Alan Mitchell: Consumer power is on the cards in Tesco plan

Customer information gathered from Tesco’s Club Card scheme is set to revolutionise the way the store responds to demand, writes Alan Mitchell

Whoever invented the term “loyalty card” has a lot to answer for. The notion that brand loyalty could ever be sustainably influenced by the paltry bribes offered by such schemes is laughable. The title has also helped divert attention from some awesomely important long-term implications of such cards.

The many ways Tesco uses Club Card data are pretty familiar nowadays. The scheme is used to identify and analyse consumers’ behaviour and needs in many

ways, defining lifestyle segments – with shoppers classed as discount-driven “price sensitives”, “foodies”, “heavy category users” or loyalists of particular brands – and testing the degree of consumer response to different types of promotions. The effects of different pricing strategies can be tested, as can the effectiveness of spending on television ads (charting sales’ trends in different Incorporated Society of British Advertisers regions according to media buying strategy, for example); the effects of different types of promotion can be monitored across different categories; and customer profiles can be built up and used to target similar people and households.

The Club Card concept is also used to communicate more effectively with consumers. This means targeting promotions more precisely (for example, targeting dog food offers to dog owners) using coupons given out at the checkout and with Club Card statements. And it’s also about sending the right messages to the right customer segments through a range of different channels, such as direct mail (say, to “healthy living” types), tailored Club Card statements, and mailings to members of the wine club or kids club.

And for online activities, the card concept allows Tesco to finely target banner and other website ads or to send tailored e-mails.

The net effect of all this is a much more finely tuned understanding of consumer behaviour, leading to more bangs for fewer marketing bucks.

But there’s more. Over the next two years, Tesco plans to use Club Card data to tweak its product assortment and arrange different stores according to the buying habits of their customers. Instead of using centrally decided planograms (which determine the stores’ range, merchandising and so on), it will effectively let customers decide what each store should stock. This is “fundamentally changing our supply chain,” Tesco IT and logistics director Philip Clarke told the Efficient Consumer Response conference in Barcelona last week.

It’s all part of a concerted shift from “push” to “pull” that makes information from customers the driving force behind decision making. According to Tesco chief executive Sir Terry Leahy, this is what makes Club Card data “a new, fundamental building block” for the business. “We will build our business working back from the consumer,” Leahy said in a recent interview. “We aim to operate the business as a genuine pull system.”

So far, Tesco has kept all these benefits very much to itself. But having carried out a few experiments with suppliers, it has now decided to extend the approach to its entire supply base. Launching the programme at a supplier meeting earlier this month, Tesco marketing director Tim Mason sold the benefits of better segmentation, promotion and messaging via the full array of Tesco media, from direct mail through e-mail to Club magazines and Club Card statements. It’s an opportunity “to measure, test and learn”, he said, plus a chance to “get the right message to the right customer to produce better results”.

Don’t underestimate the significance of this move. For a start, it points to a different type of relationship between Tesco and its suppliers. Tesco is no longer just a distributor of brand manufacturers’ products. It is a source of potentially crucial market research and a media owner too.

Yes, you could dismiss such developments as yet another example of retailers screwing their suppliers for every possible penny (each Club magazine has its own advertising ratecard, for example). But there’s another way of looking at it. Until now, Leahy notes, manufacturers and retailers would address the same consumer separately – one via the media, one via its stores. They were working either at cross purposes or in direct opposition. In future, he suggests, the two sides should start “collaborating on speaking to the consumer”. And manufacturers could achieve the same marketing objectives at lower cost.

The most extreme example of this so far is Procter & Gamble (P&G) launching its hair care brand Physique exclusively through Tesco stores and Tesco media. P&G is also keen to combine insights from its Golden Household programme with those from Club Card. Such “shared customer insight” is one of the next big things, says Edwina Dunn, chief executive of dunnhumby, the data analysis company now 53 per cent owned by Tesco. “Spending on communications can be much more efficient if the two sides have a shared agenda,” she adds.

But sharing marketing agendas is just the start. Modern marketing’s roots lie in an age when it was technically and economically impossible for consumers to tell companies: “Here I am, this is what I want”. So companies had to invent market research to fill this gap in understanding, and advertising to fill the communication vacuum.

Loyalty cards (and the Internet) make mass “bottom up” signalling from consumers economically and technically viable – for the first time. By filling the information vacuum at the heart of traditional marketing they are bound to trigger a root-and-branch reconsideration of the roles of market research and advertising. Tesco’s supplier initiative is a first stab in this direction.

There’s a further implication. Traditional marketing messages don’t only flow one way, from vendors to consumers; the vendor’s needs and priorities drive the content of the messages. The Tesco experience, on the other hand, shows that when marketing initiatives are shaped by signals coming from the consumer – so that “marketing processes are aligned for the benefit of consumers” (as Dunn puts it) – then targeting costs plummet and responses soar. The secret of marketing effectiveness, in other words, lies in making marketing a useful consumer service.

This, in turn, drives consumer loyalty. At which point, we come full circle. Perhaps “loyalty card” isn’t such a bad term after all. It just means something rather different from what was originally intended.

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