TESCO

If you asked a customer of UK supermarket chain Tesco what the shopping experience there
was like in the early 1980s, "customer friendly" would probably not be the answer. Though
it began upgrading its stores and product selection in 1983, Tesco continued to suffer from a
reputation as a "pile it high and sell it cheap" mass market retailer, lagging behind
Sainsbury's, the more upscale market leader. To gain share against Sainsbury's, Tesco
needed to reverse the public perception of its stores. It decided to improve the shopping
experience and high-light improvements with an image campaign to "lift us out of the mold
in our particular sector," as its 1989 agency brief put it. Between 1990 and 1992, Tesco
launched 114 separate initiatives to improve the quality of its stores, including adding baby-
changing rooms, stocking specialty items such as French free-range chickens, and
introducing a value-priced line of products. It developed a campaign entitled "Every Little
Helps" to communicate these improvements with 20 ads, each focused on a different aspect
of its approach: "doing right by the customer." As a result, between 1990 and 1995, Tesco
attracted 1.3 million new customers, who helped increase revenues and market share until
Tesco surpassed Sainsbury's as the market leader in 1995.
Tesco then introduced an initiative that would make it a world-class example of how to build
lasting relationships with customers: the Tesco Clubcard frequent-shopper program. The
Clubcard not only offered discounts and special offers tailored to individual shoppers but
also acted as a powerful data-gathering tool, enabling Tesco to understand the shopping
patterns and preferences of its customers better than any competitor could. Using Clubcard
data, Tesco created a unique "DNA profile" for each customer based on shopping habits. To
build this profile, it classified each product purchased by a customer on a set of up to 40
dimensions, including price, size, brand, eco-friendliness, convenience, and healthiness.
Based on their DNA profile, Tesco shoppers received one of 4 million different variations of
the quarterly Clubcard statement, which contained targeted special offers and other
promotions. The company also installed kiosks in its stores where Clubcard shoppers could
get customized coupons.

The Clubcard data helped Tesco run its business more efficiently. Tracking Clubcard
purchases helped uncover each product's price elasticity and helped set promotional
schedules, which saved Tesco over $500 million. Tesco used its customer data to determine
the range of products and the nature of merchandising for each store, and even the location
of new stores. Within 15 months of introduction, more than 8 million Clubcards had been
issued, of which 5 million were used regularly. Tesco's customer focus strategies enhanced
by the Clubcard helped propel Tesco to even greater success than in the early 1990s. The
company's market share in the United Kingdom rose to 15 percent by 1999, and that year
other British companies voted Tesco Britain's most admired company for the second year in
a row. In the following years, Tesco continued to apply its winning formula of using
customer data to dominate the British retail landscape. Tesco moved beyond supermarkets
to "big-box" retailing of general merchandise, or nonfood products. This strategic growth
not only provided additional convenience to consumers who preferred shopping under one
roof but also improved overall profitability. In 2003, the average profit margin was 9 percent
for nonfood products versus 5 percent for food and nearly 20 percent of Tesco's revenues
came from nonfood items. That year, the company sold more CDs than Virgin Megastores
and its apparel line, Cherokee, was the fastest-growing brand in the United Kingdom.
Tesco continued to conduct extensive customer research with telephone, written surveys,
and customer panels to extend its lead in the grocery market. By 2005, the company had a
35 percent share of supermarket spending in the United Kingdom, almost twice that of its
nearest competitor, and a 14 percent share of total retail sales. Tesco sought growth
overseas in the mid-2000s and today, the company operates 4,300 stores in 14 countries,
with a strong focus on high-growth markets in Asia. The company has used the same
customer-centred strategies that worked in the United Kingdom to expand into these new
markets. Tesco continues to diversify its product and service offerings in order to reach
more consumers.
In the late 1990s, Tesco launched its own ISP service, Tesco Broadband, to provide Internet
access to homes and businesses. During the 2000s, the company partnered with existing
telecoms to create Tesco Mobile and Tesco Home Phone, a service now used by over 2
million UK residents. Recently, Tesco collaborated with the Royal Bank of Scotland to create
a banking division, Tesco Bank. In addition, Tesco offers insurance policies, dental plans,
music downloads, and financial services. One Citigroup analyst said the chain had, "pulled
off a trick that I'm not aware of any other retailer achieving. That is to appeal to all
segments of the market." Tesco has accomplished this feat by creating three distinctive
Tesco-branded price ranges in order to appeal to everyone: "Finest," "Mid-range," and
"Value." In addition, Tesco has categorized its stores into six different formats, depending
on where they are located and whom they are targeting. From largest to smallest, these
stores include Tesco Extra, Tesco Superstores, Tesco Metro, Tesco Express, One Stop, and
Tesco Homeplus. Throughout Tesco's massive expansion, both globally and through its
product and service offerings, Tesco has stayed true to the importance of its Clubcard
loyalty program. Consumers can now earn points on their Clubcard every time they shop at
a Tesco store, use one of Tesco's services (Tesco Mobile, Tesco Home Phone, Tesco
Broadband, Tesco Credit Card, or Tesco Financial), or use one of Tesco's partners' services.
During the recent world-wide recession, Tesco helped trigger spending through special
loyalty promotions such as double reward points. During a double points promotion,
consumers receive 2 points for every £1 spent. For every 100 points, consumers receive a £1
voucher good for any Tesco product or service. In 2009, Tesco's profits reached £3 billion,
which resulted in £59 billion in revenues. Today, it is the largest British retailer measured by
both sales and market share (30 percent). Based on profit, it is the second largest retailer in
the world after Walmart.

Questions
1. What's next for Tesco? Where and how can it grow? Who will it target?
 2. How can Tesco take its customer loyalty programs to the next level?

Sources:
Richard Fletcher, "Leahy Shrugs Off talk or a 'Blair Drain,— Sunday Tams (London), January
29, 2006; &moth Rigby. 'Prosperous Tesco Takes Retailing to a New Level.' Financial Times.
September 21, 2005, p. 23: !AVM Cohn, 'A Grocery War That's Not about Food,-
ilostnessWimiar. October 20, 2003. p. 30. 'fhe Prime MlniSter Launches the 10th Tosco
Computers for Schools Scheme," M2 Presswira, January 26, 2001; Miley° Shame and Joanna
Bamford, 'Tesco Stores Ltd,' paper presented at Advertising EffecitvenesS Awards, 2000;
Hamish Pringle and Marjorie. Thompson. Brand Spill (tam, York: John WileyaSons. 19991;
Hannah ! theta. 'Term). Supermarket Superpower.' BBC, June 3. 2005.