Should Tesco ditch Clubcard?

The early arrival of new chief executive Dave Lewis at Tesco has led to a deluge of advice on how best to turnaround the stuttering retailer. The most radical is a call to overhaul or even nix Clubcard. The loyalty programme has been the bedrock of Tesco’s success, but the rise of Aldi and Lidl suggests customers are after a simpler value offering.

Tesco clubcard

A move to ditch Clubcard would certainly be bold. The programme is credited with turning Tesco into the giant it is today, with all the data the programme collects giving Tesco invaluable insights into consumer behaviour and shopper trends that has allowed it to stay ahead of the competition.

Clubcard currently has 16.5 million active members, just behind Sainsbury’s Nectar card with around 19 million. Both operate on a similar points-based system, with customers able to redeem points either on shopping or with third parties such as cinema and restaurant chains.

Asda remains resolutely against launching a loyalty programme, instead focusing on every day low prices. Morrisons, meanwhile, has recently announced plans to launch a loyalty programme by the end of the year and is currently trialling a number of different options with customers.

Clubcard overhaul

Sanford C. Bernstein analyst Bruno Monteyne believes the time is right to give Clubcard a radical overhaul because Tesco has “lost its value credentials”. People who are looking to save money on the basics will now shop at Asda, Aldi or Lidl, while that want to treat themselves to more quality head to Waitrose, Sainsbury’s or M&S, he says.

“There isn’t much you can get at Tesco that you can’t get better next door. Tesco’s undifferentiated offer is its biggest weakness,” he adds.

Monteyne advocates a segmentation of the Tesco brand, offering different services at different locations dependent on local needs. That includes a new discount offering that would do away with Clubcard and instead focus on giving customers the lowest prices possible, alongside other formats that offer range, quality, service and Clubcard.

“Clubcard is great for some things but if you want to fight on price it is an unnecessary cost. People don’t need a personalised Clubcard mailing to know that Aldi and Lidl are cheap. The prices take care of that,” he says.

There are some clear challenges in this approach, most notably that customers might become confused at the different offerings and the ability to use their Clubcard in some Tesco stores and not others. Monteyne says Tesco will need to impress on customers the discount nature of the store, making it clear prices are 10 per cent cheaper.

“Many people will happily take a 10 per cent price cut over a Clubcard reward. But they need to smell and see the cost savings. That reinforces the trust that this is a different value concept,” he adds.

HSBC analyst David McCarthy goes one step further. He advocates getting rid of Clubcard completely, citing its estimated £500m costs, and instead investing in across-the-board price cuts and targeting its marketing at the wider population, not just Clubcard holders.

The value of data

Despite the investment cost, there is still intrinsic value in Clubcard, particularly in providing information on ranging and merchandising. It also underpins a number of other marketing schemes, such as Fuel Save which Tesco is using to boost loyalty and sales, and the new Tesco Bank current account.

Bryan Roberts, analyst at Kantar Retail says while Clubcard is “one component of a fairly complex array of hoops that shoppers have to jump through to achieve maximum value at Tesco, jettisoning the programme would be a regrettable baby/bathwater scenario”.

What Tesco will need to do is make sure Clubcard works within the strategy Lewis comes up with. He has been brought in from Unilever to turnaround faltering sales, loyalty and brand perception, promising in a letter to Tesco employees to return to being “the customers’ champion”.

Stuart Evans, general manager of loyalty company ICLP, says it is possible that the points-based scheme will not fit with the direction Tesco takes in future and that it needs to look to microtargeted, personalised vouchers. That could see the supermarket offer people deals via their smartphones as they walk in store, rather than sending out a series of vouchers based on what they have bought before.

That should be helped by the launch of a new digital Clubcard later this year, which former CEO Philip Clarke hinted would allow customers to tailor the programme to suit their needs. Evans believes this would help Tesco drive retail value from a customer walking into its stores and allow it to engage with them and drive a new relationship.

“New loyalty is about microtargeting, not collecting and saving. On mobile people think differently, customers want choice, immediate reward and value now so t hey feel in control. Tesco has the data to make that really personalised,” he adds.

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