Marketing Dissertation

TABLE OF CONTENTS
Chapter 1 Introduction
Introduction……………………………………………………….6
Aims and Objectives……………………………………………...8
Scope …………………………………………………………………
…..10
Rationale………………………………………………………….10
Methodology……………………………………………………...10
Conclusions & Recommendations………………………………11
Chapter 2 Literature Review
The Concept of Loyalty………………………………………………

13
Customer Loyalty Programmes………………………………….23
Loyalty as Strategy………………………………………………33
Rhetoric Vs. Reality……………………………………………..36
Chapter 3 Methodology
Research Methodology………………………………………….40
Summary of Results…………………………………………….46
Chapter 4 Analysis
Results……………………………………………………………48
Discussion of Results…………………………………………….56
Origin and Motives………………………………………………64
Tesco’s definition of Loyalty…………………………………….63
Success Factors…………………………………………………..66
Strategic implications of the Clubcard……………………72
Competitive Pressures…………………………………………....77
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Chapter 5 Conclusions and Recommendations
Conclusions………………………………………………………81
Limitations……………………………………………………...89
Recommendations………………………………………………89
References………………………………………………………93
Appendices
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List of Figures
Fig 1 Categorization of The Loyalty Concept
Fig 2 Conceptualizations of Loyalty Models
Fig 3 Categories of Loyalty (O’ Malley model)
Fig 4 Motivator, De-motivator (Diller model)
Fig 5 The 5P Loyalty Strategy
Fig 6 Characteristics of Loyalty programmes (Butscher model)
Fig 7 Opportunities for using customer information
Fig 8 Behaviour based CLP (Morgan et al model)
Fig 9 Relationship-based CLP (Morgan et al model)
Fig 10 The Ideal Customer experience (Fournier et al Model)
Figures 11-19 depict survey results
Fig 11 Customer Loyalty index sorted by female and male Clubcard members
Fig 12 Customer loyalty dimensions: Female and male Clubcard members
Fig 13 Overall customer loyalty for Tesco-Clubcard members and non-members
Fig 14 CLI of Clubcard and non-Clubcard members on loyalty parameters
Fig 15 CLI of Clubcard members by occupation
Fig 16 CLI of Clubcard –members by size of household
Fig 17 Percentage of monthly grocery budget spent with Tesco (Clubcard-members)
Fig 18 Percentage of monthly grocery budget spent with Tesco (non-Clubcard members)
Fig 19 Factors in selecting a supermarket
Fig 20 The Loyalty Cube
Fig 21 Six Key success factors
Fig 22 COFP diagram
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List of Acronyms
CIU – Customer Insight Unit
CLP – Customer Loyalty Program
CLI – Customer Loyalty Index
CRM –Customer Relationship Management
LTV – Life-time Value
LTVA – Life-time Value Analysis
RFV – Recency, Frequency, Value
ROI – Return on Investment
SWOT – Strengths, Weaknesses, Opportunities, Threats
TPF – Tesco Personal Finance
4P’s - Price, Place, Product, Promotion,
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1.1 Introduction (Overview and Background)
Traditionally, marketing has focused on market share and customer acquisition rather than on retaining existing
customers and on building long-lasting relationships with them (Kotler, 2003). More recently, however, market
share has been gradually losing its revered status as marketing’s holy grail and the wisdom of focusing solely on
customer acquisition (hoping that this effort will compensate for high levels of defection) is now being seriously
questioned and considered as very high risk since ever more players enter an increasingly crowded marketplace
(Baker,2000). In response to these changes there has been a new emphasis on defensive marketing, which focuses
on holding on to existing customers and getting more custom from them (higher “share of customer”), in contrast
to activities which focus on winning new customers. Calls for a paradigm shift to the pursuit of loyalty as a
strategic business goal have become increasingly popular over the recent years (Sharp & Sharp, 1997).
Accordingly, in Feb 1995, Tesco changed the way it did business so fundamentally that its effect is still seen in
every part of the company. The events changed the way Tesco makes decisions, develop products, manages its
stores and, most importantly the way it serves its customers. On that day Tesco launched ‘Clubcard’, its customer
loyalty programme. As a major food retailer, in a competitive market sector, there is always a need for brand
loyalty. Customer loyalty schemes were not a new idea when Tesco launched it but Tesco developed a
contemporary version of the original concept which went much further in developing an active relationship with
customers. Today, Tesco Clubcard has established itself as one of the most successful loyalty schemes over the past
nine years, and a key driver of this is that the scheme in integral to Tesco’s stated core purpose, ‘To create value for
customers’. By understanding its customers more and using this insight to deliver back what the customer wants,
Tesco is succeeding in its purpose- to deliver value to the customer and earn their lifetime loyalty. Working with its
suppliers, it helps both parties to gain a better understanding of what the customer wants in terms of good value
quality products and in-store promotions. Tesco’s marketing works because they combine insight with creativity,
value and scale.
Before Clubcard, Tesco was stuck as UK’s second-ranking supermarket. Today, not only is it the UK’s largest
grocer, it is the world’s most successful Internet supermarket, one of Europe’s fastest growing Financial Services
company and arguably one of the world’s most successful exponents of CRM. The Tesco Clubcard is the most
successful CLP currently running in the UK, used by one third of all UK households (there are 25 million
Clubcards in circulation, of which 10 million are active in any one week), with 82% of Tesco’s turnover going
through the Clubcard (in out-of-town superstores, this figure rises to over 95%). ( Humpy et al. , 2004). No one
would claim that Clubcard is exclusively responsible for the success of Tesco, but it is clear that the benefits of the
Clubcard are now written through the Tesco business like lettering though a stick of rock. (Mason,
2003 cited in Humpy et al.)
Tesco may well have got this enviable position without Clubcard but it could not have done so as quickly or as
cheaply as it has done without the Clubcard data an insight the Clubcard provides. This information guides almost
all of the key business decisions the management team makes, reducing the risk of taking bold new initiatives. As
Mason points out ‘It changes the behavior of the businesses. With Clubcard, Tesco gets personal by introducing a
medium through which it can treat customers as individuals. It can mass-customize to suit the needs of all the
types of customers, of all tastes and incomes and ages. Not on the basis of what they think the broad mass of
customers want but in knowledge of what individual customers actively choose and what they prefer. While every
business talks about being customer centered, Tesco has made that commitment tangible. It designed Clubcard not
just to show customer loyalty to Tesco, but more important, to recognize Tesco’s loyalty to customers.
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Clubcard is a reflection of the attributes of the business and its commitment: a strong team ethic, a commitment to
serving customers, and most of all, top-to-bottom retailers pragmatism. Tesco made customer loyalty marketing
work, when every other British supermarket loyalty programme in the late 1990s failed, faltered or never got
started.
Every year since 1995, headlines have proclaimed the death of loyalty scheme, usually enthusiastically supported
by other retailers whose loyalty schemes are distant memories. Yet Clubcard is never questioned as a strategic
priority by the management. Instead, Tesco has responded to the critics by measurably building sales through
Clubcard, using the relevant knowledge it creates to improve the way it runs its business.
In short, Tesco hasn’t found that its loyalty programme is a costly overhead. Because Tesco made Clubcard work,
it can find out what its customers need and generate enough sales by satisfying those needs cover the cost of
finding out. Tesco runs Clubcard, and has been doing so since 1995, for no net cost.
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1.2 Aims and Objectives
Aim
To analyze and examine the concept of loyalty in retail and to assess its effectiveness as a corporate strategy
through a Tesco Plc Case Study.
The Purpose of this research is to gain fresh insights into the concept of ‘loyalty’ and ‘customer relationship
management’ and the part it plays in strategic decision making. It’s the strategic implications of loyalty schemes
that the project seeks to look into. Objective 5 is in a way the primary objective of the research, all other
objectives are necessary to be realized before a thorough understanding of the strategic ramifications of ‘loyalty
programmes’ is acquired. Thus, objectives 1-4 are important stations (intermediate goals) which help reach the
final destination or purpose (objective 5).
Objective 1
Analyze and define the concept of loyalty and identify the relationship between customer satisfaction and
customer loyalty
Customer Loyalty has been one of the most misunderstood concepts of recent years (Payne, 2002).
Unfortunately there is no universally agreed definition of loyalty (Jacoby and Chestnut 1978; Dick and Basu 1994;
Oliver 1999). Oliver (1999) suggested that loyalty and satisfaction are linked inextricably, but also that
this relation is asymmetric, arguing that although loyal customers are usually satisfied, satisfaction is an
unreliable precursor to loyalty. This research seeks to define the ‘real’ meaning of loyalty in retail terms
and how it differs to satisfaction.
Objective2
Examine the conditions under which customer loyalty enhances profitability
Some loyalty Schemes are termed as a disguised from of Sales promotion. They are just another way of bribing
the customers (Woolf, 1996), It’s a ‘zero sum game’ as profit margins are squeezed to run the scheme
(Oliver, 1999). Handling data is like drinking water from a fire-hose (Humpy et al, 2004). Still, loyalty
schemes are practiced by big retailers. This study seeks to identify the variables which help make a
loyalty scheme successful, and clearly identify the conditions under which loyalty enhances profitability.
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Objective 3
Assess the role of loyalty programs in promoting loyalty and building favourable customer relationships
‘Our Customers told us that they prefer pound in their pockets’. (Zaria Pinchbeck, Asda,
2003, cited in Web 1). ‘Trying to analyze all the data is madness’ (Waitrose, cited in Web
2), ‘Dropping the loyalty card is inconceivable’ (Russell Craig, Tesco, 2004, cited in Web 3).
The market research company Mintel, says that there is mixed evidence that loyalty cards
really do promote loyalty. Gary Davies (2004), professor of retailing at Manchester
Business School (cited in Web 4), believes that loyalty cards have run out of steam stating
that most of us have cards for at least two stores, so that defeats the point [of loyalty].
The UK's top two supermarkets, Tesco and Sainsbury's, both say that loyalty schemes are
an integral part of their retailing strategy and insist they remain committed to them. The
study seeks to assess the contribution of loyalty programs in creating long-term
relationship with the customer.
Objective 4
Evaluate the extent to which loyalty marketing makes its contribution to TESCO’s success and identify key
areas where TESCO outwits its competitors
The study seeks to point out the parameters TESCO considers to quantify the effect of its loyalty program and
assess if those parameters are justified. Safeway’s loyalty scheme (ABC card) started off well but was finally
withdrawn four and a half years after its launch. ASDA shied away from rolling out the loyalty card nationwide
after having trials at different stores. TESCO Clubcard was three times more famous than Sainsbury’s Saver card
and achieved two and a half time greater awareness than any other card. (Woolf,2002) TESCO CEO Terry Leahy
puts it ‘It’s not the skill but the will that counts.’ This research seeks to examine TESCO’s skill and the will which
makes its loyalty program stand out and the extent to which it contributes to the retailer’s success.
Objective 5
Assess whether loyalty marketing should form a part of a retail firm’s overall business strategy
Is Loyalty Marketing dead or is it a vital force to reckon with? Anti-Loyalty lobbyists argue that loyalty
programmes are little more than a discount scheme ; that do nothing to engender consumer allegiance. Loyalty
aficionados, on the other hand, claim loyalty programmes form the core of their business strategy, enabling them to
increase customer value, grow market share, and successfully populate new markets. The research will explore the
myth and realities of loyalty marketing and the part it plays in shaping Tesco’s overall business strategy.
1.3 Scope
Since the study examines the Tesco Clubcard only, the results cannot be generalized for every loyalty schemes.
Future research should seek to replicate the study onto other retailers in order to be able to get a broader
understanding of the loyalty effects of customer-loyalty-programmes. Also, this study only examines the loyalty
effects of the Tesco Clubcard in terms of its marketplace impact; it does not examine the loyalty effects in terms of
the financial impact of the programme. The econometrics of the Clubcard doesn’t form a part of the research.
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1.4 Rationale
The interesting perceptions with contradictory thinking with regards to loyalty in retail and loyalty schemes is
what aroused sufficient interest in the author to go in for a research into this elusive concept. Although
conventional wisdom dictates that customer loyalty is the most vital aspect of every business because companies
live or die from repeat business, in reality, loyalty programmes are surprisingly ineffective and almost 50%
of them miss their business objectives partly or completely (Web 5). Yet, most of the major supermarket
multiples have already joined the bandwagon, for some, it’s a roaring success while for others it turned out to be
more than a liability. This tricky tale of retail was what made the author go in for a research on loyalty as
no existing literature gave a clear-cut judgment on the subject of customer loyalty in retail. Is loyalty an
armoury which came, conquered and died?
1.5 Methodology
In order to approach the above mentioned research objectives, this longitudinal exploratory study took into account
both qualitative and quantitative research strategies which is often necessary for ‘triangulation’ – meaning ‘getting
a fix from two or more places’ (Green et al, 2002). The Research Approach is a combination of deductive and
inductive approach. Deductive, because the existing concept of loyalty and its impact on business decisions and
strategy is first tested using data and Inductive, because the data collected is analyzed to give new dimensions to
the loyalty concept and its strategic effect on business decisions.
A Case Study (Tesco) Strategy is taken as it involves an empirical investigation of the ‘loyalty’ phenomenon
within its real life concept to the particular retail firm.
Quantitative and qualitative research is applied, both using primary and secondary information that is gathered
and assembled specifically for this study. Qualitative secondary information from a variety of sources is gathered
like Tesco Case Studies, Tesco Brochures, Tesco Web page, Reference books, Journals, Online journals,
Newspaper and Magazine (The Grocer) Articles, Taped interviews, Business news channel views, Research
Agency (e.g Mintel) databases. Quantitative data from Tesco Company reports and other supermarkets is
collected and analyzed to compare and contrast the effect of loyalty. Primary data is collected using “mall-
intercept-interviewing” (Zikmund, 2000). For this purpose, a convenience sample of Tesco shoppers is surveyed in
front of local Tesco supermarket Other primary data collection methods included a questionnaire that divides
customers into two categories, namely Tesco Clubcard members and non-members, which was important to know
in order to have a benchmark to find out how the Tesco Clubcard affects its members loyalty towards Tesco. The
“Satmetrix Market Stat” was made use of; it is a dynamic tool for customer satisfaction and loyalty measurement
that uses the “customer loyalty index” as key metric in order to measure overall customer loyalty.
1.6 Conclusions and Recommendations
Tesco’s loyalty marketing project has become a pillar of its business strategy and has helped Tesco evolve in its
strategic thinking and direction from being an outstanding food retailer to being an information-driven business,
constantly searching for ways to act as the value-adding agent for its customers, It’s customer information assets
uses to allow it to take a strategic approach to customer management. Tesco’s loyalty scheme suggests that a
loyalty scheme can only have a sustained impact on the bottom line when, from its inception, it changes the
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dynamic culture of the organization. When the board recognize that loyalty scheme data is the bedrock of their
business, then the considerable investment in technology, manpower and other resources really starts to pay
dividends.
Companies embarking on a loyalty scheme should make sure that data is analyzed with an eye on desirable
economic outcomes and companies should make sure that they establish what they are trying to accomplish with
the program and continually measure its performance.
Summary
This chapter provided us with a basic guideline of the things to come. It gave a detailed description of the aim,
purpose and objectives of the study and what the study seeks to achieve. It clearly mentioned the scope of the
research and areas where the study will not throw much light on. The study now moves forward into the journey of
exploring the ‘true’ meaning of loyalty in retail and discusses different theoretical frameworks of customer loyalty
programmes and their individual characteristics. It delves into both ‘soft’ and ‘hard’ aspects of loyalty and
evaluates the success factors and conditions which encourage loyalty.
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Syed Sameer Rahman ST03004496
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The aim of this chapter it to clear the air of confusion with regards to the concept of loyalty and
bring out its ‘true’ meaning considering both attitudinal and behavioral dimensions. It goes on to
give a detailed account of relevant loyalty frameworks and models put forward by purists and
examines the reasons for the popularity and sudden proliferation of loyalty schemes. It then
evaluates whether successful loyalty programmes are a stand-alone entity or form a part of the
overall strategy and help in strategic decision making. The chapter concludes by highlighting
the hype and hoopla surrounding loyalty schemes and the myths associated with it.
2.1 Loyalty – The elusive phenomena
According to the “Oxford Dictionary of Current English” (2003, pg 327), loyalty is defined as ‘being
faithful’ or ‘steadfast in allegiance’ but as Payne (2002) points out customer loyalty has been one of the
most frequently discussed and most misunderstood concepts of recent years . This is further evidenced by
the fact that some authors use customer loyalty interchangeably with other constructs, including customer
repeat purchasing behaviour and customer retention. However, it has been suggested that the construct of
customer loyalty differs from the one of repeat purchasing behaviour in the way that it implies an
intentional component, i.e. there is always a reason for the customer’s repeat purchase and it does not
happen by chance (Hansen,2000) .The construct of customer loyalty also differs from the one of customer
retention in that customer retention has a purely behavioural character, whereas today’s interpretations of
the loyalty construct usually include both behavioural and attitudinal dimensions; moreover, while the
construct of customer retention considers the marketer as the active party, loyalty focuses more on
intrapersonal aspects of customer behaviour (Hansen,2000) .
Loyalty is seen as something that consumers and customers exhibit towards brands, products, services,
stores, as well as salespersons (Laurent, 1997) .The level of attachment a customer feels toward a product or
service is a prerequisite to loyalty and that a second factor that marks a customer's loyalty is repeat patronage.
Attachment is shaped by two dimensions: the degree of preference (the extent of the customer's conviction about
the product or service) and the degree of perceived product differentiation (how significantly the customer
distinguishes the product or service from alternatives). The highest attachment occurs when a buyer feels a strong
buying preference coupled with a high degree of perceived product differentiation. (Griffin, 2005, cited in Web
6))
2.1.1 Categorization of The Loyalty Concept ( from the Retailer’s perspective)
Adapted from Bergeron, 2000, pg 135-147

