28 Oct 09

Tesco Clubcard - The implications for Manufacturers

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The launch of Clubcard in Thailand in August this year extends Tesco’s loyalty cards operation further across the globe, and belatedly brings Thailand’s biggest retailer into a loyalty card market which already contains offers from Carrefour, Tops and Big C. It will clearly be big: in its first three weeks Clubcard gained more members (two million) than competitor Carrefour’s I-Wish card has accumulated since its launch in 2007. The recent launch in Malaysia has resulted in 70% of scanned transactions being covered by Clubcard.

The benefits to Tesco are clear. Their dominance of the UK market has been underpinned by Clubcard, and whilst their latest campaign to double points has yet to prove effective (Tesco growth in the period still lags Asda*, a competitor which does not use a loyalty card), there is a consensus amongst industry observers that it has historically been a critical part of their marketing mix. The benefits to manufacturers are less clear; and one suspects criticism of one’s biggest customer would naturally be muted. So what are the implications for Tesco’s suppliers and how should they respond to Clubcard?

Clubcard is a loyalty card, and is designed to encourage shoppers to use a particular chain more. In its simplest incarnation a loyalty card gives rewards, usually in the form of discounts against future purchases, based on how much is spent. Because Clubcard registers who did the shopping, it is possible for Tesco (through their partners Dunnhumby, majority-owned by Tesco), to analyze who buys what, which should enable activities such as promotions to be better targeted. So, for example, a coffee supplier could target their next promotion only at shoppers who bought the competitor product. The targeting of promotions offers a theoretical improvement in effectiveness, but the real boon is the potential to effectively evaluate activities – knowing which shoppers bought adds useful data to a promotion evaluation which is currently limited to whether sales went up or not.

Clubcard promises suppliers much: Insight into shoppers, more efficient promotions, and unprecedented access to new in-store media opportunities. Suppliers will need to evaluate the potential benefits of the Clubcard offer against the inevitable associated costs. Yet it clearly has limitations: Clubcard in Thailand has two million card holders, yet with Tesco enjoying 25% of the Thai retail market, their total number of shoppers must be significantly higher than this. So how skewed is the sample, how representative, and what is missing?

More importantly manufacturers need to question how important Tesco will be to future strategies.

Any retail investment decision should not be made without firstly understanding which shoppers, in which channels driving brand consumption; and what will influence their behavior in-store.

Regardless, we believe that Clubcard will have three significant impacts on suppliers, namely;

• the provision of significant amounts of data
• the opportunity to evaluate activity effectively
• A continued upward pressure on trade spend.

In terms of data provision (not, as yet, insight), Clubcard undoubtedly has the capability to add data which is otherwise difficult to obtain. By gathering data on the card holder, it effectively connects “who” the shopper is, to “what” they buy. Unfortunately it does not answer the most critical questions – “why”. There is no data to understand what beliefs and stimulus created behavior in-store, and therefore it is difficult to understand how to replicate this behavior in the future. It does not monitor or detail the stimulus that the shopper received; from when the shopping mission was created in their mind to the point where they arrived at the check-out and paid for the product. What combination of stimulus created this behavior? What happened in-store? Was the display critical, or the price, or the voucher, or the sign, or the fact that the competitor brand was out of stock? But beyond this there is another, more important drawback. From our research, manufacturers (across marketing, shopper marketing and sales) are only using a fraction of the data that they have at their disposal, and often lack the core skills required to turn data into insight, or indeed insight into action. Before purchasing Clubcard data, suppliers should think carefully about their capability and capacity to utilize an additional data stream.

Likewise, the opportunity to evaluate promotions more effectively is hampered by similar issues. Our analysis suggests that most of Tesco’s suppliers are not even conducting the most basic of promotional evaluations. It would appear unlikely that more data is going to change this. Many suppliers rarely use the existing POS or retail audit data that they have beyond tracking market share – again Clubcard data will be just an incremental cost if it is never used.

We believe that all promotions should be evaluated by manufacturers at three levels: the impact on shoppers, the impact on my brand, and the impact on the retailer. Against this Clubcard data, once it is supplied with details of who bought as well as what was bought, can be a useful addition, helping teams understand which shoppers bought. But until activity evaluation is a regular, structured part of the activity planning process, there is a danger that Clubcard will add little value.

And clearly there will be a cost for participation. Dunnhumby has increased its global staff by 50% in the past year (and its profits by 71%). It is inevitable that suppliers will be encouraged to participate, and that in one form or another, it will be used to leverage more attractive trade terms. And it is against this that suppliers should carefully evaluate their involvement. Tesco Clubcard is undoubtedly a powerful tool in a retailer’s armory; and can benefit smart suppliers too, but only if it is used correctly.

Suppliers, in Thailand, Malaysia, or anywhere should ask themselves some tough questions before rushing headlong into a Clubcard deal, or investing in any other retail loyalty schemes:

• How important are Tesco to the shopper strategy? Are Tesco shoppers the ones that should be targeted to achieve the company’s objectives?
• What will be the longer term impact on shopper behavior? Will this promote one purchase or a change in purchase behavior in the long term?
• What are the priority data gaps, and does Clubcard fill any of these?
• How does Clubcard data add value to existing data sources?
• What data will be received, and what exactly will be done with it, and by who?
• Are existing data being used, and if not, what will be different with Clubcard?
• Is there capability and/or capacity in the business to create new insight from this data, and to put that insight into action?
• What will be the impact on customer profitability? Will the growth offset any additional cost? How will other investments be re-cut to allow for it?

If you are unsure about if or how to participate in loyalty programs, or whether your teams are ready for Clubcard, engage can help. engage supports your team with a range of training events, consultancy solutions and tools to improve shopper marketing and customer management in your business.

We have tools to help plan and evaluate promotions, an experienced consultancy team to advise and support the development of your shopper and customer strategies and plans, and training programs covering diverse topics from Shopper Marketing Essentials, Integrated In-store marketing, Evaluating Promotions to Managing Global Retailers. For details of our full curriculum go to www.engageconsultants.com/what-we-do, Email us at or call us on +66 2-259-5600 now to find out how we can help you.

*Source: AC Nielsen/TNS

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