IT Competitive Advantage: Tesco case.

“Customer loyalty is not about how customers demonstrate their loyalty to us, it is about how we demonstrate our loyalty to them”
Lord MacLaurin, Chairman of Tesco

In 1995 Tesco launched the Tesco Clubcard the UK’s first supermarket loyalty program. Tesco introduced the Clubcard as a mean of giving something back to the customer, especially the customers who shopped frequently and purchased more. Points were accumulated for every purchase of £5 spent after a minimum of £10, and converted later into Clubcard vouchers, which could be redeemed in any Tesco store. So far this looks like any other loyalty program and this was the consensus in the British media and the opinion of Sainsbury (Tesco number 1 competitor and market leader) Chairman that considered the Clubcard no more than an “electronic version of Green Shield stamps (a previews loyalty program launched by Tesco in the 60’s)”. They were wrong.

The Clubcard loyalty program cost £300 million over the first three years and about 4,5% Tesco profits. But 6 months after the introduction of Clubcard, Tesco has increased its share of the retail grocery trade from 15% to 18%. This increase included not only the pull of competitor clients but also a large increase in purchases of products that usually customers didn’t get from Tesco (e.g. alcohol). Tesco attracted about 20 million members, of which over ten million are active users. By 1996, Tesco achieved finally is objective of becoming number one retailer in UK.

But how Clubcard contributed to this? Simple, through Clubcard Tesco was able to get a high amount of information related to Tesco Customers consumer behaviors (the consumers used their Clubcards in each purchase they did). Tesco was able to segment his market by costumer and this way Tesco was able to better promote his products and better target and satisfy the needs of each customer. To better handle the volume of information, Tesco invested in the NCR Teradata data warehouse to provide a 360-view of its customers. As results of this information managements Tesco was able to decide better what products to offer promotions, to create a Clubcard magazine with 80,000 variations... Tesco also updated the loyalty program to allow customers to collect points on holiday promotions with some of the most popular travel agents in the UK and today Clubcard members can also collect points towards vouchers when they spent money on sport goods, sporting events, gas, electricity with any of the Tesco’s several partners. To understand customer online behavior Tesco launched the ”Net Perception” (to provide a more personalized online experience). By being the first mover (first to know customers) and expanding Clubcard network (through Tesco’ partners), Tesco got a strong competitive advantage in understanding the customers behaviors, and this way get new costumers and in maintaining their fidelity to Tesco.