Evaluation of Information Technology Strategy: Tesco’s Clubcard Scheme

2267 words (9 pages) Essay in Information Technology

08/02/20 Information Technology Reference this

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Introduction

The goal of all businesses is to survive and the only way for a business to survive is if they adapt. In the past business owners could make decisions using their experience of the situation and their gut feeling but as time has gone on the reliance on empirical evidence is much greater. In order to remain competitive businesses must use information to make decisions.  The introduction of Information technology (IT) has changed the possibilities of access to information. We can now process much larger amounts and a wider variety of data in shorter time periods. “Computing has shaped what information there is, how it is used, and what its consequences are” (Cortada, 2011). It has been suggested in regards to a successful information system that it is not a question of if you’re going to adopt it but when you’re going to adopt it.

The purpose of this essay is to develop a fuller understanding of information and information technology strategy. To do this I will first distinguish data, information, and knowledge in relation to my chosen technology, the Tesco Clubcard scheme. I will then distinguish conceptualisation, invention, innovation, and diffusion and how the loyalty card has progressed through these stages. I will indicate how the Clubcard contributes to work processes and to productivity in TESCO and lastly indicate how it extends human capacities.

The Tesco Club card scheme was launched in 1995. It was the beginning of retailers using customer shopping data to influence marketing and management decisions. Former TESCO CEO Sir Terry Leahy credited the scheme as a key reason why TESCO has become one of the top retailers of today, “Data is absolutely priceless in transforming the relative position of a business. It was the first example of what is known today as Big Data.”(Leahy, 2015).

Empirical Study

At the highest level data can be defined as “Facts and figures that are meaningful in some way” (Blaire, 2002). All information systems require the input of data in order to perform organizational activities. Raw data on its own however, has no representational value (Stair and Reynolds, 2006). Data is collected to create information and knowledge about particular subjects that interest an organization in order for that organization to make better management decisions. In the case the Tesco Clubcard it collects data on customers in order to send them vouchers which are best suited to their shopping habits.  When a customer signs up for a Tesco club card they give Tesco some raw personal data such as their name, address, phone number and email address. Once customers start using their Clubcard Tesco starts collecting data on their transaction information, including the in-store and online purchases they earn Clubcard points for and how they use their Clubcard coupons and vouchers within the Tesco Group or with Clubcard Partners. This isn’t useful to Tesco until they organise the data and start seeing trends.

Information can be defined as “data that has been organized for a particular purpose” (Drucker, 1998). It is the interpretation of bits of data in order to form a greater picture of raw facts. To turn data into information an organisation has to identify a particular use for it. Tesco wants to use the data collected from their Clubcard scheme to give them a competitive advantage over other retailers and to increase customer satisfaction and loyalty. To  sort through the large amounts of raw data collected from the Clubcard scheme, Tesco use their knowledge gained from years of working in retail and the help of Dunnhumby – a company that specialises in data analysis, to select the data which will be meaningful, such as a customer’s location, age, shopping habits and so on. Tesco can now build a profile for each individual customer and start spotting trends across large groups.

Turning information into knowledge is a more difficult process. Data and information are tangible whereas knowledge is not – you cannot be given knowledge you have to possess an ability/ exercise a kind of expertise. In an information system, Knowledge can be described as: “an awareness and understanding of a set of information and the ways that information can be used to support a specific task or reach a decision” (Stair and Reynolds, 2006). Tesco uses the data from their Clubcard scheme extensively to monitor changing customer preferences, this allows them to make more informed management and marketing decision. For example it was the data collected from the Club Card scheme that led to the introduction of the “Tesco Express” stores, customers wanted a store that was handier and smaller. This went against all previous industry notions that bigger was better. The knowledge gained from the express stores led to TESCO online. TESCO was one of the first retailers to offer online shopping to its customers, it is now common knowledge that customers prefer the convince format. “Customers were saying they were getting busier and busier, and needed a store that was handier and closer, so we miniaturised the supermarket into Tesco Express. In 1996 the first one opened, and today there are thousands all over the world, and most retailers no feel it is essential they have a convenience store format as part of the line-up.”(Sir Terry Leahy, 2015).

Joseph Schumpeter originally defined the Conceptualisation, Invention, Innovation, and Diffusion framework during the first half of the 20th Century, at that time it was applied to industrial technologies during the industrial revolution. We can now apply the same framework to information technologies as we go through the fourth industrial revolution.

Conceptualisation was understood as when the concept for a technology is discovered and the desired design features and requirements are created. The concept for the Clubcard was to come up with a loyalty scheme that rewarded customers for shopping at Tesco and also give Tesco a way to capture and track customer data. In the past Tesco used Green Shield Stamps as a promotional tool which rewarded customers for visits and spend. In 1993, Terry Leahy asked the Tesco marketing team to investigate the potential of loyalty cards. The initial team, led by Grant Harrison, researched programmes across the world and developed a proposal which showed that a loyalty card could be very effective. The key change since the days of Green Shield Stamps was the ability to track individual customer behaviour cost-effectively using a magnetic stripe card.

