Is Tesco Clubcard still relevant?

Despite Tesco’s attempts to sell Dunnhumby – the British data giant behind the supermarket brand’s Tesco Clubcard –its future now looks secure after chief executive Dave Lewis said the supermarket would avoid any further asset sales during its disappointing half-year results announcement.

Previously, Lewis had aggressively pursued a sale but was left embarrassed after reportedly lowering the value of Dunnhumby from £2bn to just £700m. This was primarily due to the termination of Dunnhumby’s 50-50 marketing partnership with US supermarket Kroger, which is thought to have put off high-profile suitors such as WPP and Google Ventures.

Phil Blundell, CEO of Eagle Eye, which creates digital loyalty apps for the likes of Greggs and Asda, speculates: “The move to sell Dunnhumby was probably doomed from the start as it was never worth £2bn. And after that valuation, anything significantly less would have embarrassed Tesco.”

Dunnhumby, which created Clubcard, resells Tesco customer data onto FMCG suppliers and producers in order to give them better insight on shopper behaviour.

Clubcard must evolve

Clubcard, meanwhile, works by giving its members one point for every £1 spent and building up a total. At least four times a year, the holder receives a statement and vouchers to the value of points they have saved.

But now Dunnhumby’s future at Tesco looks secure, Clubcard must evolve according to Blundell.

He explains: “It has to evolve as it’s still an offline product in the sense that you accumulate points and once a quarter you can redeem them. Today’s consumers need real time rewards and treats, which is why all loyalty schemes are moving to real time.”

His views are shared by Sue MacLure, group data strategy partner at CRM agency Kitcatt Nohr.

Reconnecting with the past

She says Tesco must return Dunnhumby to its roots: “Tesco has forgotten what made Dunnhumby great in the first place.

“It was all about better understanding customers in order to improve relationships and the in-store experience but that has segwayed into Tesco saying: ‘oh we can do our merchandising, our stock management, our media placement and all these other revenue streams through Dunnhumby too!’

“This has left customers feeling exploited rather than helped by Clubcard; it has lost sense of those original values.”

Much like Blundell, MacLure believes evolving Clubcard to a digital offering could be the answer.

“Why not make it digital or app based like Starbucks have done?” she muses. “Instead of asking Dunnhumby about getting more money by better media placements or from stock management, it has to focus on using it to make the customer experience better and maybe introducing a reward element to customers. If the 1% point element goes as a result then so be it.”

Tesco must prove Clubcard’s relevance

Cantor Fitzgerald analyst Mike Dennis, however, believes Dunnhumby and Clubcard are both largely irrelevant in today’s market, and that Lewis will be “annoyed” he didn’t complete a sale.

“I disagree with what Lewis told analysts at the half year presentation,” says Dennis. “He said Dunnhumby can still create more value for Tesco but the role of loyalty cards within retail has greatly diminished due to the rise of digital and social channels. I don’t think Clubcard can return to relevance because it is irrelevant.”

He explains further: “Suppliers now have so much rival purchase information available that buying Clubcard data from Dunnhumby just isn’t the same attractive proposition it once was. Lewis is trying to drop them now but Tesco has been putting prices up over recent years so Clubcard giving you 1% off your basket hasn’t been attractive to shoppers for some time.”

However Blundell believes Tesco still has a unique proposition and that rivals won’t be pleased it retained Dunnhumby.

“The need for loyalty cards and data on customers to inform personalisation is a big challenge for all retailers,” he adds. “And Dunnhumby is one of the best in the business at doing that. Privately all of the big supermarkets wish they had Clubcard, Tesco just needs to reinvent it and I’m sure it will.”