Tesco Marketing Essay

“Retail Loyalty Schemes: Myth or Marvel?”

You are required to critically examine the use of relationship marketing/loyalty scheme retailing strategies for TESCO.

As TESCO is currently using a store (or e-commerce) “loyalty scheme”, you should ask how successful this retailer has been in its use of relationship marketing (RM) techniques, in appealing to its supposed target consumer segments. Would the retailer have been as (relatively) successful if it did not run such a scheme?

“Marketing Strategy is now moving from the 4Ps- Product, Place, Price, Promotion of traditional marketing management to the 30 Rs- the Thirty Relationships of a new marketing paradigm” - (Evert Gummesson, Total Relationship Marketing). This concept that looks at Marketing in terms of different relationships between the organisation and its publics is gaining more attention and importance from organisations these days. This is because in today’s highly competitive market-place, getting new customers is becoming increasingly difficult and costly. Organisations are therefore now putting greater emphasis on maintaining their existing customers and prefer following a “Zero Defection Strategy”. In this essay we will look at the relationship marketing techniques and loyalty schemes being used by Tesco to develop and maintain existing relationships with the different customer segments. Throughout the essay, the objective will be to critically evaluate the strategies used by Tesco and to provide reasonable conclusions on how effective these strategies have been.

In the last decade, Tesco brought about a lot of changes in its marketing strategies and has grown to become UK’s number one retailer. “Today in the UK, the retailer has been the dominant force for more than 10 years” - (Seth, A. & Randall, G., The Grocers: The Rise and Rise of the Supermarket Chains). It is also considered to be one of Europe’s fastest growing financial company and probably the most successful internet supermarket in the world. Interestingly, Tesco’s almost entire relationship marketing strategy is based on its “Clubcard” scheme. It has been able to use the Clubcard very effectively in addressing different customer segments and in attracting and retaining customers of all types. With its Clubcard scheme it not only has been able to overtake Sainsbury’s as the number one retailer but also has strengthened its market share year on year in UK.

Tesco’s Clubcard and How it Works?

Clubcard is Tesco’s membership scheme which allows customers to save money on shopping by providing them price-off vouchers. Customers get a point on every pound they spend shopping at any stores of Tesco group of companies as well as at stores of their partner companies. Once a customer accumulates 150 points, these are then converted into Clubcard vouchers which enable the customer to save money on shopping. One can argue that other retailers also have similar loyalty programs. However it is interesting to note that while most loyalty schemes and relationship marketing strategies similar to Clubcard have often failed for other retailers, Tesco’s Clubcard has worked well and managed to succeed. ASDA ran a similar pilot scheme in its stores but it did not work. Safeway tried the loyalty program by way of its ABC card but gave it up in about four years. Even the more popular Nectar card from Sainsbury’s has not been able to match the success of Clubcard.

Probably a reason behind Tesco’s success with Clubcard can be attributed to the fact that Tesco has also 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, mfi etc. Therefore customers can earn points using Clubcard not only at Tesco, but at stores of any of these companies. Further the points can also be earned by purchasing fuel at Tesco petrol stations and by using their online shopping to buy music, books, flowers and electrical goods. Even the points can be earned by paying with Tesco Credit Card or by using Tesco Mobile, Tesco Home Phone and selected Tesco Financial Products. This means that customers can easily and frequently accumulate the minimum 150 points and get price-off vouchers. Other loyalty cards have also failed in the past because the retailers did not had sufficient partnerships with other popular companies and so for a customer it took many months to collect minimum points and get vouchers. Thus slowly customers lost their interest in such schemes. Tesco’s Clubcard in contrast has managed to maintain interest in the customers.

For getting a Tesco Clubcard, customers have to register by filling in a form and sending it by post or they can also register online as well as over the phone. This means that Clubcard also acts as a tool for Tesco for collecting useful marketing data related to the buying habits of individual customers. Thus there have been concerns on issues such as invasion of privacy and dissemination of information related to the customers to third parties or other companies for marketing purposes. Tesco however promises that the information is used only by the Tesco group of companies to help them develop better services and products for the customers. “Because they understand their customers, they hope they can serve them better, and so what we’ve done, right from the beginning, is not look at this program as a marketing sales promotion program, but we’ve looked at the program as a way of learning about how consumers shop, and what they want from their retailer, and therefore, not just changing the one to one communication with the customer, but changing the physical retail offer” - (Clive Humby, Scoring Points). This however shows that Clubcard has definitely helped Tesco in developing better understanding of the needs of the customers and at least in that sense has been a very useful tool.

Effective Targeting of Different Customer Segments

Probably the biggest challenge that retailers face is how they can make the loyalty scheme appealing to their different customer segments. “The most successful examples of innovation and evolution in retail formats are retailers that respond accurately and profitably to previously unsatisfied needs. In an increasing competitive trading environment, the best rewards go to retailers who can attune to the requirements of clearly defined customer segments” - (Peter McGoldrick, Retail Marketing). For a retailer like Tesco the customers can be anyone from a ten year old boy to an 80 years old woman. Thus the loyalty program needs to have elements that can appeal to people of all age groups. Tesco has tried to do this with the Clubcard by offering something for every member of a family. They have introduced different clubs such as Tesco Kids Club, Tesco Baby and Toddler Club, Tesco Healthy living Club, World of Wine Club etc. Membership to these clubs is free to all Clubcard holders and customers can register for the membership online.

