Google gives Tesco clubcard information technology lesson

Loyalty card king Tesco is set to snatch Wal-Mart’s crown in the US, but the days of its Clubcard data collection model appear numbered

It could be one of the competitive battles of the early 21st century. The battleground: Phoenix, Arizona (of all places). The contestants: upstart newcomer Tesco with its new Fresh & Easy format versus leviathan incumbent Wal-Mart, with a new concept called Marketside. Why is it so significant? Because Tesco’s model of many small local stores linked by a super-efficient and flexible replenishment network could have found Wal-Mart’s Achilles heel.

Wal-Mart rose to be the biggest company in the world on the back of its formula of big box out-of-town stores. Its influence is huge. For example, it has over 50,000 Chinese suppliers, making it China’s seventh largest trading partner – bigger than most nations. Yet Tesco believes it can pretty much match Wal-Mart on price while offering shoppers much greater convenience, freshness and quality. So it’s game on.

One weapon Tesco has yet to deploy, however, is Clubcard. Perhaps it’s just a matter of time, but there might also be competitive/contractual issues relating to Tesco subsidiary Dunnhumby’s work for Kroger. It may also have something to do with the nature of Clubcard itself.

With Clubcard, Tesco has earned global admiration as a pioneer and innovator, demonstrating the power of a business driven operationally by customer data. It gives us a glimpse into the future. Clubcard data is now embedded into virtually everything Tesco does: ranging, pricing, promotions, space allocations and store designs, store locations, marketing communications, the lot.

Using this data, Tesco can do things other retailers can only dream of: countless small experiments – tweaking this, trying that – so that it keeps improving details of its operations, most of which remain invisible to its competitors but which nevertheless add up to a formidable competitive advantage.

Yet as far as marketing as a whole is concerned, Clubcard is just a magnificent dead-end because the combination of things that make it so powerful do not apply to most businesses. Imagine a similar loyalty scheme for an electricity supplier, holiday company, clothes shop, bank or petrol station. None of these businesses has customers constantly returning once or twice a week, 52 weeks of the year. None of them has customers buying 40 or 50 different items each time from within a range of tens of thousands of stock keeping units. So none of them has Tesco’s infinite potential to tweak offerings.

Reliable picture

Few of them share Tesco’s sweet spot “share of customer requirement” either. The petrol station or clothes shop’s share of the individual’s total category spend may be so small that any data they collect will fail to give them a reliable picture of the customer’s overall spending patterns. On the other hand, the electricity supplier or bank may have 100% of the customer’s business, which means they lack the one thing that makes Clubcard so successful – the ability to expand their share of customer spend.

Tesco has the best of both worlds: a big enough share of category spend to get a good profile of customer attributes and behaviours, but with plenty of room for growth. (Even if you have 75% of a customer’s category spend, if you can increase this by just 1% over 10 million customers you are talking mega bucks.) And that’s not counting the ability to use the same data to ease entry into new markets.

I could go on – the size of the customer base, the fact that the food you buy says an awful lot about your values and lifestyle (much more than your electricity). However, Clubcard is a freak, rather like a giraffe standing tall among all other jungle beasts. For most businesses (aside from a few international retailers with similar characteristics), trying to copy its “secrets of success” isn’t feasible.

Does this mean the dream of the data driven company is a mirage after all? No, it simply means Tesco is not the one showing us the way forward. The real opportunities lie elsewhere.

Take Google as one example. With Google, individuals volunteer information about what they are interested in buying, and when they are interested in buying it. This provides data that Clubcard can never capture: before-the-event information about what somebody is planning to buy rather than after-the-event information about what they have bought. In marketing terms, that’s nirvana – and Google is just the start.

Facebook and MySpace are other examples: individuals building profiles about themselves – personal databases – on a mass scale, to reveal information about their attitudes, preferences, circumstances, lifestyles and interests. No traditional market research or transaction-based database could ever match these personal databases once they reach maturity.

Now factor in the many other ways individuals could volunteer information if they were so minded and if the appropriate mechanisms, infrastructure, incentives and safeguards were in place – communication preferences (opt ins and opt outs), factual updates (“I have moved home”), questions and queries, orders and specifications, complaints and suggestions, peer reviews and peer advice, expressions of interest, future plans and intentions, doubts and fears, and so on.

Elicited, processed and combined in the right way, these sorts of volunteered information will reach levels of richness, scale, granularity, immediacy and flexibility that make Clubcard look like a beached whale.

Transaction data

Our current model of customer relationship management (CRM) – gathering transaction data about customers, storing it in a huge centralised database inside a single corporate silo, and then trying to infer patterns and make predictions on the basis of this data – is reaching its sell-by date. But that doesn’t mean “the death of CRM”. Big companies still need CRM systems for legal and operational reasons. But the cutting edge of marketing and competitive advantage – spotting emerging opportunities for innovation, responding quickly to changing market trends, eliminating waste from the marketing process by knowing who to talk to, about what, when – is rapidly moving to a completely different arena.

With volunteered information the underlying infrastructure is incredibly decentralised; the individual rather than the corporation is the key data generator; success comes from the ability to respond rapidly to real signals of demand rather than from building models, making predictions and running “campaigns”.

Over the pond in the US, Tesco is poised to prove the superiority of fast, flexible and local. But back here, its information model is an echo of Wal-Mart – big, cumbersome, centralised and hugely expensive. By all means, admire Tesco for what it has achieved with Clubcard, but try adopting the same approach at your peril.


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