Figure 1
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Cross-selling Up-selling
Repeat Purchase Transactional Persistency
Satisfaction Lifetime-value
Loyalty
Aw areness Brand Value
Perceptual Complex
According to Bergeron( 2000) , the definitions of loyalty fall into three broad categories:
 Transactional loyalty, in which the customer’s buying behaviour is seen to change or be changed,
although what motivates that change may be unclear. These are often the most popular choices, as they
relate most closely to commercial results.
 Transactional loyalty is the ultimate objective of any supermarket; Tesco encourages transactional
loyalty by concentrating on more emotional aspects of things. Therefore research will deal more with
Tesco form of loyalty which is more emotional and less transactional.
 Perceptual loyalty, in which the attitudes and opinions of the customer are the key, but there is not
necessarily evidence of an impact on purchasing. Sometimes these are regarded as more significant,
because they are seen to reflect possible behaviour patterns that could be created in the future, not
patterns of what has happened in the past.
 Perceptual loyalty will be researched upon in more detail as customer attitudes and opinions or the softer
side of loyalty is what Tesco concentrates on.
 Complex loyalty, where there is a combination of these two effects. Within each of these categories there
are a number of terms, all of which have been, or are being, used as definitions of loyalty.
Transactional
 Cross-selling - seen as loyalty when a customer buys a new, different product or service from the same
supplier, rather than choosing an alternative.
 Up-selling - a customer buys more from the same supplier, usually of the same product or service.
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 Repeat purchase - obviously, buying the product again, when the same need arises.
 Persistency - maintaining a relationship rather than concluding it.
Perceptual
 Satisfaction - an easy and obvious use of ‘loyalty’ is within the context of the degree of satisfaction felt
by users of a product or service; the kind of emotion articulated in response to the question ‘how was it
for you?’. However, customer satisfaction can be a misleading measure as there are many examples of
customers changing supplier despite high levels of satisfaction. The research will provide greater insights
into ‘satisfaction’ levels and how that relates to loyalty, which would also bring the author closer to one
of the research objectives.
 Awareness - loyalty is seen as a function of the extent to which the business is known within its target
market, driven perhaps by word-of-mouth recommendations or simply the extent of knowledge of the
supplier.
Complex
 Lifetime value - the commercial benefit of the relationship with a customer can be calculated over time,
to generate a ‘lifetime value’.
 Brand value - Strongly branded businesses often rely on the strength of their communications, and their
wide consumer awareness, to give customers a sense that they must be dealing with the ‘right’
organization, such that they may not even consider.
 The relative benefits of a competitor. Indeed, the purpose of branding is entirely to ensure that the
customer returns to a given supplier again and again.
 Enhancing brand value and preventing brand fatigue is one of the key objectives of the Club card, it will
be looked into in greater detail during the course of the research.
When retailers look at winning and keeping the loyalty of their customers they are looking to achieve
a little extra goodwill, a slight margin of preference, an incremental shift in buying behaviour.
(Humpy et al,2004)
2.1.2 Conceptualizations of loyalty (from the customer’s perspective)
Adapted from Uncles et al., 2002
Figure 2
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There are three popular loyalty conceptualizations put forward by Uncles et al.(2002): loyalty as primarily an
attitude that sometimes leads to a relationship with the brand (Model 1); loyalty mainly expressed in terms of
revealed behavior (i.e., the pattern of past purchases) (Model 2); and buying moderated by the individual’s
characteristics, circumstances, and/or the purchase situation (Model 3).
Analysis of models put forward by Uncles will bring us closer to one of the objectives of the research as it
may reveal the ‘real’ meaning of loyalty in attitudinal and behavioural terms and the conditions which
help a loyalty scheme prosper.
Loyalty has been largely defined and measured in either behavioural terms (stochastic approach), or
attitudinal terms (deterministic approach) and although it has been suggested that the concept should be
understood in both terms, there is still little agreement when it comes to measuring it (Rundle-Thiele,
2001) .This disagreement has led to a debate that originally started almost 30 years ago between Jacoby
and Kyner and is still going on in present times (Rundle-Thiele, 2001) . Defenders of the stochastic
approach consider loyalty as behaviour and argue that the customer who buys the same brand
systematically is loyal. Loyalty, like love or loathing, is impossible to quantify exactly. What can be
quantified is customer behaviour and where customer loyalty is concerned, the closest factor that can be
measured is customer behaviour. (Stone, 1997) .Loyalty, here is defined mainly with reference to the
pattern of past purchases with only secondary regard to underlying consumer motivations or commitment
to the brand (Ehrenberg 1988; Fader and Hardie 1996; Kahn, Kalwani and Morrison 1988; Massy,
Montgomery and Morrison 1970). Stochastic modelling techniques describe the observed patterns of
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customer buying. Loyalty to the brand (measured by repeat purchase) is the result of repeated satisfaction
that in turn leads to weak commitment. The consumer buys the same brand again, not because of any
strongly-held prior attitude or deeply-held commitment, but because it is not worth the time and trouble to
search for an alternative. If the usual brand is out of stock or unavailable for some reason, then another
functionally similar (or substitutable) brand (from the portfolio) will be purchased ( East 1997; Ehrenberg,
Barnard and Scriven 1997). Problem with this approach lies in the fact that it considers loyalty behaviour
as too complex to be comprehended due to the number of explanatory variables and their frequency of
appearance and therefore makes the processing of loyalty in a dichotomous way – loyalty Vs. disloyalty,
which is singularly short of nuance, and requires a very arbitrary categorization of customers into one of
the two categories (Odin,2001) .Moreover, it has been suggested that only a few customers are 100 per
cent loyal to a single brand, but rather, are likely to have a repertoire of two or three brands within any
product category from which they regularly buy – i.e. polygamous or divided loyalty (O’ Malley, 1998)
.Another shortcoming of the stochastic approach is that it does not tell whether repeat purchasing has been
done out of habit, due to situational reasons, or due to other more complex psychological reasons and it
has been argued that the narrow technical definitions of the stochastic approach do not capture the full
richness and depth of the loyalty construct (Odin,2001). Many researchers and consultants argue that there
must be strong ‘attitudinal commitment’ to a brand for true loyalty to exist (Day 1969; Jacoby and Chustnut 1978;
Foxall and Goldsmith 1994; Mellens et. al. 1996; Reichheld 1996). Oliver (1997) has this in mind when he
defines customer loyalty as: “A deeply held commitment to re buy or re patronize a preferred product/service
consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational
influences and marketing efforts having the potential to cause switching behaviour”
This determinist approach considers loyalty more as an attitude and argues that there are a limited number
of explanatory factors responsible for it, which can be isolated and manipulated (Odin,2001) , including:
 Customer satisfaction: Oliver (1999) suggested that loyalty and satisfaction are linked
inextricably, but also that this relation is asymmetric, arguing that although loyal customers are
usually satisfied, satisfaction is an unreliable precursor to loyalty, which is further evidenced by
findings from the automobile industry, in which 85 % to 95 % of customers report that they are
satisfied, but only 30% to 40% return to the previous make or model. This gives us a pointer that
satisfaction may not be as intricately linked to loyalty as assumed and brings us closer to
Objective 1.
 Commitment and Trust: According to Morgan and Hunt (1994), commitment and trust – not
just one or the other – are the key to success in relationship marketing, since trust implies that
the consumer has confidence in the brand/firm and is willing to rely on it though there is an
evidence of risk involved, while commitment reflects a psychological attachment to the
brand/firm and an enduring desire to maintain the relationship.
The determinist approach is not based on loyalty/disloyalty opposition, but seeks to measure the degree of
intensity of loyalty (Odin, 2001) .Nevertheless, the determinist approach has been criticised for only
relying on customer declarations without taking into account their observed behaviour and also for using
either antecedents, or consequences of loyalty to measure the former and not loyalty in itself (Odin,
2001). Despite the psychological and sociological richness of the ‘attitudes drive behaviour’ and ‘relationship’
approaches to understanding customer loyalty, these conceptualizations of loyalty are not without their critics
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(Dowling 2002). They are thought to be less applicable for understanding the buying of low-risk, frequently-
purchased brands, or when impulse buying or variety seeking is undertaken, than for important or risky decisions
(Dabholkar 1999). Also, as Oliver (1999) has noted, there is little systematic empirical research to corroborate or
refute this perspective of customer loyalty. Those who subscribe to the ‘attitudes drive behaviour’ and
‘relationship’ approaches expressly rule-out revealed behaviour as a dominant measure of loyalty. That, they argue,
may merely reflect happenstance. Even combined measures of revealed behaviour and satisfaction may not probe
deeply enough for us to be sure there is true loyalty (Arnould, Price and Zinkhan 2002). Brian Woolf (2004) puts
Loyalty as a positive attitude built up over a series of favourable interactions expressed in a customer’s behaviour.
As a result, it has been suggested that neither attitudinal nor behavioural measures on their own are
sufficient to explain or define the complex construct of loyalty and therefore, a number of hybrid
frameworks have been developed which try to combine both dimensions of loyalty in an attempt to
overcome such problems.
2.1.3 Loyalty Frameworks
A popular framework that tries to take into account both dimensions of the loyalty-
Construct has been proposed by Backman and Crompton (1994) (cited in O’Malley, 1998), which results in
a number of different categories of loyalty, each of which have clear managerial implications as
demonstrated in Figure 3.
Adapted from O’ Malley 1998, pg 47-55
Figure 3
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High Patronage Behaviour Low
High Loyalty Latent Loyalty

High
Organisations must not become complacent

and managerial efforts should be continually Managerial efforts are best focused on
focused on reinforcing attitude and removing the obstacles to patronage, for
behaviour, particularly as the consumer is example by extending the branch network.
Occurs when the customer feel san element
Relative attitude
likely to be targeted by competitors. This

may involve maintaining a price advantage, of loyalty yet will not buy from that retailer
and/or providing additional services, whic h on every occasion
offer value to the consumer
Spurious Loyalty No Loyalty
In order to defend the customer base Managers can attempt to generate spurious
against competitive attacks managers can loyalty through such means as in-store
attempt to maintain spurious loyalty and/or promotions, loyalty clubs and special offers
Low
develop sustainable loyalty .Little difference .Is a state whereby customers will move
is perceived betw een retailers, there is often from retailer to retailer as there is little
inertia w hic h keeps a customer loyal based benefit and difference perceived betw een
on habit. any of the outlets in the marketplace.
In an attempt to explain the forces affecting loyalty in more detail, Diller(2000) has proposed a model of
loyalty motivators and de-motivators that is based on background theory from consumer motivation
research and is illustrated in Figure 4.
Adapted from: Diller, 2000, pp 39 – 43

Figure 4
- +
Opportunism Social
Integra
tion
Variety
seeking Contin
uity
- +
Autonomy Relief
- +
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- Intensity of loyalty +
 Opportunism versus Relief
Arguably the strongest factor constraining loyalty has been termed

opportunism, which in this context stands for the willingness of
customers to take advantage of any opportunity to get the maximum
benefit (value for money), to be completely flexible and to be only
interested in their personal benefit (also known as smart shoppers).
The model suggests that everyone is a smart shopper to a certain degree,

but also that everyone (to various degrees) is tired of only looking for
economic advantages and therefore opportunism is weakened by the need
for relief, which originates from the need for more freedom of economic
pressures and tasks, and a consciousness of alternative human values,
including humanity, solidarity or personal loyalty.
 Variety versus Continuity
The second pair of ambivalent loyalty forces suggested by the model

includes variety seeking opposing loyalty while the need for continuity
makes it more attractive.
The desire for variety has its roots in a general motivation for
stimulation and absence of boredom, while at the same time, man is a
creature of habit who loves the well-known and familiar, thus people are
curious, but still have their habits and like the certainty of knowing what
they will get for the money paid.
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 Autonomy versus Social Integration
The third pair of ambivalent loyalty forces suggested by the model

includes the need for autonomy opposing loyalty while the need for
social integration makes it more attractive.
Autonomy in this context means freedom from others and decision-

making independence, which is becoming increasingly important in a
time of customer emancipation, where self-esteem is highly regarded and
attempts made by suppliers to restrict this freedom might achieve the
opposite of the intended affect.
However, even in times of individual isolation, social integration remains

a widespread need and therefore many customers long for social
integration, a sense of social security and a sense of affiliation or social
esteem within different relationships or groups.
Loyalty has become one of the most sought after concepts in the business world and it is often the most
elusive phenomena. “Loyalty cannot be blueprinted. It cannot be produced on an assembly line. In fact, it cannot
be manufactured at all, for its origin is the human heart -the centre of self-respect and human dignity. It is a force
which leaps into being only when conditions are exactly right for it, and it is a force very sensitive to betrayal.”
(Maurice R. Franks, 2004)
Businesses can succeed with a great product or service, but will fail without loyal customers. (Anon, 2004)
It is now appropriate to discuss the possible effects of the construct of loyalty for retailers and why it has
become increasingly popular over the recent years.
2.1.4 Reasons for the rapid increase in popularity of customer loyalty
A critical evaluation
Gronroos (19994b, p9) described the objectives of relationship marketing as being to identify and
establish, maintain and enhance and, when necessary terminate relationships with customers and other
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stakeholders, at a profit so that the objective of all parties involved are met, and this is done by a mutual
exchange and fulfilment of promises.
Customer loyalty is a strategic approach to improving shareholder value through the development of
appropriate relationships with key customers and customer segments.(Payne & Ballantyne,2002).
Proponents tend to focus on the psychological bonding that eventuates from membership (a customer benefit), and
the enhanced customer insights that can be gained from analyzing the program database (a firm benefit) (Brown
2000; Pearson 1996). Critics argue that the loyalty – both attitudinal and behavioral – for most customers is quite
passive and resembles habit rather than serious commitment. Where the focus is on individual customers, loyalty
programs can be seen as vehicles to increase single-brand loyalty, decrease price sensitivity, induce greater
consumer resistance to counter offers or counter arguments (from advertising or sales-people), dampen the desire
to consider alternative brands, encourage word-of-mouth support and endorsement, attract a larger pool of
customers, and/or increase the amount of product bought( Bolton et al., 2000) Two aims of customer loyalty
programs stand out. One is to increase sales revenues by raising purchase/usage levels, and/or increasing the range
of products bought from the supplier. A second aim is more defensive, by building a closer bond between the brand
and current customers it is hoped to maintain the current customer base. The popularity of these programs is based
on the argument that profits can be increased significantly by achieving either of these two aims. In today's
economic climate loyalty programs can help companies do more with less. They have been able to provide a sense
of personal service without an actual person which is clearly apparent from Tesco’s case (Seybold, 2001) Loyalty
schemes can lead to more purchases more often, give the ability to mass customize marketing
communication, minimize waste and help promote trust. It attempts to win a slightly larger share of the
customer’s spend than would otherwise be the case if the additional value of the scheme were not offered
(McAlexander,2002). Loyalty programmes seeks to identify and talk to individual customers on a massive
scale and torrential flow of live transactional data offers the possibility to transform how retailers manage
their business. Research will analyze in greater detail the ways in which ‘loyalty’ programmes can
transform the business and help make strategic business decisions, which is the purpose of the research (to
evaluate loyalty as a strategy). One of the reasons for the great popularity of customer loyalty is the
recognition that losing a customer means in fact more than a single sale: It means losing the entire stream
of purchases that this particular customer would make over a lifetime of patronage – also known as the
“customer lifetime value”(Kotler and Armstrong,2001).
Another reason for the rapid increase in popularity of customer loyalty can be found in the impressive
array of “suggested” evidence in support of loyalty, such as the figures provided by the associates of Bain
& Company, claiming that the net present value increase in profit that results from a 5% increase in
customer retention lies somewhere between 25 and 95% in over 14 industries (Oliver, 1999).
Loyal customers are supposed to buy more, pay higher prices and bring in new customers through word-
of-mouth support (Morgan et al.,2000).Another “profitability-argument” in favour of loyalty includes that
in many cases the management of loyal customers is supposed to be cheaper since they are usually better
informed and therefore ordering and delivering procedures can become routine (Scott, 2000, cited in Web
7).However, some of these “profitability-arguments” have been challenged recently by Reinartz and
Kumar (2002), who compared the behaviour, revenue, and profitability of more than 16,000 individual
and corporate customers over a four-year period, concluding that they discovered little or no evidence to
suggest that customers who buy on a steady basis are necessarily cheaper to serve, less price sensitive, or
particularly effective at bringing in new business. They also found that a considerable amount of loyal
Page 22 of 88
customers were only marginally profitable, while a large percentage of short-term customers were very
profitable.
This has arguably to do with the fact that many non-loyal customers can be highly profitable at the
beginning, causing companies to chase after them in the hope of future profits, but once these customers
cease their buying activity, they may become unprofitable because the company continues to invest in
marketing to them (Reinartz and Kumar,2002).A recent ‘Best of Biz’ (2003) report also questioned
customer loyalty as the driver of profitability, arguing that profitability might ultimately be more related
to business fundamentals such as superior products, services or processes. Academicians have also argued
that loyalty programmes are ultimately self-defeating when competition confronts the first mover. Woolf
(1996) puts it ‘great success comes from a marketing strategy base firmly on understanding customer
economics and only secondarily on customer loyalty. Other pro-loyalty arguments include that loyal
customers may bring more certainty into the business, e.g. through increased customer immunity to
competitive offers, through higher tolerance of mistakes made by the supplier, through increased customer
feedback (loyal customers are supposed to be more prepared to complain and to participate in surveys).On
the other hand, however, loyal customers may also seduce suppliers into complacency and encourage
inactivity and carelessness or the supplier may become too reliant on them, which may mean that they fail
to adapt to changes in market structure or to respond to the changing importance of certain market
segments (Diller,2000).However, despite their criticism, even critics themselves have suggested that
customer loyalty is “a worthy contributor to the shareholder value of a company”(Diller,2000;pg33), and
that “firms are encouraged to study their position and options in the pursuit of this goal”(Oliver,1999;
pg37). The research will extensively analyze the reasons for popularity of Tesco’s loyalty programmes and
compare it with other loyalty schemes which are one of the objectives of the study (to compare and
contrast Tesco’s loyalty schemes with its competitors).
2.2 Customer-Loyalty-Programmes
The notion of customer-loyalty-programmes is not really a revolutionary idea and it is probably fair to say
that the cooperatives’ pioneered the modern day programmes already in the mid 1800s
(Sparks,1999).What distinguishes today’s customer-loyalty programmes is their ease of use for consumers
as well as the degree of technology involved. However, the rationale behind modern CLPs is still the
same, to build lasting relationships with customers, and to do so by rewarding loyal and heavy or frequent
buyers, in the hope of achieving benefits of loyal customers. The ultimate goal of every CLP, according to
Stauss et al. (2001), is to increase general operational profitability by customer retention. However,
Butscher (2001) argues that profitability should be considered as a medium- or even long-term goal which
can only be achieved if other intermediate goals are reached first, such as building a strong customer
database. Most modern CLPs are using some form of membership card which is presented at the point of
sale in order to identify the customer and to record the purchase details (e.g. time of purchase, value and
type of items etc) and/or the value of the rewards earned. There are various different types of cards issued
by and on behalf of retailers, including:
 Payment cards: provide a mechanism for customers to pay retailers and are sometimes known
as store cards
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 Reward cards: provide a mechanism for retailers to reward their customers for repeat
purchasing and are sometimes called bonus cards or club cards which is what Tesco’s club card
is all about.
 Combined cards: act simultaneously as payment and reward card
According to Cuthbertson and Williams (1999), retailers have four different CLP-card strategies available:
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Adapted from Butsher,2001, pg 123-131

