What does the future hold for Tesco Clubcard?

Tesco is looking to offload Dunnhumby, the data company behind Clubcard, but that doesn’t mean the loyalty progamme will be any less important to the supermarket in the future.

Tesco clubcard

Among a series of announcements yesterday (8 January) aimed at kickstarting Tesco’s turnaround was the news that it has hired Goldman Sachs to explore options for Dunnhumby. Tesco is open to what those options could be – with Tesco CEO Dave Lewis saying everything from an IPO to a sale is being considered.

The move raises questions about the future of Clubcard. Analysts have called into question the role of loyalty programmes, especially those based on points like Clubcard, given the rise of the discounters.

Speaking to Marketing Week at an event in London yesterday, Lewis said Clubcard remains an “important part” of Tesco and that the supermarket has set aside money to invest in its future.

That includes plans for a digital Clubcard that were announced under Lewis’ predecessor Phil Clarke. It was expected that a digital version of Clubcard would be introduced by September, but it is yet to appear.

“Consideration about Dunnhunby has no impact on Clubcard. The test around digital Clubcard is ongoing, the investment is still there and there is no change to those plans at all,” he said.

Dunnhumby sale

The decision to sell Dunnhumby is less about Clubcard and more about Tesco trying to leverage a valuable asset. Shore Capital analyst Clive Black does not believe Tesco wants to get rid of Dunnhumby but has been forced into the move to reduce its debt and avoid a rights issue.

Lewis pointed out that Tesco doesn’t need to own Dunnhumby to benefit from its data, insight and services. However, he did say that Dunnhumby requires some significant investment to ensure it is equipped for the future, an investment that Tesco is not willing or in a position to make.

Bryan Roberts, insights director at Kantar Retail, says: “With a potential price tag of around £2bn, a divestment of Dunnhumby would provide some funds that could be reinvested into the business or used to bolster the retailer’s balance sheet – without losing the competitive advantage that Dunnumby provides.”

Dunnhumby is already run as a standalone business and used by a range of other brands, from Coca-Cola and Diageo to US grocery business Kroger and Macy’s. It is likely Tesco would insert a clause in any deal that Dunnhumby cannot be used by any other UK grocer, says Roberts.

Mark Evans, UK general manager for loyalty specialists ICLP, says a service contract with Tesco “written in stone and signed in blood” for the provision of ongoing marketing services at a reasonable price and ongoing access to Tesco customer data for resale to FMCG brands will also be necessary.

The future of Clubcard

The Dunnhumby deal might not mean Tesco nixing Clubcard, but that doesn’t mean it won’t be changed. Black says he doesn’t expect any big changes in the near term, but that Lewis is undoubtedly looking into the role of the scheme as part of broader thinking about Tesco’s value proposition – which includes promotions, its Price Promise price-matching scheme and Fuelsave.

Lewis said he is looking into how to improve the customer experience but won’t give details on his plans. He said Tesco doesn’t suffer from a lack of connection or engagement with the brand, but that perceptions have taken a hit and that he needs to work out how to boost loyalty to get people coming back more frequently and spending money in Tesco stores

He told Marketing Week: “We will change the perception of the brand through the experience of the brand. It is one where it is not just about communication, it’s about experience, and that’s why we’ve made the investments in service and availability in the way that we have. We have some aspirations for what it is that the brand would want to be, but time will tell how successful we are moving it from where it is to where we want it.”

Evans believes the loyalty sector has moved “beyond just being points and prizes” and that the tactical incentivisation that made Clubcard so successful in the past – when it offered initiatives like double Clubcard points to boost sales – don’t work anymore.

He says the Clubcard programme needs significant reinvestment and reimagination. Giving customers access to their own data so they can define their own value proposition would, he suggests, be a marketing first and one that other loyalty programmes would struggle to compete with.

“The Clubcard programme is out of date. Going further with interactive tools, device-neutral apps and even using the value collected in rewards and the myriad of data available to support gamified chances to play and win are all the areas where Clubcard today is losing ground,” he says.

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