The Invention stage is understood as the demonstration of technical feasibility. This stage is a much more rigorous and demanding stage than conceptualization. During invention it is often discovered that making an idea into a reality is more challenging than anticipated. However, more efficient ways of doing things and new uses for the technology may be discovered. It is the development of theoretical knowledge that allows practice. Tesco wanted a club card that would analyse data, they had no way of doing this. When joining a market at an early stage risk is very high, in order to decrease risk expertise have to be brought into the company, this comes at a high cost to the as semantic labour is very expensive. In order to avoid this extra cost companies avoid investing directly in the invention of a technology and instead buy an invention and add innovations to it. It requires a fair amount of success for an invention to reach innovation stage.  Many of Tesco’s competitors were doubtful of the new Clubcard scheme, claiming that the cost of analysing all that data would outweigh the benefits of having it. In 1994 TESCO approached marketing firm Dunnhumby, experts in data analysis, to assist them with the loyalty card project. Dunnhumby showed how it was possible for retailers to track their customers’ purchases and to make inducements in the form of reward points and offers to encourage them to shop again. They were able to build an accurate picture of a shopper, what they liked, how often they visited the store and when, and what they spent.

The Innovation stage is understood as “the process by which new products and techniques are introduced into the economic system” (ISY3008, 2018 Lectures). In order to survive an invention needs to adapt and change over time in order to reproduce and keep up to date with current trends this is why the innovation stage is so important. A commercially viable product needs to be more robust that what it originally was at invention stage, this allows it to operate continuously without constant intervention from the inventor. The Tesco Clubcard Apart from making the scheme simpler, introducing a straightforward £1 per point, we have developed a number of clubs within the club to respond to particular interests. While the general Clubcard is fine, for a young mother, for example, the baby club and targeted offers are far more engaging than a general communication from Tesco about everything in the store. Tesco has a number of such clubs within the club focusing on such areas as wine, organic and healthy foods as well as baby products.

During the innovation stage there may be a realisation that an invention can be used in a way that was not originally anticipated at conceptualisation stage. A food manufacturer launches a new flavoured product, Clubcard data can show, for example, who buys the new product and whether they were already customers of the manufacturer’s other products. The data also show repeat purchase rates, which indicate whether the new product can be considered a success. And because purchasing data are collected in real time from such a huge number of customers, they give manufacturers an immediate and greater insight into their products and range performances than could be offered through traditional, initial market research. There is a need for technology to be constantly upgraded and adapted, as time goes on people have greater knowledge and can exploit these innovations to make money, it is a fundamental aspect of capitalism. Modern industry never views an existing form of a technology as its final form. The value of an invention is created by the labour power used to create the innovations. “Surplus value does not arise from the labour power that has been replaced by the machinery, but from the labour power actually employed in working with the machinery” (Marx, 1975, p.530)

The diffusion stage is understood as the spread of the innovation of a product. This is when the consumers of a product begin to adopt it. The reason they adopt it is because it provides reduced costs for a similar product or process. These reduced costs are due to the replacement of human labour for machine processes.  In practice it is almost impossible to avoid the adoption of a proven technology, a rise in adoption allows companies to realise they can do more than you could in the past.

After Tesco launched its clubcard in in 1995, other retailers also adopted the technology. Sainsbury’s launched its Reward Card in 1996 after Tesco over took it in market share. This was replaced by the Nectar card in 2002, which was launched in partnership with other major brands and the Boots Advantage Card was launched in 1997

Technology doesn’t necessarily stay the same through diffusion there is reinvention throughout. Reinvention during diffusion gives life and vitality in the life span of a technology. As we adopt a technology and learn how to use it we find we can do things we couldn’t do in the past and there is enhancement in human capacity. It is a process of gradual change where the enhancement of human capability is only realised at the end, slight changes over time end up a big jump from where technology was in the beginning.  This reinvention could be regarded as the need for continuous human intervention to lend significance to products. Although the product may have been designed to replace human labour, there will always been a need for human semantic labour, if humans did not earn money from working a job they would not be able to afford to buy a new technology, this is called the Productivity Paradox. Diffusion is enabled by labour invested in the renewal of the technologies, even if that labour is mediated by monetary or exchange values (ISY3008, 2018, Lectures)

Contribution to Work Processes and Extension of Human Capacities

The advantage of using this data gained to drive the business. Many companies have used loyalty schemes as a sort of quick fix, promotion tool. While, to a degree, a loyalty scheme is a form of promotion, it is an expensive way of doing this. The real benefit of a loyalty scheme is the very rich data obtained on customer behaviour. Tesco’s sales run into tens of millions of items a week. To make sense of all this means a total focus on using the data well. Many companies collect this sort of information but fail to use it in a committed way every day of every week. They spend tens of millions of pounds collecting the data but are not prepared to spend millions of pounds analysing the information gained.

Conclusion

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