Figure 5
The 5 P Loyalty Strategy
 Pure Strategy: Spending and accruing benefits with only the card-issuing retailer. Means,
strengthening the existing bond between the customer and the retailer, so that the retailer can
find out what the customers wants, and give the customer more of it. Pure loyalty schemes aim to
establish a two way dialogue so that the retailer can act to improve the basic offer. (Rayner,
1998). Tesco used to follow a Pure Strategy and even now the Clubcard is more or less based on
a pure strategy with the primary objective being, strengthening the two way communication and
understanding the customer better. Although Tesco has partners like Allders, H Samuel,
Powergen etc under Tesco Freetime but it is Tesco which issues the Clubcard points and the
partners buy those at a rate negotiated with Tesco. But they are the Tesco Clubcard points
redeemable through Tesco or Tesco Freetime only.
 Push Strategy: Spending at several retailers, accruing benefits with the card-issuing retailer.
Means, creating a scheme to encourage customers to use a way of shopping that they would not
have done before ,pushing customers through new channels, or trying to create new types of
behaviour. It is a technique used by low-cost airlines to encourage customers to book online, or
it can be used by a retailer expanding into non-core businesses to draw customers with it.
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A pure loyalty card strategy primarily affects current customers. If successful, new primary
customers would then need to be attracted via a Push loyalty strategy.( Rayner ,1998)
 Pull Strategy: Spending at the card-issuing retailer, accruing benefits outside the retailers
everyday range. Means, attracting customers by augmenting a retail offer, so customers will find
that buying one product means that they get an offer on another, linked product. At a simple level
‘buy one get one free’. Effectively it is an inducement to create more sales by encouraging
customers to buy something new.( Sharp,1997) It is best suited when a retailer's offer is not
sufficient in itself to attract new primary customers or retaining the existing ones.
 Purchase Strategy: Spending and accruing benefits across many retailers. A Purchase Strategy
is primarily aimed at increasing customer purchases regardless of where those purchases take
place. It is suited to financial services and transaction processing providers and to mainstream
retailers wishing to develop financial or transaction processing services. To encourage usage,
successful Purchase loyalty card strategies tend to rely on high use availability, high brand
awareness and low costs, especially processing costs. They tend to act as payment cards first and
reward cards subsequently.( Reichheld , 2000)
 Purge Strategy: Represents a deliberate choice by retailers to avoid a loyalty card scheme,
target customers of other schemes with alternative benefits and increase the number of primary
customers and overall market share. Therefore the key measures should aim at increasing the
competitiveness of the retailer rather than any specific measures related to loyalty cards
Butscher (2001) has suggested that the information obtained from CLP-members are particularly useful as
they have already identified themselves as having a special interest by signing up for the programme and
sometimes – depending on the type of programme (limited programme versus open programme), even pay
a membership-fee – an effort that non-interested customers would probably not invest. The advantage of a
limited programme, where members have to pay a joining-fee and/or annual-membership fee is that it has
a positive influence on filtering out unwelcome members
Figure 6 Adapted from: Butscher, 2001, p 51
The characteristics of limited and open customer-loyalty-programmes
Limited or Opt-it CLP Open CLP

 Membership fee helps to cover costs.  A wider number of customers can be
 Membership prerequisite helps channel reached.
membership/focus on target groups.  Database more complete
 Limited access makes membership more  Potential customers and competitors
valuable. customers can be reached more easily.
 Clearly defined membership structure makes  Completeness of database could, after
communication more effective further analysis, lead to segmentation and
 Membership prerequisite keeps number of segment-specific communication.
members, and thus cost , down.  Larger number of members helps to reach
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 Database includes only members with an critical mass, which makes loyalty
above-average interest in the product programme become more cost-effective
 Membership payments raise expectations, so sooner.
the loyalty programme management is
constantly forced to improve value.
Will be the better approach for companies: Will be the better approach for companies:
 Trying to reach/reward their top customers.  With very little knowledge about current
 Preferring a more focused approach and potential customers
 With smaller budgets  Following a more general approach
 In clearly segmented markets  With long-term larger budgets
 In business-to-business markets  In unsegmented markets
 In markets with homogeneous customers  In business-to-consumer markets

 With commodity products
The Tesco Clubcard falls into the category of “open CLPs”, since everybody living in the UK aged 18 years or
above can register for it for free via an application form which provides essential information for targeted
promotions (Tesco Clubcard Brochure). Since this research takes a Tesco Case Study, it only takes into
consideration Open-CLPs.
Opportunities for using customer information

Figure 7
Define Generate sales Direct Report

Sales goals contacts Sales Sales success
Respond
customer
Sales Product
analysis
inquiries
Pursue customer Product

issues demand
Customer
Servic Produ
Information
Assess customer
satisfaction
e ct Product
development
Monitor service Competitive

quality Marketi analysis
ng
Program Program Program Program

Planning preparation testing analysis
Page 27 of 88
It should be kept in mind that a loyalty card is not a replacement for any of the basic loyalty drivers but is
a supplement to them. Just as a hammer doesn’t build a house, a loyalty card doesn’t build customer
loyalty. Both the hammer and the card are tools that, when properly and appropriately used, help bring the
architect’s blueprint to life. (Woolf, 2004)
2.2.1 Building a CLP
Setting up a customer-loyalty-programme requires careful planning and should include detailed plans and
methods for customer identification and registration, segmentation, reward design, and programme
maintenance operations. Moreover, setting up a CLP is very resource intensive and therefore the company
developing the programme should take it very seriously, i.e. being aware of the time, effort, financial
investment and above all, being aware of entering a long-term commitment (Butsher,2001). In order to be
a source of sustainable competitive advantage, the company developing the CLP must always take into
account what its loyal customers value, since loyalty is inextricably linked to the creation of value, and
then design a programme that directly supports their value proposition (Morgan et al, 2000). The greater
the perceived value of a company’s goods or services, the greater the loyalty effect. (Bryan, 2002). A
value proposition is “the full positioning of a brand , the full mix of benefits upon which it is positioned”
and the answer to the customer’s question “Why should I buy your brand?”(Kotler &
Armstrong,2001).Moreover, in order to be viable, a CLP must build and sustain noticeable differences in
its offerings that are difficult to copy, since a lack of differentiation removes any potential of competitive
advantage – which is anything but easy in retailing, where first movers are quickly imitated
(Morgan,2001).Thus, the right combination between soft – (e.g. magazine, travel aids, special products,
services, events) and hard-benefits (e.g. discounts, rebates, coupons) is essential and Tesco is a champion
at this, because it knows fully well that although savings are at the top of the customers’ wish list, hard
benefits are usually copied by the competition and therefore it considers soft benefits as the key to its
loyalty programme as they are less likely to be copied due to their mostly intangible nature. Five elements
which determine Tesco’s loyalty programmes value are (1) cash value (how much the reward represents as
a proportion of spend); (2) choice of redemption options (the range of rewards offered); (3) the aspiration
value of the rewards (how much the customer wants the rewards); (4) the perceived likelihood of
receiving the rewards; and (5) the scheme’s ease of use .In addition to the elements are the psychological
benefits of belonging to the programme and accumulating points.
In order to be able to deliver a unique value proposition (that is still in line with an organisation’s overall
strategy), CLP-managers have to select an appropriate CLP-format which can be further categorized into
behaviour-based models, attitude-based models, hybrid models and relationship-based models (Morgan et
al.,2000).In practice, most CLPs follow the behaviour-based model, focusing on behavioural outcomes
such as repeated patronage and targeting immediate benefits for the organisation by providing easily
observable – typically economic – benefits to cause the customer to purchase, repurchase, or purchase
more frequently the firm’s offering ( Figure 8).However, this stands in contrast with the long-term
character of the relationship-marketing concept and as a result of that, behaviour-based customer-loyalty-
programmes have been criticised as dressed-up sales promotions that are highly questionable as
relationship building initiatives which fail to emphasise on emotional elements and do not necessarily lead
to greater marketing efficiency and effectiveness (Tynan,2000).According to Dowling and Uncles (1997),
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behavioural based models “might well stimulate sales for the duration of the promotion but do not have
any long-term behavioural after-effects”.
Adapted from: Morgan et al., 2000, p 73
Figure 8
Behaviour-based CLP
Programme tactics Programme outcomes
Habitual
buying
Price
advantage Switching
costs
Persuasive
communication
Repeat
patronage
Economic
benefit
Promotional
expenses
An alternative approach followed by Tesco and proposed by Morgan et al. (2000) is known as the
relationship-based model, which is based on relationship marketing theory, consumer behaviour theory
and strategic marketing theory (Figure 9)
It has been suggested that in any marketing relationships, all partners engage to some extent in economic,
resource and social exchanges and therefore these three areas of relationship content build the starting
point for the relationship-based CLP:
 Economic Content. The economic content of relationships deals with the economic benefits and
costs of participating in the relationship and it has been suggested that customers are only
willing to participate actively in a CLP, if their individual cost-benefit calculation leads to a
positive result, which then provides the partners with an incentive to explore the relationship
further, cooperation may become more attractive as enhanced economic returns will be expected
– thus, a strong economic relationship content can contribute to the growth of loyalty (Stauss et
al.,2001).Loyalty marketing is, essentially, all about economic differentiation. It’s about deciding
how to optimize long-term yield from the limited resources we have. Understanding our
customers’ behaviour and economics (derived from loyalty program) allows to do just that.
( Woolf,2003 )
 Resource Content. It has been suggested that parties engage in relationships to secure valuable
resources that they would not be able to acquire more efficiently elsewhere, which, in a
Page 29 of 88
business/consumer exchange means that the business requires the purchasing power and effort of
the consumer, while the consumer wants reliability, status, safety, and other facets of reputation
and tangible value in the products and services they purchase and according to Morgan et
al.(2000), the resource content of relationships can contribute to commitment among exchange
partners through dependence, strategic interest, reciprocity and equity.
 Social content. The relationship-based model suggests that although economics and resources
may indicate a prosperous relationship, no relationship can be successful in the long-term
without a social environment that nurtures communication, honesty, fair play and an awareness
of mutual interests and therefore a CLP should accommodate opportunities for interactions so
that friendships may be developed.
Customer loyalty and customer trust are the key variables of Tesco’s relationship-based model which it
considers to be the crucial in building the intermediate goals of the model and providing competitive
advantage, as they lead directly to a successful outcome.
Figure 9 Adapted from: Morgan et al., 2000, p 79
Relationship-based CLP
Relationship content Key variables Outcomes
Customer
retention
Share of
customer
Economic
content Customer
Page 30 of 88
referral
Customer
Loyalty
Resource
content
Customer Co-operation
trust
Social
content Promotional
expenses
Product
development
expenses
2.2.2 Tesco’s CLP-Mix
Tesco’s CLP falls into the category of so-called “integrative instruments” (Stauss et al.2001) due to its
capability to combine various elements from existing tools as it relies on a differentiated set of product,
price, communication and distribution issues to organize the customer benefits (although it has been
claimed that relationship marketing offers an alternative to the traditional 4P classification, most scholars
do still use the classic paradigmatic framework when identifying adequate tactical marketing tools for
building and maintaining relationships with customers (Hansen,2000).
The product-mix consists of goods and services of the specific CLP-operating company (Tesco) or its
coalition partners (partners under Tesco Freetime). The price-mix, contains member discounts, favourable
conditions of payment as well as financial advantages via bonus programmes. Communication issue is of
great importance for the interaction with CLP-members and with Tesco, communication with members is
exclusive, meaning that it is only accessible to members, integrated in the sense of “everything Tesco does
(and sometimes does not do) sends a message that can strengthen or weaken relationships”, as well as
interactive in that Tesco not only talks to their CLP-members but also listen to what they have to say
(Hansen, 2000). For this purpose Tesco has exclusive CLP-magazines (Clubcard Magazine), regular
newsletters or mailings, or CLP meetings and events for members (Butsher, 2001).
2.3 Loyalty as strategy
In order to realize the purpose of the research, it’s important to assess loyalty schemes as a part of a
strategy rather than a stand-alone entity.
It must be considered that CLPs do not exist in a vacuum, but should be a coherent element of a company’s overall
strategy and capabilities (O’Malley , 2000).Given the potential benefits of customer-loyalty-programmes, firms
like Tesco have adopted them as a core business strategy (Morgan et al,2000). Tesco’s design of a loyalty
program takes into account the nature of the business, its market position and strategic goals, and the
competitive landscape. (Fournier et al, 2001). It is essentially a long term CRM strategy that not only evaluates
the current performance of Tesco’s relationship with its customers, but also drives its strategic direction (Roberts,
2004). The success strategy is always to closely align an organization with its customers but bringing this vision to
reality is far from easy ( Sawhney, 2001).
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Tesco’s concept of Relationship Management begins and ends with the customer.
Strategists have put in place a framework for understanding and meeting the needs of the customer or which
(Fournier et al, 2003) calls as ‘The Ideal Customer Experience’.
A framework for the Ideal Customer Experience is designed by (Fournier et al.,2003) to deliver a Customer
Experience that meets the needs of the individual customer. The strategy behind this (and behind Tesco’s strategy)
is that a customer whose needs are understood and met will continue to purchase from the company with increased
frequency and value. The result is win-win between the company and the customer.
Adapted from Fournier et al, ,2003 pg 133-151
Figure 10
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Customer Loyalty Measures
Customer Loyalty measures are designed for the people within a company who dictate the strategic direction of the
company. These measures evaluate the performance of a company’s current customer base and drive the future
direction of a company’s overall customer strategy. Tesco’s loyalty measures are comprised of:
1
2• Average Profit per Customer by Tenure
3• Size of Customer Base by Tenure
4• Lifetime Value of Customer Base by Tenure
5• Potential Value of Customer Base by Tenure
Although Loyalty measures are discussed in brief, the study doesn’t deal in depth with the econometrics of the
Clubcard.
Rank the Customer Base by Value
One of the key outputs of determining the Customer Loyalty Measures is to rank the customer base by value. This
is very crucial as it should drive decisions on where a company should allocate resources. Initially, Tesco’s loyalty
scheme was ‘one size fit all’in this case but later on it realized the importance of doing something extra for its
more profitable ‘Premium Loyal’ customers. Now Tesco understands the pivotal concept in determining a
customer’s value, that some customers are much more important than others.
Customer Strategies
Tesco establishes customer strategies to retain High Value customers, grow High Growth customers, acquire either
High Value or High Grow customers, and determine if negative value customers can be turned into profitable
customers. Each individual Customer Strategy outlines the steps that need to be put in place to retain, grow,
acquire or terminate specific customers. These strategies are executed via the Customer Experience. The strategies
designed are created with the primary objective of meeting the needs of the customer, and its success is dependent
on whether the needs of the customers have been met.
Customer Strategy Measures
Customer Strategy measures attempt to answer the following questions:

