Saturday 22 August 2009

Tesco change the game?


The Tesco Clubcard loyalty programme has been in the news again recently, with the announcement that they are offering double points on all earning. This follows the current campaign where they are offering double the value of reward vouchers in-store – so your £10 reward voucher could be worth £20 across certain lines or continue to be worth £40 with selected Deals partners.

If you’ve ever listened to Andrew Mann speaking about Clubcard (before his recent departure to Sainsburys) you’ll have heard how they positioned the scheme, not as a loyalty programme, but as “a way of saying thankyou”. However, the recent changes to the scheme show clearly what it really is – it’s a way of changing customer behaviour – it’s a loyalty programme through and through – for Tesco it has always been game changing and they are now raising the stakes.

In the book Scoring Points: How Tesco Continues to Win Customer Loyalty, Clive Humby and Terry Hunt discuss how they trialled both 1% and 2% back in value and there was no real difference in customer response – so 1% it was. However, a combination of a highly competitive market and stagnant growth have - 14 years later – forced Tesco to up the game; offering double points or 2% back.

But Tesco like to write their own game rules. Back in 2002, Clive Humby was discussing loyalty in an article first published in Customer Management Journal. He was discussing loyalty programmes and how, at Tesco, they don’t take loyalty “best practice” at face value and instead look to prove what works and what doesn’t. When looking at “Loyalty Ladders”, Humby states:-

“There’s a myth that there’s some sort of magical ladder. Customers come in on the bottom rung at the beginning, they go up a ladder, becoming more valuable to you and, over time, they become advocates of your brand. It just doesn’t happen like that.”

Now I suspect all of us in the industry are guilty of having used a version of this ladder before in a PowerPoint presentation somewhere, and as a simple way of expressing the different types of customer segment, from unknown through to advocate they do have a use.

LoyaltyLadderHowever, Humby goes on to discuss how they had done some work on advocacy and actually found that:-

“Advocacy peaks when you’ve just made a choice…when you’ve just made a decision and seek affirmation by talking about it with your friends”

This of course makes sense – in order to make a purchase, customers will have (hopefully) researched the best product, price and retailer and having made the purchase and been satisfied with it, will quite obviously discuss this with other people. In fact, if they had not had a great experience they are probably just as likely to discuss this too – becoming detractors.

This process is ongoing however. The purpose of a loyalty programme is to “smooth” the way to the next purchase – removing barriers to purchase through a better understanding of a customer’s desires and preferences and removing constant re-evaluation through non-price related benefits.

A better representation of the “loyalty ladder” is in fact as a circle.

Relationship CycleThe ideal customer journey is to go from Awareness (of your brand/product/service) to Desire (wanting it) to Behaviour (the interaction/purchase).

If this is a new relationship it’s more than likely the customer will Evaluate you with your competitors based on price, service or other customer reviews. This is where you need to be able to differentiate your product on more than price alone (unless you’re the price leader of course)

If all goes to plan and the customer is satisfied then this leads to Advocacy. The whole process give you a chance to Learn and Customise further communications in the hope of continuing the cycle. Ongoing, the loyalty programme should hopefully create further differentiation and lessen/remove the constant Evaluation.

Of course every interaction has the opportunity to create advocacy – and to destroy it – but this obviously subsides for most customers unless you change the game a little.

For Tesco, changing the game is exactly what they have just done.

With upwards of 50% of households already enrolled in Clubcard and near market saturation, customers would be more complacent – seeking to increasingly Evaluate against competitors. This has resulted recently in Tesco losing market share as customers evaluate alternatives such as discounters like Lidl and Aldi.

By changing the scheme to make both earning and redemption more valuable, this will be a pleasant surprise for existing customers, creating new opportunities for advocacy. It also increases the value exchange, allowing Tesco to create non-price based differentiation and reducing constant competitor evaluation.

I’ve said before that this is the year of loyalty – first it was Airmiles doing a major re-launch earlier in the year and now Tesco – the behemoth of retail loyalty have raised their game and made loyalty the centre of their marketing strategy – in case anyone thought this had ever changed.

Tesco continue to show that if loyalty is done right, with a robust test and learn strategy and a willingness to keep innovating within the programme, customers will respond positively.

It remains to be seen how these recent changes will affect Tesco’s fortunes, but you can bet they already have a good understanding of how the game will play out.


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