesco but also at stores of any of those companies. Moreover, the points can be added by filling fuel at petrol stations and by online shopping to buy CDs, books, flowers and electrical goods. Customers also earn points by paying with Tesco credit Card or by using Tesco Home Phone and selected Tesco Financial Products. This means that customers easily accumulate the minimum 150 points and get price-off vouchers. This explains the reason why while other loyalty cards have also failed in operating Card programs, Tesco, in contrast, has succeeded in maintaining interest in the customers.

In addition, Tesco also knows that the scheme would provide a whole lot more than simply allowing people to collect loyalty points to reduce their shopping bill. In fact, the point-accrual mechanism is simply the carrot to customers that would get them to dig out their loyalty cards whenever they visit a Tesco store. In the deep sense, this Club Card enables Tesco to collect customer’s data. However, collecting date is one thing, but making send of it and transforming it into customer intelligence is a completely different matter. Unlike other retailers, Tesco has well managed those data. With the help of Club-card, Tesco has succeeded in making loyalty scheme appealing to their different customer segments. For a retailer like Tesco, the customers can be anyone from a ten-year-old boy to an 80-year-old woman. Thus, the loyalty program needs to have factors that can appeal to people of any age groups. Tesco has tried to do this with Club-card by offering something for every member of a family. They have introduced variety of clubs such as Tesco Kids, Club, Tesco Baby and Toddler Club, Tesco Healthy living Club, World of Wine Club, etc. Memberships to these clubs are free to all Club-card holders and customers can register for the membership online.

The Tesco Kids Club:

This has been designed to appeal the children in the age group of five to eight years. The club is for kids, but it is actually up to the parents to become members and get information and gifts for their children. Tesco offers the members a quarterly Disney magazine for kids, a Parent Pack that contains information on issues such as healthy eating habits for kids and children safety, and price-off coupons that can be used for buying foods, toys and clothes for kids. Tesco thus by using The Kids Club has been able to establish the credibility and soft corner in the heart of parents by providing free information on issues such as safety and health tips for children. Therefore, parents are more likely to prefer Tesco stores for doing shopping for their children.

Tesco Baby and Toddler Club:

This is designed for people who have recently become parents or are pregnant. The members get free magazines offering advice from experts on health care issues and safety tips for pregnancy period. They are also permitted to park their cars nearer to the store. By using this club, Tesco has appealed to people who may be loyal customers for many years. They are the customers who are about to or have started family. By showing concerns to them or providing them extra free facilities, Tesco has built strong bonds with these customers.

Tesco Healthy Living Club:

Members get a free “40 Steps to a Healthier Life” booklet and magazines offering useful tips on diet, healthy issues. They also get price-off vouchers on organic food product. The objective of this club is focus on the customers in the middle and old age groups who want to maintain a healthier lifestyle.

Tesco World of Wine Club:

This club provides information about different ranges of wine available over the world as well as information such as which wine goes with what kind of food. The members also get price-off voucher to purchase wine at Tesco’s stores. So, the purpose of this club is to aim at the people who prefer drinking wine.

Tesco Air Miles Travel Company:

Tesco also set up the relationship with AirMiles Travel Company in 2002 and so customers can convert their Club-card vouchers into AirMiles for their flight trips. For example, 2.50 of Club-card vouchers can be exchanged for 60 AirMiles.

Royal National Institute for the Blind

Tesco is also one of the most advanced companies in consumer understanding aided by information technology. In 2002, Tesco has set up Tesco.com – one of e-commercial websites through UK. From then, Tesco always seek ways to improve this website. Working jointly with Royal National Institute, Tesco created the site called Tesco Access to collect feedbacks from blind and partially sighted Internet shoppers. Tesco knows that disables users often become very loyal customers once they find vendors who give them food service and accommodate their special needs. Thus, Tesco tries to provide this kind of customer with efficient tools to shop independently. Tesco was awarded the first RNIB See It Right Accessible Website Award, an award that “provides a mark of approval to websites that can be used successfully by people with sight problems”.

There is no doubt that Club-card has definitely become the effective marketing tool for Tesco. It can be undeniable that without the Club cards, Tesco might have struggled to be as successful as it is now. With this system of Club cards, Tesco has been able not only to address to the customer segments but also better to understand the customers’ needs to offer the best services. Furthermore, Tesco has been able to use this loyal scheme very efficiently to build mutually beneficial relationships with its customers. Therefore, the main reason behind the success of Tesco’s marketing strategy is the way that they have managed to establish Club Card not only as a marketing tool but as a product of relevance and value for the customers as well.

MARKETING STRATEGY LESSONS FOR RETAILERS IN VIETNAM

Vietnam Retailing Market is a promising and potential one. However, it seems strange that Vietnam retailers seem to have little insight into their customers. But real lessons have proved that customer intelligence is now a key factor in differentiating winners from the losers in the retail sector. The above critical analysis of Tesco’s success shows that the key is the deep understanding of customers.

Up till now, most retailers in Vietnam have been seeking to design effectively marketing strategies. Personally, the tip can be summarized into 2-C: Customer and Convenience:

Customer:

Retailers should set up a market research and consumer insights competency that is intended to help the company adopt a marketing approach that focuses on specific categories. This will help it to introduce new categories and better tailor the mix of goods in each of its stores so they are better suited to their location and customer segments.

Convenience:

To keep customers’ interest and retain customer, the only way is to provide them the most convenient services as much as possible. Retailers have to simplify all procedures of shopping, paying; minimizing the waiting time or time delivery, etc. Moreover, retailers try to establish win-win relationships with other businesses. This can expand retailer’s portfolio as well as supply customers more benefits.

In conclusion, customer is still the King. How well the retailer meets the customer’s needs is always the tip for all success.

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