11. Which customers should a company retain/grow/acquire/terminate?
22. How did the company perform in retaining/growing/acquiring/terminating the appropriate customers?
3
However, Tesco’s Customer Strategy measures delve into deeper detail by breaking down the measures by each
customer segment, which breaks it down by Value and Customer Characteristics/Preferences. Also, each customer
strategy contains tailored Customer Strategy measures, such as Wallet Share for growth strategies, and Retention
rate for retention strategies. The results of these measures enable Tesco to allocate specific resources to target a
specific customer segment. The resources that work within a targeted customer segment shapes the customer
experience for the individual customers within that segment.
The Customer Experience is comprised of the following components:
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11. Populating the Customer Profile – To create the Ideal Customer Experience, Tesco populates the Customer
Profile with the relevant information to properly understand and meet the customer’s needs. The Customer Profile
will continue to be enriched as the relationship between the company and customer grows deeper
2
32. Delivering and Receiving Value at Each Customer Interaction – Tesco views each interaction as a golden
opportunity to deliver value through its products, services, and processes, as well as to receive valuable
information from the customer in the form of feedback
4
53. Customizing the Customer Experience – By understanding an individual’s needs, it creates the Ideal Customer
Experience by customizing the products, services, and processes to meet the needs of the individual customer
The ‘Customer Experience’ bit is where Tesco hugely outflanks its competitors. Detailed examination of all the
factors will be done which will make the author reach closer to Objective 4.
Tactical Measures
Tactical Measures are all measures that evaluate the performance of the Customer Experience, Customer
Ownership, and Technology. These measures are critical to detecting the success or failure of any component
within the Customer Experience..
Depending on the models (shown in Figure1) one adopts, the strategy adopted can be significantly different. For
example, advocates of the attitude approach (Model 1) ( more or less adopted by Tesco) aim to increase sales by
enhancing beliefs about the brand and strengthening the emotional commitment of customers to their brand.
Moving customers up a ‘loyalty ladder’ through image-based or persuasive advertising and personal service
(recovery) programs are frequently used tactics (Brown 2000; White and Schneider 1998).
Managers who adopt (Figure 2 Model 2) approach try to maintain their share of category sales by matching
competitor initiatives and avoiding supply shortages, and achieve growth via increased market penetration. Under
these circumstances, a loyalty program might be launched for mainly defensive purposes, in a bid to match
competitors with no expectation of dramatic changes in customer attitudes and behaviour.
Advocates of the contingency approach (Figure 3 Model 3) emphasize what might seem to be prosaic factors –
such as avoiding stock-outs, extending opening hours, offering the appropriate assortment mix. They also often use
price promotions, deals and special offers to attract the customers of competitor brands. Here the potential for
loyalty programs to impact demand is very limited.
2.4 Rhetoric vs. Reality
There is confusion regarding the nature, scope, role and influence of customer relationship marketing. From a
functional perspective, many marketers believe that the route to customer loyalty is through the operation of a
number of mechanistic, tactical initiatives such as loyalty cards, points schemes, events and promotions. It is
hoped that customer incentives and rewards are a sufficient basis to build loyalty, generate knowledge and change
customer behaviour. On the other hand, an organizational perspective views relationship marketing as a total firm
customer orientation – one that seeks to integrate and align multiple sources, processes and activities for creating
superior customer value on a consistent basis. Although the applied marketing literature suggests that there
Page 34 of 88
are very high expectations for CLPs, in reality they are surprisingly ineffective and it has been suggested
that almost 50% of them miss their business objectives partly or completely (Reinartz, 2002). One reason
therefore can be found in the fact that many CLPs have been launched as competitive-moves in order to
combat a competing programme, with quality often being sacrificed for speed in many cases (Butsher,
2001). Too often, loyalty programs appear to lack clear goals or are not tied to overall business strategy
which is what makes ineffectual and ineffective. As markets mature, there is increasing saturation and
cannibalization of loyalty effects, making it difficult for smaller programs to compete effectively .Another
reason, according to Cigliano et al.(2000), is that many organisations underestimate the full cost of setting
up and sustaining CLPs, arguing that even those that increase sales might actually be still draining money
– which could have a variety of reasons apart from underestimating CLP-set-up and maintenance costs,
such as getting caught up in price wars with competitors due to heavy financial incentives, or investing in
the wrong customers (in some cases, the demand of certain customers is so small, even after a lifetime,
that the cost and effort of turning them into loyal customers are out of proportion to the revenue they
could generate (Butsher,2001)).It has also been suggested that far too many customer-loyalty-programmes
have overemphasized on information gathering rather than relationship building and have thereby ignored
the need for customers’ voluntary participation in the programme (Tynan,2000).One reason therefore
might be found in the false assumption by many marketers that every customer is keen to develop an
intense and devoted relationship with them, while in fact it has been suggested that they are more likely to
view companies as “enemies”, not “allies”(Fournier et al,1998) .Furthermore, it has been argued by
Fournier et al.(1998) that “the very things that marketers are doing to build relationships with customers
are often the things that are destroying those relationships” since what is called “intimacy” by marketers
is often viewed as “intrusive” by the customer in a world where customers want, and will increasingly
demand control over their own data (Tynan,2000). Also, there is a clear limit to the number of such
schemes the customer will take the trouble to join. The greater the proliferation of loyalty schemes, the
less they act like loyalty schemes, appealing more to the minority of customers who are especially
susceptible to promotions. One must question whether the proliferation of loyalty programs represents
real value creation or is simply a case of “keeping up with the neighbours.” (Kadar & Kotanko, 2004).
Summary
This chapter dealt with the relevant theories and concepts that pertain to the concept of loyalty in general and
illustrated the brand of loyalty which is relevant to Tesco. It gave us the outline of the form and structure of
Tesco’s Clubcard and how its embedded within the organization. The study now moves ahead into adoption of
appropriate methodologies to figure out what loyalty approach Tesco adopts, how its strategy aligns with the
loyalty model and overall business objectives, if loyalty forms the core of its business strategy and how much does
it contribute to enhancing customer experience and achieving business objectives. Through appropriate methods in
place, it also seeks to evaluate the loyalty concept and its effectiveness in future.
The aim of the next chapter is to achieve the research objective by applying the appropriate research
approach, strategy and methodology. The chapter also seeks to ensure that the data collected is valid and
reliable, is not contaminated and bias is reduced to a minimum. For this purpose the tried and tested
‘Satmetrix’ Loyalty index is applied to measure ‘Customer Loyalty Index’ to find out the effect of the
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Clubcard. Focus groups, Telephonic and face to face interviews are also conducted as a part of primary
data collection, which help to triangulate findings.
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In order to approach the research objectives, this longitudinal exploratory study is taking into account both
qualitative and quantitative research strategies, which is often referred to as ‘triangulation’ – meaning ‘getting a fix
from two or more places’(Green et al,2002).
The triangulation approach strives to capture a more complete, holistic, and contextual portrayal of the phenomena
under study, and is intended to neutralize bias in any one approach applied (Green et al., 2002). According to
Bonoma (cited in Lewin & Johnston, 2002), researchers can pursue high levels of data validity and generalizability
by adopting triangulation strategies which provide replication and/or corroboration of findings across methods (i.e.
experiments, surveys, case studies). It has further been suggested that the integration of both research strategies
within a single project opens up enormous opportunities for mutual advantage, since inherent weaknesses of one
approach can be overcome only by using other methods (Simon & Vosseberg , 2001).
The Research Approach is a combination of deductive and inductive approach. Deductive, because the existing
concept of loyalty and its impact on business decisions and strategy is first tested using data and inductive because
the data collected is analyzed to give new dimensions to the loyalty concept and its strategic effect on business
decisions.
Both Quantitative and qualitative methods of data collection technique is applied, although the major part of the
research relies upon qualitative data and its analysis. Qualitative secondary information from a variety of sources
are gathered like Tesco Case Studies, Tesco Brochures, Tesco Web page , Reference books , Journals , Online
journals, Newspaper and Magazine (The Grocer) Articles , Taped interviews , Business news channel views ,
Research Agency (e.g Mintel) databases . Quantitative data from Tesco Company Reports and other supermarkets
are collected and analyzed to compare and contrast the effect of loyalty.
Before embarking on a definitive research methodology (Philosophy, Strategy and Approach) each research
objective was taken into consideration separately and a SWOT analysis was done for each data collection
approach against each objective. A rationale was established behind each research method before going ahead. It
was ensured that the data collection methods were more or less interdependent so that each method filled the hole
or covered the areas which could not be covered by the other.(e.g Focus groups helped in redesigning and
reframing some of the questions in the questionnaire, telephonic interviews and Face to Face interviews were only
conducted after the secondary data was collected and analyzed to properly design questions in order to keep the
interview short , exact and effective)
Initial secondary data collection method included reading through the relevant material in Books , Journals ,
Online Web pages, White papers, Seminar papers, Company Reports, Tesco website, Tesco cases studies, Research
databases (Mintel) etc. Keywords were then generated to refine the search.
Keywords generated: - Customer Relation Management, Loyalty Marketing , Direct Marketing , One-to-one
Marketing , Database Marketing , Relationship Marketing , Customer Loyalty, Retail Strategy, Co-creation,
Integrated marketing communications, Affinity programs , Buyer behaviour.
Generation of keywords made the secondary data collection a lot easier as it gave a specific direction to data
collection , more relevant material were available in less time.
Primary data collection methods were embarked on only after sufficient insight had been gained from secondary
data and most of the secondary data was collected and analysed and the ‘loyalty’ concepts fully understood.
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For the fulfilment of Objective 1, Objective 2 and Objective 3, Focus groups have been conducted to reveal
both behavioural and attitudinal aspects of loyalty and to decipher if loyalty schemes encourage loyalty or is it just
another marketing tool. Focus groups are a cognitive form of qualitative research. There is less structure to the
group, with group members being encouraged to take their own paths of discussion, make their own connections
and for the whole process to evolve. It seeks to encapsulate the experiences and feelings of respondents in their
own terms. The purpose of the project is disclosed to the respondents or is otherwise obvious to them from the
questions asked. Focus group is a tool borrowed from psychotherapy where it has long been realised that people
can be encouraged to open up if they are asked to share their views as part of a small group.(Edmunds,1999). It has
a brainstorming effect so that a comment from one person sparks ideas from another and groups can yield more
ideas than one to one interviews. The group may gel and a bonding between members acts as further
encouragement to disclosure.
Focus groups reveal customers viewpoint and perception and looks at loyalty programs through customer’s eyes.
By historical evidence it is found that women and old people were more loyal in their shopping habits while men
and students are the most promiscuous and fickle. The variables taken into consideration in the formation of focus
groups were Age, Gender, Income, Religion (in some cases), closeness to the supermarket, weekly shoppers and
weekend shoppers. The details of the participants were tried to be matched against the profile of the customers, to
ensure that the conclusions drawn were statistically significant. Focus groups gave customer viewpoint on
loyalty, satisfaction, loyalty schemes and what kind of loyalty programs they preferred and what changes they
thought would make them to visit the store more often. It also gave insights into customer’s feelings about loyalty
schemes and whether they built any longer term relationship because of the loyalty programs. Focus groups helped
the author gain sufficient insight into customer’s minds. They also helped the author reframe some of the questions
in the questionnaire so that the customer understood it better. It was the first phase of primary data collection, five
focus group sessions were conducted altogether and the number of participants ranged from 5-8.
To test the information generated from focus groups and to gain further insight a convenience sample (convenience
sample due to the lack of time and financial resources) of Tesco shoppers has been surveyed in front of a local
Tesco supermarket – which is also known as “mall-intercept-interviewing”( Zikmund,2000).Mall intercepts have
been used because it was thought that feedback from a larger population than a focus group was desired and also
because mall intercepts can provide more statistically reliable data than a focus group. Mall intercept interviews
lasted somewhere between 5-12 minutes.
As in Focus groups , they helped attain Objective 1 , Objective 2 and Objective 3. In order to reduce possible
shopping pattern biases and ensure data reliability, a more representative sample of the overall population has
been taken and the interviewing took place on a weekend, Saturday late morning till late afternoon, Sunday late
morning till late afternoon and Monday during morning office hours and evening times when people get out of
work. This was to ensure that both Cash/ Stress rich time poor and Time rich cash poor customers were considered.
Reliability of data was achieved by minimizing participant error as timing didn’t dilute the results and the data
wasn’t contaminated . Also, there was a high degree of structure to the interviewing to reduce observer error.
The advantage of interviewing a convenience sample is that it is relatively fast and inexpensive, however, the
drawback of this method is that there are no statistical techniques to measure the random sampling error
(“Random sampling error is the difference between the sample result and the result of a census conducted by
identical procedures”), and therefore it does not allow the researcher to project the data beyond the sample
(Zikmund, 2000)
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For ‘mall intercept interviewing’, a questionnaire has been developed that depending on the interviewee-response
divides them into two categories, namely Tesco Clubcard members and non-members, which is important to know
in order to have a benchmark to find out how the Tesco Clubcard affects its members loyalty towards Tesco which
represent the same questions as applied in the “Satmetrix Market Stat” to measure the Satmetrix “customer loyalty
index”. To evaluate how the Tesco Clubcard affects its members loyalty towards Tesco it was originally planned to
use a customized version of the “Customer Acid Test” (Web 9) to measure each categories loyalty towards Tesco
and then compare the findings against each other.
However, it turned out that the entire Test would be too long for interviewing shoppers in front of a supermarket
and therefore it was decided to use the first section (the first four questions) of the “Customer Acid Test” only,
which represent the same questions as applied in the “Satmetrix Market Stat” to measure the Satmetrix “customer
loyalty index”.
Satmetrix Systems is claimed to be the leading provider of enterprise solutions for improving business loyalty and
profitability with leading companies around the world relying on its systems, including Cable & Wireless, eBay,
E*Trade, Hewlett-Packard, Honda, Lucent Technologies, Network Associates and Siebel System( Web 10).
The “Satmetrix Market Stat” is a dynamic tool for customer satisfaction and loyalty measurement that uses the
“customer loyalty index” as key metric in order to measure overall customer loyalty (Web 11).It is used by many
leading companies across a large variety of different industries, including retailers and consumer goods leaders,
which are all using the following listed questions in order to measure customer loyalty (each question is rated on a
0-to-10 scale (Renis Likert’s scale 1932), with 10 representing the highest score):
 How satisfied are you with this provider’s overall performance ?
 How likely is it that you would recommend this provider to a friend or colleague?
 How likely is it that you will continue to purchase products/services from this provider?
 If you were selecting a similar provider for the first time, how likely is it that you would use this
provider again?
The questions address both the perceptual components - which are based on customer attitudes, opinions, and
emotions, such as satisfaction - by asking for the overall level of satisfaction, likelihood to recommend, and
likelihood to choose again as if for the first time, as well as the transactional components of the loyalty construct -
which are based on the customer’s intended or actual purchase behaviour – by asking for the propensity of making
repeat purchases, and therefore the “Satmetrix Customer Loyalty Index” (CLI) comes close to hybrid models of
customer loyalty measurement that try to measure the attitudinal and behavioural dimensions of the customer
loyalty construct( Web 10)
Although the “Satmetrix Customer Loyalty Index” does not take into account such constructs like commitment,
trust, liking and identification as recommended by Diller (2001), a research tool had to be found that does not cost
the interviewee too much time (otherwise the likelihood of getting an answer from the interviewee without much
thought just to get finished with the interview is likely to increase), but still has a reasonable level of validity
(validity is the ability of a scale or measuring tool to measure what is intended to be measured (Zikmund, 2000)),
and therefore the “Satmetrix customer loyalty index” appeared to be the best compromise, since it takes into
account both dimensions of the loyalty construct by asking the above mentioned questions and also due to the fact
that it has been developed, tested and applied by a highly regarded institution which has many industry-leading
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clients around the world and employs several leading authorities in the field of loyalty research, including Fred
Reichheld, whose publications include widely read articles in the Harvard Business Review and The Wall Street
Journal ( Web 11)
However, it was thought that the behavioural aspect of the loyalty construct is somehow weakly represented by the
“Satmetrix customer loyalty index” since there is only one question concerning repurchase intentions and for this
purpose the research tool developed for this study included two more items to measure the “perceived”
behavioural dimension of the loyalty construct, including a question regarding the customers’ “perceived”
expenditure in terms of a percentage figure of their monthly grocery budget spent with Tesco (categorized into four
options: (1) less than 25%, (2) 25 – 50%, (3) 51 – 75 %, (4) 76 – 100%), as well as a “yes/no” option for Clubcard
members regarding whether they have spent more money with Tesco since they have had a Clubcard or not
(however, these added items are not included in the CLI, but treated separately).
To quantitatively measure the loyalty effect of the Tesco Clubcard, the arithmetic mean of each question
representing the CLI is calculated for both, Tesco Clubcard members and non-members who have participated in
the interview and then compared against each other. Afterwards, the overall CLI for each category (Tesco Clubcard
members and non-members) is measured by calculating the arithmetic mean of all four questions representing the
“Satmetrix Customer Loyalty Index”.
The two additional items capturing the behavioural dimension of the customer loyalty construct are used to
demonstrate what percentage of their monthly grocery budget (their share-of-wallet) Tesco Clubcard-members
spend with Tesco as compared with non-members as well as to show whether Clubcard members have increased
their spending behaviour since they have had a Clubcard or not.
In order to find out the importance of a CLP for Tesco customers, the research tool also employed a question
regarding “the” most important aspect for them when they are selecting a supermarket (options available: location,
brand assortment, value for money, one-stop-shopping, and club scheme). This part of research threw up
interesting findings, since customers chose ‘value for money’ as the most important factor while selecting a
supermarket , which seemed to contradict previous researches conducted in 2003 and 2001 which pointed out
‘Location’ and ‘One stop shopping’ as the single most important criteria ,respectively. Just to make sure the
findings were right and to probe into it more deeply, interviews were conducted with 12 of the known respondents
who had chosen ‘Location’ as the single most important criteria when choosing a supermarket. The interesting bit
was 9 out of these 12 respondents interviewed responded that they didn’t consider Store Location a factor at all
which literally meant that just because they stayed near a particular store , it didn’t occur to them that store
location can be a factor at all. Only when they were given the scenario of living somewhere far away from their
favourite super store, they could imagine store location as an important factor. So , perhaps ‘store location’ can be
a bit more important a factor than what the questionnaire results reveal.
Since demographic criteria are often mentioned to influence shopping attitudes and behaviour (Carman 1999, cited
in De Wulf, 2000), the research tool developed for this study also took into account questions to obtain coverage
on gender, occupation (divided into Professional, Skilled Worker, Retired, Unemployed, Homemaker, Student) and
size of household (1,2,3,4 or more) in order to be able to conduct some cross tabulations (in order to see a
complete copy of the research tool, please see Appendix).
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For attainment of Objective 4 , quantitative analysis and examination of Company Reports has been done.
Quantitative measures of effectiveness have been developed by typically comparing and contracting post-program
levels of sales, customer retention, customer satisfaction, etc. with pre-program measures and noticeable
differences were carefully studied while taking into consideration the control group (group subjected to the same
new service regime, but without the ‘benefit’ of a loyalty program). Other criteria which may directly relate to the
Clubcard such as increase of customer base , increase in average spend , increase in shopping frequency were
studied in detail and conclusions were tried to drawn from them. Regular increase in sales, number of outlets ,
operating profits and the strengthening of Tesco Brand and the overthrowing of Sainsbury’s to second place meant
that Tesco was doing something special in relation to other supermarkets. Success evaluation was done to figure
out the contribution of the Clubcard. Focus groups and mall-intercept interviewing helped in findings regarding
other supermarket loyalty schemes and Tesco scheme was the most preferred one. Also, going though research
databases such as Mintel and Grocery magazines such as ‘The Grocer’ revealed important difference between
Tesco’s and other supermarket loyalty schemes which helped compare and contrast supermarket loyalty programs.
For the attainment of Objective 5, organizational viewpoint was necessary. Qualitative data collection technique
embarked upon was Semi-structured in- depth interviews with Tesco Store managers. Interviews would reveal
the importance of Clubcard and the role it played in the overall strategy. The interview also tried to probe deeply
into training of staff and the emphasis given to the Clubcard during training . Both the semi-structured interview
and the telephonic interview had questions on training to figure out how much Clubcard knowledge permeates
from the managers to the floor staff (customer facing staff) Questions also related to any possible link of Clubcard
to other factors (store formats, non food expansion) which has played significant role in Tesco’s success, to assess
if at all a link can be established between the Clubcard data and other factors. Managers were also questioned
regarding the potency of Clubcard and what made Tesco Club card stand out and different from others. Strategic
questions were also included in the interview to figure out to what extent does Club card play a role in the overall
strategy of the firm. Managers were also asked to rate Tesco’s success factors and which factors they considered
made Tesco stand out in comparison to its competitors.
Another qualitative data collection technique for attainment of Objective 5 included Telephonic interviews with
Tesco staff. Interviews would reveal the importance of Clubcard and how much emphasis was paid to the club card
during training. As they interacted directly with the customers, they had to be the advocates of Clubcard. The
author thought that if Tesco considered Clubcard as a part of its strategy, special emphasis and extra sessions
should be dedicated to the Clubcard during staff training so that the staff were aware of its importance in the firm’s
overall progress and treated it as an essential ingredient in company’s success.
Summary
The results by and large indicated that women were more likely to own a Clubcard and more likely to be
influenced with the loyalty schemes. They were significantly better at ‘recommending’ and once satisfied served as
better advocators. There was a noticeable difference in shopping behaviour between Clubcard and non-Clubcard
members as well, with Clubcard members scoring higher than non-Clubcard in every loyalty dimension. Results
also revealed a correlation between household size and CLI, it was noticed that loyalty was more or less directly
proportional to the household size (the more the size of household, the more loyal the members and visa-versa).
Result also indicated that Clubcard may have an effect on customers monthly spend, with Clubcard members
spending major portion of their monthly spend with Tesco as compared to non-Clubcard members. Though all
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these factors pointed towards the positive effects of Clubcard, none of the participants declared Clubcard as the
prime reason for selecting a supermarket.
After having the appropriate methodologies in place and collecting the required amount of data over a period of
time, the study now moves into the analysis part, where the qualitative and quantitative data collected will be
carefully examined, analyzed and discussed. Data collected from various sources will be triangulated before
coming to a definitive conclusion.
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Page 44 of 88
Introduction
This chapter is devoted to the presentation and analysis of the information collected. The results of the ‘mall
intercept interviewing’ will be discussed and analyzed first. Analysis of focus groups, telephonic interviews and
face-to-face interviews will follow. These findings along with the findings from the secondary research will be
triangulated and a thorough examination of the Tesco Clubcard will be done. The factors which have led to the
success of the Clubcard will be highlighted and the strategic implications of the Clubcard will be analyzed. The
evaluation of loyalty as a corporate strategy will be discussed.
4.1 Results
Data from the questionnaire indicates that more than three quarters (77.22 per cent) of the 158 respondents
surveyed participate in the Tesco Clubcard programme. Although it was tried to get an equal gender distribution,
men were much more likely to refuse to participate in the survey than women, and as a result of that, 92 out of 158
respondents were female – of whom 83 (90.2 per cent) owned a Tesco Clubcard, and 66 were male – of whom 29
(43.93 per cent) owned a Tesco Clubcard.
The survey also revealed that 55.74 per cent (68) of the Clubcard-holders interviewed participate in more than one
Supermarket CLP, of whom 86.76 per cent (59) were female and 13.24 per cent (9) were male.
The data further indicate that women were not only more likely to participate in the survey and more likely to own
a Tesco Clubcard, but they also scored higher in terms of overall CLI than their male survey-counterparts, as
demonstrated in Figure 11
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Figure 11
Customer Loyalty index sorted by female and male Clubcard members
8.79
8.8
CLI
8.6
8.4 8.14
8.2
8
7.8
Fema
le
Male
gend
e r
Female participants generally scored higher in every single dimension of the CLI, but the most significant
difference between male and female Tesco Clubcard-members occurs in the “Recommendation” dimension as
shown in Figure 12, where female Cardholders scored 9.15 Index-points as compared to only 7.45 Index-points of
male Cardholders.
Page 46 of 88
Figure 12
Customer loyalty dimensions: Female and male Clubcard members
10 9.15
8.1 7.85 9.15
8 9.51
CLI 8.32 8.19
7.45
6
Female
Male
4
0
Overall
satisfaction choose first
time purchase
again recommend
In terms of their occupation, the data show that 31.15 per cent (38) of the Tesco Clubcard-members interviewed
were Homemakers, 27.05 per cent (33) Professionals, 16.39 per cent (20) Retired, 16.39 per cent (20) Skilled
Workers, and 9.02 per cent (11) Students, of whom 12.30 per cent (15) are living in a single household, 22.13 per
cent (27) in a double-household, 18.85 per cent (23) in a household of three, 30.33 per cent (37) in a household of
four, and 16.39 per cent (20) in household of more than four people.
Regarding their loyalty towards Tesco, Clubcard-members scored reasonably higher than their non-member survey
counterparts with an overall CLI of 8.68 for Clubcard-members as compared with 7.84 for non-members,
non -Clubcard
accounting for a CLI difference of 0.84 Index-points in favour of Clubcard-members.
7.84
members Overall customer loyalty for Tesco-Clubcard members and non-members
Figure 13
Club card
8.68
members Page 47 of 88
0 1 2 3 4 5 6 7 8 9 10
Type of
customer
Type
CLI
As shown in Figure 14, the biggest difference between Clubcard-holders and non-holders occurs from the
“Recommendation” dimension of the CLI, with Clubcard- holders scoring 8.87 Index-points as compared to 7.19
Index-points of respondents without a Tesco Clubcard, accounting for a difference of 1.68 Index-points in favour
of Clubcard-holders, while the “Overall Satisfaction” dimension of the CLI accounts for the smallest difference
(8.29 Index-points for Clubcard-holders as compared to 8.15 for non-holders) with a surplus of 0.15 Index-points
in favour of Clubcard-holders.
In terms of “Choose first time”, respondents holding a Clubcard membership scored 8.13 Index points, compared
with 7.33 Index points of respondents without a Clubcard membership, while in terms of “Purchasing again” they
scored an Index of 9.45 as compared with 8.89 of non-members.
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Clubcard and non-Clubcard members on loyalty parameters
Figure14
9.45
8.69 8.87
10
8.29 8.13
8.14 7.33
9
7.19
8
CLI
7
5 Clubcard members
non-Clubcard members
4
0
Overall choose first Purchase Recommend
satisfaction time again
When manipulating the data according to occupation, results reveal that “Homemakers” holding a Tesco Clubcard-
membership are most loyal towards Tesco, scoring a CLI of 8.77, followed by “Retired” Clubcard-members (8.75),
“Professionals” (8.73), “Students” (8.68) and “Skilled Workers” (8.53) (also illustrated in Figure 15)
Page 49 of 88
Figure
CLI of Clubcard members by occupation
8.77 8.75
8.73
8.8
8.65
8.7
CLI 8.53
8.6
8.5
8.4
Student Homemaker Retired Professional Skilled worker
When manipulating the data according to “size of household” (as shown in Figure 16), results indicate that Tesco
Clubcard-members living in a household of more than 4 people represent the most loyal category with an overall
CLI of 8.80, followed by Clubcard-members living in a household of 4 with an overall CLI of 8.72, with single
households being the least loyal with an overall CLI of 8.54.
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CLI of Clubcard –members by size of household
Figure 16
8.8
8.8 8.72
8.67
8.65
8.7
CLI
8.6 8.54
8.5
8.4
1 2 3 4 More
Size of household
As illustrated in Figure 17, 13.93 per cent (17) of Tesco Clubcard-members responded “less than 25 per cent”
compared with 25 per cent (9) of non-members when they were asked for their monthly grocery expenditure spent
with Tesco as percentage of their overall monthly grocery budget, while 30.33 per cent (37) answered “25 – 50 per
cent” in contrast to 41.67 per cent (15) of non-members, 37.70 per cent (46) replied “51 – 75 per cent” as
compared with 22.22 per cent (8) of participants without a Tesco Clubcard membership, and 18.03 per cent (22) of
Tesco Clubcard-members responded “76 – 100 per cent” – compared to 11.11 per cent (4) of without a Clubcard
membership.
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Figure Percentage of m onthly grocery budget spent w ith Tesco (CLubcard-m em bers)
18.03%
37.70% 13.93%
30.33%
< 25% 25-50 % 51-75% 76-100%