The Tesco Kids Club:

This has been designed keeping in mind the needs of children in age group of five to eight years. Concerns can be raised that, is this not marketing to children and therefore unethical. However Tesco maintains that it will not advertise prices to children and also assures that all material produced by it is approved by members of its parents panel. 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 Clubzone Magazine for kids, a Parents 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 food, toys and clothes for kids. Tesco thus by using the Kids Club has probably been able to establish credibility and soft corner in the heart of parents by providing free information on issues such as safety and health tips for children. Thus parents are more likely to prefer Tesco stores for doing shopping for their children.

Tesco Baby and Toddler Club:

This is for people who have become parents recently or women who are pregnant. The members get free magazines offering advice from experts on childcare issues and safety tips for pregnancy period. They also get entries into free prize draws and also permit to be able to park their cars nearer to the store. By using this club Tesco has tried to appeal to the people who if addressed properly can very well turn out to be its customers for many years. These are the customers who are about to start or have just started a family. By showing concern for them and providing extra benefits to them like closer parking facility near the store Tesco has tried to build strong bonds with these customers. These customers therefore will be more likely to shop at Tesco in the future as well.

Tesco Healthy Living Club:

Members get a free “40 Steps to a Healthier Life” booklet and also regular magazines offering useful tips on diet, exercise and health issues. They also get price-off coupons on food products such as dairy items and organic foods. Tesco is using this club as a tool to establish its credibility as a health conscious retailer and also for promoting its range of Healthy Living and Organic Foods. The focus is also more on customers in the middle and old age groups who want to maintain a healthier lifestyle.

Tesco World of Wine Club:

This club provides information to members who like drinking wine about the different range of wines available all over the world as well as information such as which wine goes with what kind of food etc. Members also get price-off coupons for purchasing wine at Tesco. This club also helps Tesco in promoting the new range of wines available at their stores.

Tesco AirMiles Travel Company:

Tesco also entered into relationship with AirMiles Travel Company in 2002 and so customers can also convert their Clubcard vouchers into AirMiles for their flight trips. For example £2.50 of Clubcard vouchers can be exchanged for 60 AirMiles. The fact that AirMiles Travel Company switched over from Sainsbury’s with which they were since 1996 to Tesco also reflects on the supremacy of Tesco in the UK retail market-place.

However it hasn’t been success all the way for Tesco and some of their initiatives such as the Student Card and the Clubcard Plus Payment Card failed. It can also be argued that Clubcard has not been a success in the student customer segment. Also even though Clubcard has contributed a lot in helping Tesco set up a successful financial services company, it has not been able to properly integrate the financial products and services in its loyalty program. Another weakness of the Clubcard as compared to other loyalty cards is related to the redemption of vouchers. The system is slow and lacks flexibility with customers getting their statements after every three months along with their price-off coupons. To redeem the deals, customers have to send the Clubcard vouchers by post to the Clubcard Deals Department which then does the formalities and sends back the vouchers entitling the customers to the deals they have chosen. Customers cannot redeem their vouchers online or at stores which if was possible would have made the whole process much simpler and faster.

Can Tesco have been as successful without Clubcard?

The change in fortune for Tesco started with the introduction of its Clubcard but does that justify that all the success for Tesco has come with this single loyalty scheme. If the answer is yes then why similar loyalty programs have failed for other retailers. Thus definitely there has been some element of luck involved that has favoured Tesco. Still the credit cannot be taken away from Tesco for being able to run the program so effectively. Customers using other loyalty cards have often faced problems such as points not appearing in the Nectar account when using the card at BP but Tesco has managed to run the scheme in a more reliable and user friendly way then any other retailer. Also the reason why Tesco has been so successful is because it was able to use the Clubcard and the information provided by it, not only for developing new products and services for their existing stores but also to diversify in other new businesses. So it can be said that without the Clubcard Tesco might have struggled to become as successful as it is now.

Conclusion

In conclusion it can be said that what has made Clubcard work so wonderfully for Tesco is the fact that with this simple single loyalty scheme, Tesco has been able to address to the customer segments of different age groups. Also more then anything else, it is probably the simplicity with which the scheme runs that has made it so successful and acceptable among its customers. “Retailers are looking to expand to the international marketplace, and are making significant investments in Internet customer service. Both large and small store-based and catalogue retailers are using the convenience of the Internet to better serve their customers” - (Michael Levy, Retailing Management). Similarly Tesco’s online marketing strategy has also been very simple. Information on products and services of all the groups companies are available on a single website presented in a well integrated way. A customer can jump from the groceries store to the Finance and Insurance division on the same web page unlike most other companies websites which open up a completely new website for the other companies of the same group. Further Tesco has been able to use its loyalty program very well to establish mutually beneficial relationships with its customers. Thus the main reason behind the success of Tesco’s relationship marketing strategy and loyalty program has been the way it has managed to establish Clubcard not as a marketing tool but as a product of relevance and value for the customers.

BIBLIOGRAPHY

(1). Humby, C., Hunt, T. & Philips, T. (2003) Scoring Points: How Tesco is winning

customer loyalty - 1st Edition: Kogan Page Limited.

(2). McGoldrick, P (2002) Retail Marketing - 2nd Edition, Maidenhead: McGraw-Hill.

(3). Gilbert, D (2002) Retail Marketing Management - FT Prentice Hall.

(4). Seth, A. & Randall, G. (2001) The Grocers: The Rise and Rise of the Supermarket

Chains - Kogan Page Limited.

(5). Levy, M. & Weitz, B. (2003) Retailing Management - McGraw-Hill Education (ISE

Editions).

(6). Powell, D. (1991) Counter Revolution: Tesco Story - Grafton Books.

WEBSITES

http://www.tesco.com/
http://www.planningaboveandbeyond.com/Intheirownwords/ScoringPoints/

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