Mark Kleinman on Marketing and the City: Tesco wins Clubcard points

Mark Kleinman
Mark Kleinman

LONDON - The supermarket's overhaul of its loyalty scheme should give it a timely sales and data. boost

When Sir Terry Leahy eventually decides to call time on this tenure as one of the most successful executives in corporate Britain, he may look back and identify 13 February 1995 as the day when it all began.

That was not the day he took over as the boss of Tesco, but the day on which it issued its first, rather unremarkable, piece of blue plastic with the word 'Clubcard' stamped on one side.

Almost 15 years on, and Leahy's £150m revamp of the retailing giant's loyalty scheme, announced earlier this month, is of far more than routine significance. City analysts have been busy digesting the details of Leahy's plans for the next year.

Growing in non-food (particularly financial services), improving the disappointing performance of the company's fledgling US business, and identifying new international markets for expansion (India has long been at the top of Leahy's shopping list) are all on the Tesco agenda.

But there is a compelling argument that says the Clubcard relaunch is at least as important as any of these.

Against a rejuvenated Sainsbury's, an ambitious Morrisons and an Asda supported by the Arkansas muscle of its parent, Wal-Mart, Tesco is facing the challenge that all dominant brands must confront: the difficulty of sustaining sales and profit growth at a rate that satisfies the demands of shareholders.

Perennially parochial, the City focuses on Tesco's performance at home, despite the fact that a growing chunk of its profit is now generated from international operations.

Concern about future growth in the UK goes some way toward explaining why its shares are valued at only about 12 times forecast earnings, compared with higher valuations for rivals such as Sainsbury's (15 times) and Morrisons (almost 14 times).

Put simply, the City is worried that, with more than £1 in every £8 spent in UK retailers being funnelled through Tesco's tills, the accelerator pedal cannot be pushed to the floor forever.

Clubcard's overhaul is a direct response to that threat. For the first time, there are genuine parallels between Clubcard's rewards structure and that of Nectar, the multi-partner programme of which Sainsbury's has been a member since its launch in 2002.

The resemblance may not be a coincidence. During the past year, Tesco has found itself in the unaccustomed position of being criticised for its lack of marketing focus. Its 'Britain's biggest discounter' ad campaign, aimed at persuading shoppers not to defect to Aldi and Lidl, was strangely off-key.
Many people, in both adland and the City, believe Tesco's brand advertising has not struck the right note since the end of the long-running work featuring Prunella Scales as 'Dotty'.

Moreover, despite data research company dunnhumby being a wholly owned subsidiary, some analysts had begun to question whether Clubcard was being exploited to its full potential. That should now change.

With consumers' belts now tighter than ever, attracting an additional 1m Clubcard members (although Tesco has not set a timeframe for this) should add both to its topline sales growth and ability to mine data on recessionary spending habits.

The downside, of course, is the allegation that the ubiquity of its brand has created an unhealthy 'Tescopoly' that squeezes small suppliers and reduces diversity of competition.

It is something that the UK's biggest retailer vigorously denies, but such is the price of success, and City investors are willing to see Tesco living with it.

Mark Kleinman is City editor of The Sunday Telegraph

30 seconds on the Tesco Clubcard

  • The Tesco Clubcard launched in 1995. The current scheme gives customers one point for each £1 spent.
  • Grant Harrison, strategic promotions manager at Tesco, and Clive Humby of data insight specialist dunnhumby, devised the loyalty card scheme. They trialled the card in 1994 and pitched it to the Tesco board.
  • After the pitch, chairman Lord McLaurin reportedly said: 'You know more about my customers after three months than I know after 30 years.'
  • In 2008, Humby co-wrote the book Scoring Points: How Tesco Continues to Win Customer Loyalty, which charts the genesis of many of Tesco's loyalty schemes.
  • The Clubcard scheme also includes several specialised programmes such as a wine club, a baby and toddler club and a healthy living club, to target customers with specific interests.
  • Tesco relaunched the scheme this month, allowing customers to receive twice the points and voucher value on some product ranges.

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