Percentage of monthly budget spent with Tesco(non-Club card members)
Figure
11.11% 25%
22.22%
41.67%
< 25% 25-50% 51-75% 76-100%

When asked whether they have increased their spending with Tesco since they have had a Clubcard membership,
61.48 per cent (75) responded “No” and 38.52 per cent (47) responded “Yes”.
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In terms of what is most important for them when selecting a supermarket, none of the respondents mentioned
“Clubcard”, while 49.18 per cent (60) of all Tesco Clubcard-holders and 41.66 per cent (15) of all survey-
participants without a Clubcard responded “Location”, followed by 39.34 per cent (48) of Clubcard-members and
36.11 per cent (11) of non-members who perceive “value for money” as most important when selecting a
Supermarket, with “brand assortment” being most important for 9.02 per cent (11) of all Tesco Clubcard-holders
and 19.44 per cent (7) of respondents without a Tesco Clubcard, and “one-stop-shopping” being ranked as most
important for 2.46 per cent (3) of all Tesco Clubcard-members and 2.78 per cent (1) of all non-members (also
demonstrated in
Figure 19)
Factors in selecting a supermarket
Figure 19
41.66
49.18
50 36.11
40 39.34
19.44
% 30
20 9.02 2.78
10 2.46
0
location Brand Value for One stop
factors
money shopping
Clubcard-members non-members
4.2 Discussion of the survey results
The prime interest of the survey was to examine the impact of the Tesco Clubcard on its members loyalty towards
Tesco by applying the Satmetrix “Customer-Loyalty-Index”, and to analyse the success factors behind the Tesco
Clubcard model.The results from the survey provide some evidence for a positive impact of the Tesco Clubcard on
its members loyalty towards Tesco, since surveyed Clubcard-members generally scored a higher CLI than survey
participants without a Tesco Clubcard-membership. The survey also provided other valuable indicators which are
discussed below.
Figure 11 and 12
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It is also worth noting that female participants were generally more likely to own a Tesco Clubcard (90.02 per cent
of all female respondents owned a Tesco Clubcard, as compared to 43.93 per cent of all male respondents) and also
scored higher in terms of CLI than their male survey-counterparts as demonstrated earlier in Figure 11 and 12,
which supports claims that gender is a key discriminator in CLP-card ownership/participation (Wright & Sparks
,1999) (according to an AGB Omnimas loyalty scheme tracking survey, supermarkets and department stores are
more likely to attract female participants, while petrol loyalty schemes tend to be male dominated), and also
justifies investments into promotions specifically targeted at women (e.g. iVillage.co.uk). Figure 12 also indicates
that female have higher CLI than men on all CLI parameters which effectively can mean that its easier to satisfy
females , they are more loyal , they shop more often and are more likely to be ‘locked-in’. Also, the high
difference in CLI with regards to ‘recommendation’ suggests that Females are good advocators. As Focus group
discussion had revealed that customers rate ‘word-of-mouth’ publicity as the most important factor affecting their
shopping habits, which means that females are in a way Tesco’s biggest asset. Even if they do not shop a lot, they
are good at recommending and promoting things. Thus, as with ‘Baby Club’ , Tesco’s future loyalty strategy
should be to try to target females and bring them in under the Clubcard umbrella. The fact that more often than not
,females do sign up for loyalty schemes makes matters easy.
Figure 13 and 14
There appears to be clear evidence of a positive impact of the Tesco Clubcard on its members loyalty towards
Tesco, since Clubcard-members scored higher in overall CLI and in each single dimension, this is particularly true
in the case of the “Recommend” dimension of the CLI meaning that Clubcard-members are much more likely to
recommend Tesco to their friends and colleagues than customers without a Clubcard-membership, making them
far more better word-of-mouth marketers for Tesco. The “Overall Satisfaction” dimension, accounts for the
smallest difference of only 0.15 Index-points between Clubcard-members and non-members. This could be
perceived as a weakness of the Clubcard since one of the main targets of customer loyalty programmes is to
increase customer satisfaction, but on the other hand, the small difference between Clubcard-members and non-
members in terms of “Overall Satisfaction” could also be seen as a strength of Tesco’s overall strategy (apart from
investing in the Tesco Clubcard, Tesco invested heavily in a series of other initiatives designed to offer better
value, improve its stores, and give a higher level of service to its customers (Peck ,1999), since Tesco shoppers
without a Clubcard-membership are almost as satisfied as Clubcard-members despite the fact that they do not
receive the additional benefits Clubcard-members get. But then it could indicate that Clubcard does not enhance
the satisfaction factor among its members. The huge difference in other CLI parameters except ‘Satisfaction’ does
seem to suggest that Clubcard directly or indirectly does affect the shopper in one way or the other. Interesting bit
to note is, if we consider satisfaction as the base and compare it with other loyalty parameters it reveals that though
there isn’t much difference in the ‘Overall Satisfaction’ parameter between Clubcard members and non-members
the difference is huge when it comes to ‘Recommendation’. Even in the case of ‘Choose first time’ and ‘Continue
purchasing’ there is quite a bit of difference between Clubcard members and non-members which means that for
Club card members the satisfaction does get transformed into transaction more easily and perhaps transaction into
loyalty which can be justified by their habit of recommending.
Figure 15 and 16
The results also indicate that there appears to be a positive correlation between household size and CLI, since
respondents living in a household with several members were inclined to score higher in terms of CLI than
respondents living alone, which is in line with the research findings by McGoldrick et al.(1997), suggesting that
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loyal customers are more likely to live in larger households. However, Mason (1996) found little difference in
customer loyalty according to household size, but suggested that the full-time employed tend to be more store
loyal, which is inconsistent with the research findings of this study in that “Homemakers” and the “Retired” scored
the highest CLI and “Students” even scored higher than “Skilled workers” and only marginally lower than
“Professionals” (however, it must be recognized that process of sample selection of the present study is different
from that employed by Mason). We find that the CLI of Homemakers is the highest and considering that women
form a major chunk of Homemakers category, it only justifies the previous finding that women are more loyal than
men. More interesting things emerge when we try to analyze Figure 16. We notice that CLI increases in direct
proportion to the size of household which means the bigger the size of household the more loyal customers are .
But loyalty can be because of several factors, Tesco’s ‘Value for money’ products’ with its ‘Tesco Value’ lines,
product variety, location, One stop shopping etc. But it wont be unreasonable to think that with bigger household,
customers have to spend more which can mean that they may be more ‘price conscious’ than the ones with single
households and may value discounts a lot more . It here then that the Clubcard may have an effect., customers may
want to shop at Tesco to add points and get discounts. Thus Clubcard may make the larger households least
susceptible to competitor attack by making them stick to Tesco for Clubcard points and subsequent discounts.
Figure 17 and 18
A positive impact of the Tesco Clubcard on its members loyalty towards Tesco appears to be further evidenced by ,
demonstrating that more than half (55.73 per cent) of all Tesco Clubcard-members surveyed responded that they
spend more than 50 per cent of their monthly grocery budget with Tesco, compared with one-third (33.33 per cent)
of all surveyed non-members. However, 61.48 per cent (75) of all surveyed Clubcard-members responded “No”
when asked whether or not they have increased their spending with Tesco since they have had a Clubcard
(however, this figures have to be treated carefully, since it has been suggested that consumers are not necessarily
objective in regards to purchasing behaviour and that they are not likely to admit being influenced, when in fact
their shopping patterns might show otherwise (Wright & Sparks ,1999).
Thus (assuming that the respondents were objective), since Clubcard-members tend to spend a higher percentage
of their monthly grocery budget with Tesco, but the majority of them did not increase their spending with Tesco
since they have had a Tesco Clubcard, it could be argued that the majority of them have already been high
spending/loyal customers beforehand and that the Clubcard did not fundamentally change their loyalty and
shopping patterns but it also suggests that Club card also acts as a ‘lock-in’ for the customer and makes them less
susceptible to competitor attack. On the other hand, there were considerable 38.52 per cent (47) of all Clubcard-
members surveyed who responded “Yes” when asked whether or not they have increased their spending with Tesco
since they own a Clubcard, which does suggest that Club card does have a role to play as far as consumer spend is
concerned. Also, there is a significant amount of difference between the percentage of monthly budget bought from
Tesco by the Clubcard members and non-members which again suggests that Clubcard may be the driving force
behind it.
Figure 19
Another interesting result of the survey includes the fact that none of the participants, neither Clubcard-members
nor non-members responded “Clubcard” as being most important for them when selecting a supermarket, while the
vast majority of both categories responded “Location” as being most important, followed by “Value for money”
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being second most important, with “Brand assortment” being third most important and “One-stop-shopping” being
fourth most important . These findings are inconsistent with the findings of a survey conducted by Verdict
(Cuthbertson,2001), suggesting that “one-stop-shopping” is the most important factor for keeping UK-customers
loyal (here again, this might be due to differences in sample selection and study methodology, since the sample of
the present study was geographically concentrated to the City of Cardiff as well as just to one supermarket). But
the fact that Clubcard wasn’t the most important criteria doesn’t suggest that it wasn’t important at all, it may have
been one of the important factors though not the most important. So, in no way can a judgment be made that
customers do not value their Club card, may be they value it less than the other factors mentioned. Another
interesting bit is the difference in ‘Brand Assortment’ , non-Clubcard members seem to value Brand assortment a
lot more than Clubcard members which means Tesco can rethink its strategy with regards to branded goods.
Perhaps with the addition of some branded stuff it can increase satisfaction levels of non-Clubcard members and
make them a part of the Clubcard. Another research finding revealed that 55.74 per cent (68) of all Clubcard-
holders surveyed participate in more than one Supermarket CLP, thereby supporting claims that consumers are
more likely to have a repertoire of two or three brands within any product category from which they regularly buy,
rather than just one i.e. polygamous or divided loyalty (O’Malley,1998)
4.2.1 Analysis of Focus group
Analysis of focus group sessions revealed important insights about customers perception towards Clubcard and
supermarkets in general. About 15-20% of the participants shopping at Tesco were not aware of the Clubcard,
some even thought that Clubcard was an ‘opt in’ scheme where they have to pay for being a part of the scheme.
This meant that Tesco is lacking somewhere in creating the right kind of awareness and perhaps not promoting the
Clubcard properly. Though interview with employees revealed that they were always asked to emphasize on
Clubcard, most of the respondents of the focus group stressed that there were never asked or encouraged to sign
up for the Clubcard and even the employees were not sure of the exact benefits. It was only the word-of-mouth
publicity that was making customers sign up for the Clubcard , Tesco isn’t doing enough to encourage customers to
get enrolled in the loyalty scheme. Most of the respondents who had a Clubcard , did mention that their buying
habits changed negligibly because of the Clubcard ( e.g they knew that 1point gets added every pound , so they
made sure that they bought stuff in multiples of a pound and would not shop for £3.92 but would make sure that
the bill reaches £4 and they don’t miss a point) The habits did not change completely but Tesco does manage to
bring in something extra. The interesting aspect was, none of the participants knew the percentage or the share of
discount Clubcard gave them. Most of them thought the discount was something around 5% on their spend. After
being informed that its 1%, most of them were shocked and disillusioned. Tesco does well enough to create a
positive hype around the Clubcard which helps creating a mirage in customers minds. There was very little
awareness of the Clubcard other than the points. No one knew that Clubcard points can be added elsewhere also
and that Clubcard umbrella encapsulated other companies besides Tesco. Customers associated Clubcard with
Tesco only, they thought that points could be added and redeemed only at Tesco and no where else. Again,
suggests that Tesco is failing to create the right kind of awareness. Though general view was that Clubcard didn’t
encourage loyalty, yet respondents did say that they would feel unhappy and even cheated if Tesco tries to do away
with it. Though this emotion may not get transmitted into changing of shopping behavior. (e.g they would not stop
or reduce their frequency of shopping at Tesco). Most respondents refuted that loyalty can be generated by a
loyalty scheme. Some of them did say that loyalty does have a part to play as far as supermarkets are concerned
but the reasons for loyalty were ‘value for money’, ‘Product Variety’, ‘Quality of products’, ‘Good customer
service’ , ‘Tesco Value products’ and ‘Good shopping environment’ (like less wait at the till ). Regards Clubcard ,
most of them said that they signed up for it because they had nothing to lose. Respondents were happy over the
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Clubcard in the key ring format which meant they didn’t have to remember taking the Clubcard whenever they
shopped at Tesco. Tesco does concentrate on every little that can lead to customer satisfaction and to an extent this
satisfaction does get converted into loyalty as seen from the survey results. Tesco stores have become the no.1
retailer in UK by investing in better retail environments , value added services, employee training, supply chain
efficiencies and customer relationship management. The company has an enviable reputation for being innovative
by offering good value across an extensive range of products while providing a convenient , quality shopping
experience. Tesco is blatantly aware of the fact that customers regularly appraise the TESCO brand according to
these criteria, and it uses this knowledge to employ a coordinated and proactive marketing approach successfully.
4.2.2 Analysis of Semi-structured interviews with Check-out (Customer facing) staff

Interviews with Tesco check out staff revealed important insights. All the interviewees did say that quite a bit of
emphasis was paid to the Clubcard during the training period and all effort was being made for the employees to
understand its importance to the business. Videos of Clubcard launch were also shown during the training days to
have additional impact on the staff so that they understood its importance and relevance. But ironically, even after
all this most of the Tesco staff didn’t know much about the Clubcard , other than this being a ‘discount scheme’.
60% of them didn’t even know how the points added up and those that did was only because they themselves were
Clubcard members. Above all, none of the staff interviewed had any idea how Clubcard helped the organization.
They had absolutely no clue as to why Clubcard data was collected and how it was beneficial to the organization.
With regards to customers , all staff interviewed were of the opinion that customers valued their Clubcard a lot.
Even if they forgot to bring the Clubcard, customers had the receipt safe and made sure they got the points added
the next time they shopped which seems to show that customers did care for points and the subsequent discounts.
Some staff were of the view that some customers purposely shopped more to add Clubcard points which seem to
point out that Clubcard may increase customer spend in certain circumstances. Tesco’s key ring Clubcard format
went quite well with the customers. Customers were also quite satisfied with the coupon format and the quarterly
Reward scheme. ‘A Clubcard member values his or her statement mailing because it is personal , ‘the quarterly
me’ ( Mason ,2003). Although , it was revealed that Tesco did value their staff and staff were given various
privileges like Clubcard linked to staff discount card etc, but there was a lack of motivation due to long work hours
and due to which the staff admitted missing out on asking the customers about the Clubcard. Most of them didn’t
bother to ask customers to sign up for a Clubcard and those who did could not explain the exact benefits of the
Clubcard. None had any ideas that Clubcard points can be added and redeemed elsewhere and that Tesco was in
partnership with other firms. Nor was anyone aware that Clubcard points can be viewed on the Tesco.com site.
4.2.3 Analysis of Semi-structured face to face interviews conducted with Store Managers
The main purpose of interviewing Store Managers was to find out the importance of loyalty as strategy and to what
extent they thought Clubcard was important to the overall decision making and functioning of Tesco’s business.
The interview would also help to triangulate the findings . The answers related to training seemed to endorse the
point made by front-line staff, that there was quite a lot of emphasis on Clubcard during training and staff were
made to realize its importance and relevance and Clubcard was projected as a potent force. Managers felt that
much more emphasis was paid on Clubcard during training than before. This was because they had to make sure
that more and more customers joined the Clubcard which would give Tesco an opportunity to lock them in with
their promotions and special offers, which would reduce defection levels and reduce churn. They thought that the
emphasis paid on the Clubcard was justified. Customer-centricity was highlighted regularly during the course of
the interview with clichés such as ‘customer is the king’, ‘customers set the agenda’ and ‘customers are the
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regulators’. In fact, the word ‘customer’ cropped in to the point of irritation which suggested that Tesco did value
their customers and the Clubcard for them was a way to customer-centric market research. Managers thought that
the data collected from Clubcard was exact through which they knew more about customer behaviour than its non-
loyalty program rivals such as Asda. For example , they said that Asda relied on market research which only gives
them an approximate idea regarding customer purchase patterns while Clubcard data was exact and reliable. They
thought Nectar card didn’t work on the same philosophy as Tesco and though it was a loyalty card , it didn’t
generate the same type of information as the Clubcard and because of being a multi-branded loyalty card , it didn’t
generate loyalty at all which defeated the whole purpose of a loyalty program. One note worthy feature was,
though the Store managers had enough knowledge of the Clubcard and its workings, the knowledge didn’t seem to
permeate down to the customer facing staff. Even after training, the floor staff had no clue regarding the
importance and workings of the Clubcard which seem to suggest that Tesco did lack somewhere in the training
part. Interviews did reveal that Tesco’s value their Clubcard a lot and to an extent they did rely on Clubcard data
to make strategic decisions especially the ones related to promotion. They believed that Clubcard was making
customers loyal . One of them cited the example that , a customer can drive to any super market within 15 mins ,
so it wasn’t because of the store location but its was customer loyalty that was making them shop at Tesco and that
loyalty has been built from listening to the customers and giving them what they wanted. With regards to the future
strategy, managers were of the opinion that Clubcard would always be a strategic weapon and will guide Tesco to
reach its short term and longer term objectives. There were no plans to shelve the Clubcard in near or distant
future. The interview did reveal that Tesco soundly backed its Clubcard and to an extent does rely on the data
generated. It cannot be ascertained from the interview if Tesco’s foray into non-food or international expansion can
be related to Clubcard data in any way but promotional effectiveness can undoubtedly be attributed to the Clubcard
and the information it generated. Tesco do have a commitment and dedication to make the maximum use of its
Clubcard data and do value their loyalty program.
4.3 Origin and Motives
Before assessing Tesco’s loyalty scheme, it is important to understand the circumstances under which it started
and the objectives Tesco had in mind before embarking on it , because this would make it easier to evaluate its
effectiveness.
Tesco started the concept of loyalty marketing primarily due to three major reasons:-
 Technologically feasible- It was technologically possible to process the volume of transactional data that
a loyalty scheme would generate. For the first time there was a realistic prospect of collecting and
managing masses of accurate customer-based transactional data and using it to provide insight
advantage. Having at their disposal, resources and capabilities which made their chosen strategy feasible.
 ‘Me too’ factor - All major retailers were starting to think on these lines and ‘loyalty’ was the latest
buzzword in retail . Safeway , Sainsbury’s were all testing it , already. Tesco didn’t want to be left
behind.
 Competitive Pressure - Tesco was not in a market leading position . Pressured from above by a
seemingly unassailable market leader in Sainsbury’s, with a looming threat from below from price-
cutters like Asda and Kwik-Save, and facing the prospect of an invasion from German and US
discounters like Aldi and Costco, Tesco needed to fight back against the competition. It needed to protect
its current market share by sustaining and developing the value of its customer base. Club card became
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one of a series of initiatives to break the cycle of under-achievement. Tesco’s biggest leap into the
unknown. The underlying motive, therefore was to increase market share.
4.4 Tesco’s definition of loyalty (The Loyalty Cube)
Customer’s location in the loyalty cube suggests what sort of action is appropriate to earn their lifetime loyalty.
The three axes on the loyalty Cube signify Contribution, Commitment and Championing.
Adapted from Humpy et al., 2004
Figure 20
The Loyalty Cube
Championing
Z
Commitment
Y
Contribution
Customer X
Contribution
Signifies customer’s profitability. Some very loyal customers can make very low contribution to company profits
while some occasional customers can make greater contributions. Contribution ,does not, in Tesco’s model, reflect
loyalty –Terry Leahy’s concept of the scheme is to encourage loyalty , not just profitability.
Commitment
Measures future value. This contains two elements: the first is how likely the customer is to remain a customer,
because a defecting customer has no financial value in future. It also measures ‘headroom’, this is the potential for
the customers to be more valuable in future, provided everything possible is done to demonstrate value in that
headroom. Customers who are already buying as much as possible have little headroom, for these customers new
complementary areas become much more important, such as new departments in a store. Headroom is vital to a
mature loyalty scheme like Clubcard and Tesco knows this and constantly works to increase the headroom.
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Commitment has special significance in Tesco loyalty model as it always works to enhance value for the customers
to increase headroom.
Championing
Customers with little headroom can act in a third dimension in the cube: as an ambassador for the brand. This is
where the idea that loyalty program members are ‘members of the brand’ comes to life. If they see value in a
program they will recommend it. The long term value of a low value customer in Tesco is in recruiting higher-
value customers. The analysis of survey results do reveal that Clubcard members are quite good at advocating and
recommending which means Tesco has been to an extent, successful at championing . Championing is of utmost
importance in the Clubcard model as Tesco knows that ‘word of mouth’ publicity is the most effective way of
marketing.
4.4.1 Understanding the DNA of loyalty
Tesco’s loyalty program is a success because Tesco understands the basics of loyalty.
Brand Values
This is a key ingredient in Tesco’s loyalty programme’s genetic code. It’s loyalty programme is the active
expression of its brand’s personality and values. Whatever the characteristics of the brand are, the qualities that
customers recognize and admire, the Clubcard programme is that brand in action.
Business dynamics
Tesco’s loyalty programme does not exist in isolation from day-today business dynamics of the company. What
ever opportunities or constraints exist for the business as a whole , it is reflected in the loyalty programme.
Customer behavior
It is axiomatic for Clubcard and any other loyalty programme that aims to succeed, that the focus of the
programme should be to encourage profitable customer behavior ‘Reward the behavior you seek’ as it is
known at Tesco. Tesco establishes priorities for the change it wants to see in customer behavior.
4.4.2 The Launch
Because Clubcard was the first loyalty scheme to be launched nationwide , the launch was where it could have hit
or miss. The successful launch of Clubcard provided the initial impetus. Several factors contributed to making the
Launch a success
Secrecy and Momentum

Tesco’s office relating to Clubcard activities was named ‘the bunker’ and it was completely isolated to prevent any
information leak because the race for first mover advantage was on with Sainsbury’s. The secrecy around the
national launch wrong footed competitors, who had assumed that Tesco would move to a larger trial , or that it
would take it longer to launch nationally. Tesco’s determination to gain first-mover advantage paid off. Tesco set
the agenda and the only option for the competitors was to react.
Simplicity
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The advertising message was right ‘Save on your shopping today’. It was simple , direct and emphasized what
customers got out of the deal in the most basic terms. It fitted customers expectations of their supermarket brand.
‘Every Little Helps’ and ‘Thank You’ were a natural fit. The word ‘discount’ was banned internally and was never
mentioned during the launch , suspecting of sending the wrong message.
Control and Involvement

The Tesco Board trusted the marketing team to do what they wanted , driven by customer response and the
growing vision of what customer understanding could do for the business. The front-line staff were always
informed and closely involved at every key stage. They acted as marketers for the scheme too. Because it was ‘
their Clubcard’ , they backed the advertising messages in their dealings with customers at the local level.
Infrastructure
Before the launch Tesco made sure that its preparation and infrastructure was fully in place. The phone lines were
in place to handle customer queries, the marketing material was tested, the IT infra structure was in place, the
processes and means to deal with customers in a new way were ready. Careful planning and detailed knowledge on
methods for customer identification, registration, segmentation, reward design, and programme maintenance
operations were also in place.
Tesco made sure that the launch was well planned and no stone was left unturned , it desperately wanted the
Clubcard to reap dividends for them .
4.5 Success Factors

First-mover-advantage
Since the Tesco Clubcard was the first nationwide supermarket CLP in the UK, it provided Tesco with
considerable first-mover-advantage, one month after its launch, over five million people had joined the Clubcard
scheme and Tesco recorded a like-for-like increase in sales (household penetration had increased by almost 1 per
cent, meaning that an additional 200,000 households had come to shop with Tesco and over one third of the gains
were reported to be at Sainsbury’s expense) (Peck et al., 1999). Time between Tesco’s Clubcard launch and
Sainsbury’s Reward Card, according to Market researcher Taylor Nelson AGB, customers spent 28% more at
Tesco and cut spending at Sainsbury’s by 16%. Tim Mason, Marketing Director of Tesco plc, suggested that the
reason why the scenery only changes for first-movers is because customers realize that organizations who do
something first do it for their customers and the ones who follow do it to neutralize competitive advantage (cited in
Web 8). This principle is further embedded in Tesco’s core purpose of “Creating value for customers, to earn their
lifetime loyalty”, making Tesco what has been termed a “Value innovator” (Mauborgne, 1999) (Value innovators
are companies that instead of striving to match or outperform the competition, cultivate value
innovation by placing the buyer, not the competition, at the centre of strategic thinking).
Complete integration
Tesco Clubcard does not exist in a vacuum, but is a coherent element of Tesco’s core purpose of “Creating value
for customers, to earn their lifetime loyalty”(Web 9). Tesco’s customer management has the ability to link and
integrate customer information across the entire business, at different customer interfaces and throughout the
duration of the customer relationship. It has completely integrated the Clubcard programme into its online and
offline operations allowing Clubcard-members to accumulate points whether they buy in-store or at Tesco.com (as
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well as with Tesco’s coalition partners) across almost every product category offered. By allowing Clubcard-
members to check their points balance whenever they want via the Internet, the programme creates value to its
members in that it contributes to improve its ease of use and its transparency. By integrating various other Club-
schemes, such as the “Tesco Healthy Living Club” or the “Tesco Baby Club” into the Clubcard framework and
allowing Cardholders to communicate with each other via Internet chat rooms provided by the Internet service
provider “iVillage.co.uk”, Tesco allows its Clubcard-members to exchange information on topics like healthy
living, diets, fitness, pregnancy and baby, and many more topics, thereby trying to create value particularly to its
female members by giving them the chance to build friendships and by promoting a ‘sense of belonging’, which
has been suggested to be an essential element of successful customer-loyalty-programmes that is difficult to
emulate for competitors due to its emotional and intangible nature (Dowling & Uncles , 1997).
Technological and analytical prowess
Although a growing number of retail organizations have realized the importance of customer information and
therefore started to collect large amounts of customer specific data, according to the Accenture Institute for
Strategic Change (Harris et al,2001) often less than 5 per cent of this data is ever analyzed. Dunnhumby(
marketing data specialists and market research company that s 53% owned by Tesco) makes sure that this does not
happen to Tesco, arguing that “Every little piece of information helps”. Tesco knows exactly how much, where,
when and what products Tesco Clubcard-members buy. Armed with this data, Tesco has built a suite of
sophisticated customer segmentations according to real purchase behaviour, rather than a version of purchase
behaviour based on demographic or socio-economic stereotypes (Pack et al., 1999). This allows Tesco to tailor
sophisticated campaigns and to offer Clubcard-members more of what they value by sending out targeted offers
based on what they do and do not buy, their expenditure levels on particular products and parts of the store, their
responsiveness to previous promotions, likely competitive threats based on where they live and their loyalty
towards Tesco. The range of products in Tesco stores is also tailored using knowledge of how Clubcard-members
shop across brands. ‘The mechanics of the reward had been done elsewhere in the world before Tesco but the thing
that Tesco sets apart is the depth of its data analysis. The big step forward isn’t to launch a card with magnetic
stripe on it, it is understanding the value of the information it provides.’( Keith Mills , Air Miles Founder, 2003).
Rather than analyze the data in a random fashion, Tesco maintains a carefully constructed “knowledge profit and
loss account” to measure customer investments in the scheme, the amount of analysis resources applied and the
additional returns and new customer value created. Tesco’s approach to advanced Data Mining has helped them to
drill to the earth’s centre and beyond. Yet, many other companies, in comparison, are still tending to their
company’s flowerbeds (Ahlert,2000). Tesco uses intuition and creativity as well as statistical know-how and
always tries to make best and efficient use of technology available. It realizes fully well that that technology
supports the Customer Experience rather than drives it.
‘Benefit package’ and not just another marketing gimmick
According to Butscher (2001), the most important aspect of any CLP is the benefit package a programme offers to
its members, which is one of the main success factors behind the Tesco Clubcard, since Clubcard vouchers can be
used for a huge variety of benefits that cover a broad area of interests ,which are likely to appeal to people from all
kind of social classes with different interests, and also increase the likelihood of creating “aspirational value” (how
much the Clubcard-member wants the reward, e.g. exotic free travel might be more desirable than in-store
shopping discounts) to Clubcard-members (O’ Malley, 1998). By providing Clubcard-members with the
opportunity to accumulate and redeem Clubcard points not only with Tesco but also with its coalition partners (i.e.
purchase strategy), Tesco increases the likelihood of creating what has been termed by O’Brien and Jones (1998)
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as “cash value” (how much the reward represents as a proportion of the actual expenditure) for Clubcard-members
since it provides them with the opportunity to accumulate points more quickly.
The internal customer
Tesco’s loyalty program rollout established loyalty marketing at the heart of the business. The staff at every level
from the main board to the frontline staff is made to understand why the scheme is important to the customers and
to the businesses future and are made to nurture and encourage it at every opportunity. Tesco staff have been an
important ingredient in encouraging customers first to take up, and then to use Clubcard. They are briefed early
and thoroughly not just about what will be different for their job , but about what Clubcard does for the business as
a whole. If a loyalty scheme is to be integrated with the business, it has to be a part of the working lives of the
people who run the business in the stores, too.(Cigliano et al.,2000) During the launch in 1995, Maclaurin criss-
crossed the country to make sure that every member of staff knew exactly what was needed, and felt valued and
understood. Tesco produced a video presented by Tim Mason encouraging staff to sell the card to shoppers and
making sure they knew what the benefits were, what they did was effectively grassroots marketing using Tesco’s
own staff. It's near impossible to build strong customer loyalty with a staff that is constantly turning over, because
customers buy relationships and familiarity. They want to buy from people who know them and their preferences
(Fournier et al,1998). The key rule of customer loyalty is, ’Serve your employees first so they, in turn, can serve
your customer’ which is what Tesco is good at. Loyalty programs stand and fall on how they are represented by the
employees that personify it.
The Emotional factor
Loyal customers may value help and advice as much as cash. The Baby Club provides information at a time when
potential parent needs it. The value of that information builds on the fact that Tesco is a trusted brand, offering
straight forward advice on a range of different subjects. Tesco has found that when it provides information that is
objective and useful, it deepens the trust amongst the customers who have opted-in to that part of the programme.
The World of Wine Club provides easily digested specialist advise on wine enjoyment, and has been successful in
engaging more experienced premium wine purchasers who might otherwise not have considered Tesco as their
wine merchant.
Professionalism and pragmatism
Successful retail loyalty programmes are created by matching good marketing skill and commercial pragmatism
with a hard-headed attitude to data.(Gilbert,2003)During initial Clubcard days, Tesco found that the best way to
get around the complicated data warehousing was to start small with a Datamart. The designers of datamart took
pragmatic decisions on data, time and resources and made compromises. In effect, they decided not to use data to
answer every question about every customer , but to answer some of the biggest questions about most customers.
They broke down data to test a series of hypothesis. It was data realism , not idealism. Immediate results of data
analysis were apparent, Tesco found that in any single store, the top spending 100 customers were as valuable as
the bottom 4000. The analysis also established that the stores with the highest Clubcard penetration were least
effected by competitor attacks. ‘Tesco started not from what would we like to do but from what can we realistically
do, and will make a profit?’ ( Humpy, 2004) Tesco didn’t agonize over information it couldn’t extract at first, or
hold up the process until it could get information. Instead, it asked questions that it could answer, and found that
there were surprisingly many of them. It built on each new discovery. ‘Clubcard wasn’t just about passively
observing trends, it was a massive laboratory of customer behavior.’ (Humpy,2004)
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Six Key Factors
Besides other factors , six key success factors that contributed to the success of the loyalty scheme
as depicted in the figure below are
Adapted from Ahlert et al.,2000, pg 21-23
Figure 21
Commitment
Rewards Differentiation
Key
Success
Factors
Measurements Simplicity
Flexibility
1. Commitment
Tesco made sure right from inception that there was commitment and
involvement of all departments, and Clubcard wasn’t left solely to the
marketing team. The whole organization was and is involved with the
introduction, execution, and on-going refinement of the loyalty program.
2. Differentiation
Tim Mason defines differentiation as having two aspects: differentiating the
company in the customers’ eyes, and differentiating the customers in the
company’s eyes. Most loyalty programs try their hardest to differentiate the
company in the customer’s eyes but forget to differentiate the customers in
the company’s eyes. The Clubcard program works to accomplish both.
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3. Simplicity
The more a program gets cluttered with options and exceptions, the more it loses its appeal.( Hansen et al.,2000)
Tesco is a great believer in the divinity of simplicity which is why its loyalty card program is easy-to-understand.
As Tim Mason points out ‘Clubcard is to improve our performance at every point of contact with our customers, to
make them happier and the company richer .It’s no more complicated than that.’
4. Flexibility
Tesco has shown the flexibility to alter, refine, and replace the various parts the loyalty
program. As Humpy (2003) puts it , ‘Seldom does any great idea play out forever; it needs
to be refreshed.’
5. Measurements
Mainline; don’t marginalize your customer data. Don’t leave it in the marketing department.
That’s like leaving store performance data sitting in the accounting department and not
getting it to the operators who can use it. (Humpy et al., 2004). Tesco has turned customer
information into on-going measurements to help improve all parts of the business. It hasn’t
just used it to help develop targeted mailing lists and for promotional matters.
6. Reward (Not being a part of the wall paper)
It was particularly kept in mind that the benefit offered to the customers or the Clubcard reward didn’t become a
part of the wallpaper. ‘With a scheme based on rewards-on-demand we may get an increase in behavioral loyalty
but there is no opportunity to extend emotional loyalty.’( Tim Mason , 2003). Terry Hunt calls it ‘loyalty-cul-de-
sac’. The team want to keep Clubcard as a chosen rather than a given: an active rather than a passive feature and
that thinking has led Tesco to transform from being one of country’s biggest TV advertisers into one if its biggest
direct mailers.
Customer Centricity
Tesco is a prime example of a company that believes in customer being the ‘regulator’. As Terry Leahy puts it
‘Never stop listening to customers and giving them what they want.’ It has always tried to make changes to the
Clubcard according to customers choices and right from the start , the Clubcard has been a act of co-creation .For
example, when Clubcard was introduced, shoppers had to pay £10 in one shop to qualify for any points but with
majority of customer feedbacks having a common gripe, the £10 minimum spend required to make before
qualifying to earn Clubcard points, Tesco now follows a ‘pound a point strategy’. It abolished the concept of
minimum spend all together to make sure that low spending customers are not alienated.
Also, evidences showed that customers did value having more opportunities to earn points on their spending than
those offered at Tesco alone. Some customers also said they valued the holiday and travel offers that they could get
with the Safeway ABC card. Tesco made a deal with Thomson holidays and Lunn Poly to give customers more
opportunities to earn points. This demonstrates that Tesco is willing to change its policy if it adds value to the
customer experience.
From top to bottom, there is relentless commitment to making sure that everything that the company did was
relevant to customer needs.
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4.6 Strategic implications of the Clubcard
Segmentation Strategy
Tesco has made a long hard journey in its understanding, analysis and use of data, from a basic Recency ,
Frequency and Value model, to life-stage categorization , through life-styles to Shopping Habits Segments.
Clubcard has constantly created value for the business along the way and taught Tesco how to make customer
segments helpful and relevant. Tesco’s segmentation strategy, today, is built on shopping habits, which is based on
not just what people buy, but why and when they shop. The Shopping Habits categories are developed using a
combination of mathematical rigor, creative analysis and old-fashioned retail nous. They create a new way for
Tesco to present itself to particular customers that made the brand more relevant to their daily lives and provide
information about what customers want. Tesco’s segmentation isn’t just freak measurement effect, but a significant
clue to customer behavior. ( Humpy et al.,2004) Its segmentation works, not through spectacular changes in
customer behavior, but by encouraging fractional changes in the way shoppers shop. Every little does indeed help.
Tesco’s particular segment has three specific attributes:
 Identifiable- A segment is allocated to all of the customers.
 viable – It is large enough to make it economical as business generating tool. A viable segment has
quantifiable value that is, it is possible to market products and services to that segment that will make it
worth wile.
 Distinctive – It has characteristics that make it clearly different to other segments, and those
characteristics must have meaning when the segments are used for the purpose intended.
The segmentation strategy is practical and scaleable. It produces results cheaply enough, quickly enough and
flexibly enough to be useful in existing conditions of the business. As Terry Leahy says,’ It is not just sales tool.
Segmentation has deepened the relationship between Tesco and its customers, and puts Clubcard data into the
decision making progress at every stage.
Communication Strategy
The concept of a loyalty contract also leads to critically important decision in Tesco’s communication strategy. It
has led to the quarterly mailing programme, arguably the world’s most successful sustained use of direct mail as a
communications medium. The quarterly direct mail programme gives Tesco the opportunity to sustain a regular
‘conversation’ with customers. Each response gives Tesco an opportunity to learn , refine and improve. For
example, by producing targeted versions of Clubcard magazine , or producing special mailings for vegetarians,
Tesco learnt that the more relevant the brand is, the more responsive customers are and less profligate the business
needs to be with discounts and offers. As Leahy points out ‘ Talk, listen and learn .Give people what they want’.
Tesco uses customer insight to evaluate the effectiveness of, and reduce overall cost of, their promotions. Armed
with Clubcard information, they find out
 Which shoppers use them

 Which shoppers like them
 If there is a way to focus promotions on best customers
 How they can take investment from promotions and return it back to the business
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…which results in over 60% fewer promotions, reduced management cost, the redirecting of money back into the
business (further contributing to price reduction), and more tailored, effective promotions.( Kelly,2002)
Pricing Strategy
Brasher believes that Clubcard makes Tesco understand which customers care most about discounts, and also
which products they most want to see discounted. This makes Tesco fight the battle as fiercely as any rival but on
their own terms, investing in price cuts where the money would work hardest. It acts as a sustainable customer
proposition and not merely a short term promotion. Tesco tries its hardest to ensure that the entire product range on
sale at each store accurately represents, in selection and proportion, what the customers want to buy. Tesco has
been the first to introduce ‘Value’ lines, offering basic items at low prices. ‘The logic is simple: we all want lower
prices, but only a section of us shop exclusively on that basis. If Clubcard data could identify the products that
were bought by price conscious shoppers, but not by the rest of us, then lowering those prices would have a huge
benefit for them, at the lowest possible cost for Tesco.’ (Brasher, 2003).
Targeting Strategy
Much effort goes into improving the targeting of the product-specific coupons. For example , in the very first
statement mailing it was one size fits all. Today, four coupons are for goods that the shoppers already buy, two are
for related items. The coupons are chosen using an analysis that shows that the customer has a high propensity to
buy a product (that is , other similar customers buy it regularly, but so far that the customer has not tried it). Tesco
is the first supermarket to have a ‘Targeted marketing director’ and a ‘Customer Insight Unit’. The tone of the
Clubcard Magazine has changed over the years from a very soft sell to a much more product and price-oriented
agenda. This transformation has come about because Tesco found that what was once feared by customers as a
‘hard sell’ is now much more easily accepted , even liked because it is information they can act on during their
next shop. ‘Not surprisingly , we found that all out customers really value relevance’ (Brasher, 2003)
Risk minimization by bridging the knowledge gap
The opportunity to look into each basket, knowing what the profile of that customer is and what that household
prefers to buy, gives Tesco the capacity to minimize the risk of all promotions. The transactional history of
millions of customers bridges the gap between how customers think they act, reported through a selective research
panel , and what they really do when they are shopping. All other techniques and measures are inadequate
compared to Clubcard’s accuracy. Tesco is able to identify accurately which customers react positively to
promotions, and in which ways their brand preferences are affected in future .For example, analysis of Clubcard
data allows Tesco’s marketers to see which promotions create a lasting change in shopping habits, and which are
one-offs. This has helped Tesco reduce the quantity of promotions by concentrating on those that have the greatest
potential to be successful.
Measurement Criteria (The measure of success)
Tesco’s loyalty programme invites the marketing team to think in terms of segments of customers .What is
‘Market Reseach’ for other firms is ‘customer insight’ for Tesco and Clubcard has made Tesco to measure success
in the form of ‘share of customer’ and not just ‘share of market’. There are two special aspects that Clubcard
tracks :Results and Trends.
Results
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Clubcard has been developed on the principle that there is no such thing as complete success or total failure.
Everything what happens is an opportunity to learn and everything that goes wrong contains the germ of future
success.( Brasher, 2003) The main success criteria is return on investment (ROI). From the first mailing Tesco has
been able to measure the ROI of the statement mailing to the nearest £100,000 from sales value during the period
of anything up to £7 billion. This is calculated from
 The value of vouchers sent out
 The total cost to Tesco of the vouchers and the money-off coupons redeemed
 The like-for-like sales uplift that resulted
 The regional variations
 The customer segment variations
 The take –up rates of different product coupons
Predict trends
Through meticulous planning of the statement’s mailing contents Tesco future proof’s the Clubcard effect. This
planning goes hand-in-hand with stock control and store logistics, so that any demand created by the mailing is
properly satisfied in stores. Loyalty information helps build product/buyer profiles. Tesco can see whether new
products are cannibalizing existing products and what items best customers buy and make sure that those items are
always in stock and displayed prominently and the range is expanded. Timing is everything and the analysis of
results from previous campaigns enables Tesco to predict what will occur next with ever-improving accuracy.
The offshoots
Tesco Personal Finance
Tesco has a joint venture with Royal Bank of Scotland, with each party owning half of what is called Tesco
Personal finance. Success of the Clubcard scheme encouraged Tesco to look more closely at the whole complex
issue of financial services. ‘We didn’t know an awful lot about banking, but we knew much about banking as the
banks knew about customer service. As we knew a lot more about customer service than they did, we thought we
had a chance to be successful at doing part of their job. (Brasher, 1997) Tesco has developed its financial services
strategy from Clubcard as the transactional data recorded by Clubcard is invaluable. Through the intelligent
application of transactional data, Clubcard enables Tesco to target the right financial services products to the right
customers at the right time. Through the quarterly statement mailing Clubcard provides TPF with one of the most
cost-efficient recruitment media known in the retails finance business. As through the use of Clubcard points as an
integral benefit to TPF products, Clubcard provides a widely valued currency that gives TPF a clear competitive
edge. With information derived from its loyalty card and enriched by appended external demographic data, Tesco
can readily develop profiles of customers who would most likely be interested in basic banking services as well as
an array of related options. It costs Tesco significantly less than half of what it costs a bank to acquire a financial
services customer. For example, when the company launched a credit card through Tesco Personal Finance, the
card data allowed them to pitch the offer so accurately at the right profile people that Tesco became on of the UK’s
leading card issuers in a matter of months by volume. “Without a doubt, having detailed customer information
gives them a competitive edge.”(Brian Woolf, 2002). Clubcard has contributed significantly to the birth, growth
and enduring success of TPF.
Baby Club
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When Tesco Clubcard team was looking at the shopping habits of young families with babies, it discovered a
useful potential source of revenue :families with young children. Clubcard helped Tesco identify a group of
shoppers but Tesco had to look into why parents chose not to buy their baby products at Tesco , when stores
carried the full range of products and brands. The Clubcard team , looking into this found out that in spite of its
price (20% cheaper than Boots) , parents shopped at Boots for their baby products. The reason being, the strong
bond that Tesco brand had with loyal customers, was more rational, the emotional bond was much weaker.
Customer feedback told Tesco that mothers were looking for emotional security. They trusted Boots as a source of
expert help and advice. Boots was their ‘inner circle’ . The concept of Inner circle had been core to Tesco thinking
since the launch of Clubcard. Tesco had means to make a difference to this customer segment . It has since
deepened customer knowledge than any of its rivals and has membership relationship with its customers that was
proven in establishing new behavior from them. Tesco has created a smaller, more targeted club specifically for
customers at a very special and challenging life stage. It uses the successful medium of personalized direct mail ,
and the Clubcard idiom of saying ‘Thank you’ to members in a relevant and value-adding way. Its aim is to create
the degree of trust in Tesco brand. Tesco has gone for a new type of loyalty offer by launching ‘Baby Club’, one
that is true to the principles and the methods of the Clubcard and piggybacks its infra-structure, but which has its
on strengths. ‘We want to create a sense of what we would call emotional loyalty, create goodwill… show we
really care for our most loyal customers , we look after them.’( Scott, 1997). The focus was on showing empathy
with the aspirations of young mums. Baby Club was a move to introduce active choice into Clubcard, to generate
goodwill amongst a very special audience. Since the Launch of the Baby club Tesco has learnt the importance of
sub-clubs and makes sure that each sub-club has the capacity to deliver value to Tesco and connects it to the
customer emotionally. Tesco’s brand, today, is the third most trusted in UK.(survey conducted by Marketing
Magazine,2004)
Tesco.com
When it came to home shopping, Clubcard gave Tesco a huge head start. Its data management skills as a company
was way ahead, but more than that, the Clubcard database generated a fantastic list of people to go after , and a
sophisticated understanding of those customers. Thus, Tesco could be very specific in terms of targeting. This was
a huge built-in advantage when starting up a business in the form of Tesco.com.( Carolyn Bradley, 2001) Tesco’s
plan to target online shoppers via Clubcard , rather than just fishing in the pool of internet users, paid off. The
contribution of Clubcard isn’t just about finding new users, it also makes it easier for Tesco to keep its online
customers. From the earliest days, the home shopping team uses Clubcard data to the full, combines with other
data sources, to identify which Tesco stores offer the greatest potential for the service, which stores offer the best
potential to expand the service, where the greatest concentration of prospective Tesco.com shoppers could be
found, what take-up would be and what sales value could be predicted.. Clubcard provides the means to
understand how to target customers and gives the ability to validate what is right. Clubcard has also helped in
planning exactly what message needs to be communicated at each stage of the relationship. When launching the
internet shopping trial, Tesco was a lot stronger position than rivals – it knew the names , addresses and shopping
habits of millions of possible customer already. Without Clubcard, the company would have had all the risk and
the same unsustainable cost of customer acquisition. Using best practice direct marketing techniques learnt from
marketing Clubcard over the years , Tesco’s dot com marketers have increased their success rates. By analyzing
the Clubcard, Tesco can easily identify the types of shopper who have the highest likelihood of actively using the
online service, Tesco can easily target outside sources of data and market more effectively to shoppers who are not
yet Tesco customers. Also ,by basing the expansion of Tesco.com on its network of stores rather than regional
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warehouses, Tesco can use Clubcard customer data to prioritize those stores offering the best potential where the
greatest concentration of prospective Tesco.com shoppers can be found.
Research suggests that customers who engage with a firm through multiple channels
exhibit deeper loyalty than single channel customers. Tesco tries to give consistent service
whether coming into the store, logging on the Web site, or calling the service center is
concerned. It internally coordinates sales and service across multiple channels so
customer preferences are accessible no matter how the customer chooses to interact.
Convenience of location (New store formats)
Convenience of location is a major determinant in the loyalty process, not simply the fact that someone has joined
a loyalty scheme.(Berman et al.,2001) By analyzing the penetration of Clubcard membership by postcode, the
Clubcard data gives a sharply defined picture, store by store of how far valuable customers are willing to travel to
shop. It shows in which neighborhood competition is biting, who is coming back several times a week, and who
saves up their shopping for a weekend. All this information helps Tesco to plan the location of its stores. Helped
with Clubcard data, Tesco was the first one to start the ‘Metro’ format , situated in the middle of town because it
realized that busy customers didn’t want to travel a lot for their grocery shopping . Tesco’s Metro format makes
sure that these customers are not alienated. With multiple ranges and unparalleled spread of formats, as well as the
largest online grocery sales in the world , Tesco has profited from the cash-rich time poor phenomenon in Britain.
4.7 Competitive Pressures: Comparison with other supermarket loyalty schemes
Sainsbury’s loyalty scheme (The partnership puzzle)
Sainsbury’s local store-based scheme ( Reward scheme) reached its greatest coverage in June 1996. It had some
key differences to Clubcard. While Tesco told shoppers that it wanted to say ‘Thank You’, Sainsbury’s told
shoppers that it was ‘A new way to save’ which meant that the Reward Scheme gave the impression of being just a
margin-sacrificing discount scheme. The Reward programme also rejected the concept of accumulated value,
deciding to let customers take rewards on demand which did not provide it the opportunity to be valued highly
both by customers and in stores. Each customer’s Saver card could only be used at a single named Sainsbury’s
store, customers could not present their card at any Sanisbury’s store and earn their points .Sainsbury’s also
promoted a ‘sliding scale’ of loyalty rewards in order to give proportionately higher benefits to the highest
spenders. The scheme lacked the simplicity that Clubcard offered. Also, the biggest disadvantage of Saver Card
was it could not promote it widely and could not generate national news coverage and advertise on national
television as Tesco. Thus with not great success behind it the Saver card was abolished and Nectar Card was
launched with a line up of founding partners including Sainsbury’s , Barclay Card, Debenhams, British Petroleum
and it was soon joined by Vodafone, Adams and Threshers. It is more of an outsourced scheme created by Air
Miles that Sainsbury’s is a part of. In this sort of loyalty scheme, there is an imbalance of commitment from the
participating brands, each retailer is restricted in its access to useable customer data , there is a lack of control over
promotional activities and there is the potential for inter-brand disputes. The pool of Nectar users will always
contain shoppers who are strangers for each retailer. There will always be a question of loyalty to what? (Levy,
2004). Also, the chances to introduce tactical marketing initiatives swiftly is reduced and innovation limited, as
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decisions have to be agreed between member companies. Sainsbury’s doesn’t have a clear cut direction as far as
the loyalty initiative is concerned and as SunTzu points out in the art of was ‘A confused army leads to another’s
victory’. Mason asks ‘ Is a loyalty scheme an integral part of your business , or something you just bolt on when it
is convenient?’
Advantage of the Tesco Clubcard over the Nectar programme is that it directly enhances the Tesco brand, whereas
in a coalition programme of the type of ‘Nectar’, the programme itself is the brand and as a result, the customer’s
loyalty is typically to the programme itself and not necessarily to any specific partner in the programme (Rogers,
2002).
Safeway’s ABC loyalty concept

(The skill: will imbalance)
Safeway’s ABC card, launched on 23 Oct 1995 was backed by £7 million in advertising. Like Tesco, Safeway
wanted to create a data driven view of its customers and wanted to use the single customer view to identify and
provide what customers wanted with ever greater accuracy and relevance. Where ABC was a departure from the
Clubcard model was that Safeway customers could redeem points outside of their store, using the dividend from
their supermarket shopping to buying from a mail order catalogue of toys and clothing, or taking family days out at
theme parks. But, unfortunately the companies strict interpretation of which customers it wanted to become most
loyal tended to alienate the other customer segments. There wasn’t in it for affluent retirees, or metropolitan child-
free yuppies. In April 2000, Safeway card was scrapped.’ We haven’t got enough customers and loyalty cards are
not good for getting new customers’ Finance director Martin Laffin (2000).Safeway didn’t make a priority of the
ABC card, and failed in using its technological expertise to gain a truly customer focused approach. It had the skill
but not the will. When Safeway abandoned the ABC card, it complained that trying to generate useful insights
from the data was ‘like drinking water from a fire hose’. It was the same for Tesco but instead of drowning, the
company simply decided to siphon off what it could deal with at any time, and get on with the real work of selling
to customers.
Both Sainsbury’s and Safeway loyalty scheme did not create specific goals that were relevant to three strands of
DNA of loyalty ( Brand value, business dynamics, customer behavior) and thus had less chance of succeeding and
little chance of surviving beyond the first few years.
Several retailers have their respective loyalty schemes, discussing the effectiveness of each one of them is beyond
the scope of the research.
After analysis and in-depth examination of Tesco’s loyalty cards, the study now summarizes the important findings
in the form of conclusions and gives the appropriate recommendations to overcome the gaps spotted. It also points
out the scope of the research and the areas where further research may be taken.
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Introduction
After careful examination, evaluation, assessment and analysis of data, it’s the prerogative of every study to point
out how the aims and objectives of the research were met, which is what this chapter aims to do. It points out how
the respective objectives were realized and tries to give an answer to the research question. The chapter also
encapsulates Clubcard specific recommendations and discusses the limitations of the study and areas where further
research may be carried out.
Objective 1
Analyze and define the concept of loyalty and identify the relationship between customer satisfaction and
customer loyalty.
Loyalty is an emotional response based on empathy, not a logical response based on bribery which seems to
strengthen Oliver’s (1999) views discussed in Chapter 2.
• Loyalty does not imply low price sensitivity (Some customers are price sensitive; all customers are value
sensitive).
• As pointed out by Oliver (1999) in Chapter 2, the loyalty, satisfaction relationship is asymmetric, customer
satisfaction does not necessarily imply customer loyalty (customer satisfaction is at an all time high; customer
loyalty is probably at an all time low).
• Loyalty programs do not necessarily make customers loyal.
• Loyal customers do not necessarily increase company profitability.
• Customer data from loyalty programs are often more valuable than the loyalty programs themselves
Win the hearts and the heads will follow
Objective 2
Examine the conditions under which customer loyalty enhances profitability
"...organizations need to adopt a more structured and rigorous approach to development, based on a real
understanding of what their customers actually want from them. The bottom line must always be to start with the
basics of what is most important to the customer and build from there." (Jeremy Braune, Head of Customer
Experience at Detica)
As pointed out by Morgan and Hunt(1994) and Dowling (2002) in literature review ; for loyalty programmes to be
successful and enhance profitability companies should:-
1) Have a good base product that performs well in the market and is in some way differentiated.
2) Focus on intrinsic rather than extrinsic awards
3) The reward should be genuinely valued and perceived as taking some effort on part of the company to
deliver. Those that will ultimately be successful are those that add value to the core experience the
consumer is buying .
4) Offer a strong personalization factor, superior loyalty schemes offer the consumer considerable choices
in respect of how their reward may be redeemed.
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For example, literally every version of the Clubcard magazine is personalized .
5) Distance itself from price discounts, all too many loyalty programmes are little more than discount
schemes designed on the principle of the more you buy the more you get. In that case, it is not brand
loyalty that is being built up, but transactional loyalty. The danger with this approach is that whenever
the competition comes up with a better scheme, consumers will defect in their thousands. An effective
loyalty program should have the opposite effect and actually decrease consumer sensitivity to price as a
genuine affinity with the brand is engendered.
Clubcard has helped Tesco’s business grow based on a strength of a listening relationship. Leahy’s insistence that
successful retailing is the result of ‘listening to what customers tell you they want’ is real in the Clubcard
programme. Its core purpose and value ‘To create value for customers to earn their lifetime loyalty’ and ‘no one
tries harder , and treat people how they like to be treated’ are made real in Clubcard. ’We have values in this
business. A good company is run on principles and values, it is not run on last week’s results. Over the long term,
what matters in building a business is how the company conducts itself, not just what it does. It is how it does that
counts. Clubcard is entirely consistent with that (Leahy, 2002). Just introducing a points program in the hope of
profitably increasing sales and not using the customer data is like a dairy farmer, who after separating the cream
from his milk, pours the cream down the drain. The richest part of the program is being wasted (Cuthbertson et
al.,2001 cited in Web 10).
Value is ‘Co created’ by producer and consumer
Crawford Davidson, director of Clubcard uses the analogy of a cappuccino, ‘ My role as Clubcard director is
sprinkling the chocolate on top of the cappuccino. Marketing provides the froth to the milk. But both have to be
based on the good, fresh, hot coffee.’
It’s Tesco’s ability to cut through the jargon and focus sharply on what really drives their customer behaviour that
makes it different. It’s the great amount of conviction that underpins the programme, which is responsible for the
greater payback. Tesco views its loyalty scheme as an integral part of its business where the customer is all-
important; where doing everything possible to please them is paramount; where keeping in close contact with them
is vital. It acts as a vehicle for Tesco to add value to customers in the form of services, product range, and prices as
well as enabling the company to say “thank you” to its customers. In essence, its Clubcard is:
 A tool to understand the customer

 A way to communicate value
 A symbol of commitment
More than the skill, it’s the will
The longer a loyalty scheme is running, the richer and more rounded an understanding the company has of its
customers, and the better equipped they are to push relevant offers and rewards out to their customers. Essentially,
value increases as the loyalty scheme gathers momentum. The success of a loyalty campaign is intimately
connected with the conviction that lies behind the decision to launch, maintain and build upon a loyalty
programme. A successful loyalty initiative depends upon a marriage of clear objectives from the outset, buy-in
from board level to front-line staff, and significant investment in expert personnel( Harris et al.,2001, cited in Web
11).Once a decision to launch a loyalty initiative is made, full commitment and a shift in corporate culture is
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required to take the scheme from an added extra to long-term programme that will deliver return on investment in
spades.
Organizations that labour under the illusion that loyalty schemes offer a quick-fix to a customer retention problem
soon founder. A loyalty card program is not something that, once introduced, automatically increases
customer loyalty. (Woolf, 2004)
Recognize first, reward later. Serve first, Sell

second
Objective 3
Assess the role of loyalty programs in promoting loyalty and building favorable customer relationships.
A card-based loyalty scheme is not a credible alternative to being the right price, offering excellent service,
innovative products and customer care, because any business that neglects factors like these is extremely unlikely
to have long-term success in achieving customer loyalty. Loyalty schemes supplement service and its important to
understand that these initiatives and a card-based loyalty scheme are not mutually exclusive. Loyalty programs
create relevance for the customer which may create an emotional bond. They are starting point for deepening the
customer relationship, which flourishes in many ways .Customer loyalty is not a game; rather it is the result of a
game.(Woolf, 2001)
Loyalty cannot be earned with a programme, but information can be bought with a loyalty programme, and that
information will highlight the strengths and weaknesses of the business which can be used to improve the core
offering of the business, and the
improved core offering can bring loyalty. Loyalty comes from a firm’s core offering and their products and the
way it satisfies its customers. In order to feel loyal to an organization, a customer must feel that all his need and
desires are not only satisfied, but intelligently predicted and understood. Before an organization can expect loyalty,
it must inspire loyalty by demonstrating that it cares about its customers. Customers must be at the center of the
CRM strategy (as well as the focus of the business itself). ‘It’s not the technology, not customer profitability, not
loyalty programs or cards; it’s the customers themselves, as individuals that should truly be at the center of all that
a company does. Once this customer-centric vision has truly been established, the individual customer can truly
begin to be understood and valued, loyalty can be earned.
Tesco’s loyalty programme is designed to appeal to customers ‘heart as well as heads’. Positive shift in shopping
behavior and emotional commitment is the goal for Clubcard. It is about behavioral and attitudinal change and
combined together these two things add up to genuine customer commitment. It caters to both emotional and
rational aspects of behavior. Tesco is very good at doing what it does. It uses its knowledge of its customers to
improve its service and products but it doesn't rely on the Clubcard to keep its customers loyal.
A loyalty card is not a replacement for any of the

basic loyalty drivers but is a supplement to them.
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‘Just as a hammer doesn’t build a house, a loyalty card doesn’t build customer loyalty. Both the hammer and the
card are tools that, when properly and appropriately used, help bring the architect’s blueprint to life.’( Egan et al.,
1999, cited in Web 13)
Objective 4
Evaluate the extent to which loyalty marketing makes its contribution to TESCO’s success and identify key
areas where TESCO outwits its competitors
Clubcard has transformed customer behavior and attitudes. It has provided unprecedented levels of hard
information to Tesco that no other source could provide.
Tell me what you eat and I will tell you what you are
The information Clubcard provides has been one of the special gold-tipped arrows in Tesco’s quiver for building
its highly successful business. (Mayne, 2003) Clubcard has demonstrated that the investments needed to set up and
maintain a loyalty programme are not at all additional spend. Much of it is replacement spend , diverted from
traditional forms of communication and promotion – for example door to door distribution or TV advertising. The
Clubcard mailing communicates economically and effectively with millions of customers at a time which means
that Tesco is less reliant on bought-in media to reach those same customers at a time. Clubcard has formed a firm
foundation for enduring success. Incisive and leveraged customer data has enabled Tesco to put distance between
themselves and competitors, in both traditional and non-traditional retail markets. Clubcard has helped Tesco
increase the value of customer experience as the needs of the customer are satisfied, it has customized the
customer experience for its customers, and made customers less likely to defect to a competitor. It has helped
Tesco develop an emotional connection with a customer which has made the customer less susceptible to
competitor attack . As Jack Welch puts it: "We have only two sources of competitive advantage: The ability to
learn more about our customers than our competition, and the ability to turn that learning into action faster than the
competition."
According to Sir Terry Leahy ‘What creates loyalty is how much we understand your life and what we do about it
helps your life. Our competitors had all the details of what their customers bought too, but if you don’t have the
vision as a retailer that you are doing this is to understand customers better, and deepen that relationship, you’re
always going to wonder why you are making the effort.’
Tesco’s spin on loyalty is different
Factors that differentiate Tesco from its competitors are Marketing savvy , its analytical ability, its technical
superiority, its simplicity and consistency, its audaciousness, its committed, focused and incredibly ambitious
leadership , depth of customer knowledge, a focus on retention, profitability and segmentation and the
organization-wide dispersal of customer information.
Objective 5
Assess whether loyalty marketing should form a part of a retail firm’s overall business strategy.
Page 76 of 88
As pointed out in Chapter 2, if loyalty is to be a long term success it has to be regarded as a strategic tool of the
business, reflecting the brand’s core strengths . Each loyalty programme has to be tailored to the brand, and the
nature of the relationship that the brand has with the customers .Since, a brand is a collection of defined
perceptions in the mind of the consumer, so the loyalty programme has to reinforce and live up to these
perceptions. Most importantly , a program has to be loved by the business. Just as marketers and managers have to
love the brand, they have to equally commit to the loyalty programme that represents its brands to its members.
The design of a loyalty program must take into account the nature of the business, its market position and strategic
goals, and the competitive landscape. Program design requires consideration of four key variables, reaping the
benefits requires a high level of analysis, a clear strategy and the ability to adjust to changing circumstances.
Majority of loyalty schemes are sales promotion programmes in disguise and sales promotion has always been
tactical, smoothing out spikes and troughs, never strategic. To tackle this uncertainty, retailers must align any
scheme with their strategic objectives and should have in place a durable analytical framework to develop a
scheme, which is right for them, or consider rejecting the concept altogether. Loyalty marketing should be a
strategy, not a tactic and this strategy should be driven by knowledge which comes from data which should be
good quality customer data, rich, relevant and recent .
Tesco is recognized as the epitome of best practice loyalty, having put Clubcard at the heart of its corporate
strategy.(Palmer et al, 1999 cited in Web 14). David Reid, Tesco’s deputy chairman, acknowledges the strategic
importance of the loyalty cards, stating that without them ‘it would be like flying blind’. Tesco’s loyalty marketing
project has become a pillar of its business strategy and has helped Tesco evolve in its strategic thinking and
direction from being an outstanding food retailer to being an information-driven business, constantly searching for
ways to act as the value-adding agent for its customers. Tesco’s customer information assets uses to allow it to take
a strategic approach to customer management. The data and analysis drive organization-wide customer decision-
making to direct promotions, category management, local store ranging and even store location. True value of a
“customer-centric” business is found in its customer knowledge . Tesco uses its card data to basically run the
business: it is used for pricing, format development, to plan store re-launches when they’re refitted, for customer
acquisition for new products like Tesco Personal Finance and a host of other purposes. The data, information and
the subsequent knowledge generated has become a part of the company’s culture. It solves real problems and is not
just associated with marketing strategy. Tesco builds an image of a customer built from seven pieces,: life-stage,
shopping habits (frequency etc.), basket topology (what they buy), promotional promiscuity, primary channel (how
they like to buy), brand advocacy and profitability, including the element of cost to serve and then they follow a
“plan → act → measure” approach. Customer insights define corporate strategies and are acted upon by
implementing customer-focused plans, and then measured. It is an approach that enables Tesco to evaluate its
success, and to test, reapply and learn as it goes. Incorporating Clubcard data as its core business strategy allows
Tesco to change business practices to respond to the individual customer and therefore, to practice true CRM..
Tesco’s loyalty scheme strengthens the view put forward by Morgan et al. (2000) in chapter 2, that a loyalty
scheme can only have a sustained impact on the bottom line when, from its inception, it changes the dynamic, the
whole culture of the organization. Tesco board recognizes that loyalty scheme data is the bedrock of their business.
It’s the fundamentals of the Clubcard programme that have formed such a firm foundation for enduring success, its
the insights that preserved customer interest and have driven results for the business, the marketing power of
statement mailing, the development of better targeting, richness of data that help to run Tesco on a daily basis and
the opportunities that have given Tesco to think creatively about its customers. Ten years after its launch , the
secret marketing project from ‘the bunker’ has become a pillar of Tesco’s business strategy.
Page 77 of 88
A stand-alone loyalty scheme is vanity, loyalty as

brand enhancing strategy is sanity
Although Clubcard forms a part of Tesco’s success , it cannot be claimed that Clubcard was the exclusive reason
for Tesco’s success. Almost simultaneously with the introduction of Clubcard, Tesco beat competition from other
supermarket chains notably a strong bid from Sainsbury’s, to purchase Scottish supermarket chain William Low,
transforming Tesco into a truly national retailer. It’s Tesco’s philosophy of Circle the Customer which is doing
wonders for it. A new low-price label, Tesco Value, was launched as a direct response to the discounters. Tesco
also made its stores more customer-friendly; for example, the “one in- front” programme was launched to
eliminate queues at the check-out counter. With less scope for building out-of-town stores, Tesco introduced new
formats for inner-city locations, Tesco Metro for small high street stores and later Tesco Express, convenience
stores usually linked to petrol stations. Nonetheless Clubcard is fundamental to Tesco’s accelerating business
success , its may not encourage the required amount of loyalty which Tesco wants but gives Tesco enough
information which after properly handling and analyzing helps to change customer behavior. Figure 22
encapsulates Tesco’s success factors.
Page 78 of 88
Adapted From Financial Times( 03/06/2005)
Figure 22
COFP (Customer, Operations, Finance, Operations) diagram
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Page 79 of 88
5.2 Limitations
A more exact test of the effectiveness of the loyalty program would be to compare the post-program results with
what may have been achieved had the full costs of the program been used in another way, such as establishing a
policy of everyday low prices, a new product introduction, more direct forms of brand extension, an increase in
advertising spend, or improvements in the channels of distribution. (Hammond, Keeney and Raiffa 1999). In this
research, the comparison is made on evaluations based on one alternative (introducing the loyalty card) versus the
status quo. Also, it should be noted that this study only examined the loyalty effects of the Tesco Clubcard in terms
of its marketplace impact, it did not examine the loyalty effects in terms of the financial impact of the programme.
Another potential shortcoming in the study is related to the measurement of purchasing behaviour, since its true
meaning may only be partially captured due to the fact that its measure was self-declared by respondents (who are
not necessarily objective in regards to their purchasing behaviour, since people do not necessarily like to admit
being influenced) no database information could be used as input for measuring actual purchasing behaviour.
5.3 Recommendations
Data should be analyzed with an eye on desirable economic outcomes and companies should make sure that they
establish what they are trying to accomplish with the program. Performance of loyalty program should be
continually measured. All too often programs are started and then left to run by themselves. Rarely, do companies
go back to see if they were successful in changing their customer behaviors as planned. Companies should
quantify the success of benefits in driving shopping behavior . Some of the things they can look at are changes in
the size of the market basket, increases in use of products or services, amount of transactions involving loyalty
program ID numbers, and the amount of redemptions being made. Customers are perverse, emotional, awkward,
unreasonable people who want things done on their terms. Understanding what things really matter most to the
customers, company’s should not only think in terms of appropriate service and quality strategies that match the
most important needs of the target customers but also should have the ability to deliver.
Before embarking on a loyalty program, following questions need to be clearly answered…
 What demand-side goals are there for the loyalty program – maintaining customer loyalty or enhancing
it? How will these goals be set and assessed?
 In general, will the program focus on the most profitable customers? What time frame is to be used to
assess the program profitability?
 What is the appeal of the program for these customers?
 How will the program be used in combination with other marketing activities?
 Will these initiatives grow share and sales revenues?
 Can the customer data be analyzed in useful ways?
 Are the sales and cost data reliable? Is the evidence contradictory?
 What benchmarks have been chosen to assess the loyalty program and are these appropriate?
 How will the overall profitability of the program be calculated?
…and the following questions need to be looked at to avoid major traps
Page 80 of 88
 Are there too few customers who will actually be interested in loyalty programs? Does the scheme have
little appeal for customers? Or, has the scheme been too indiscriminant – perhaps all three types of
customers have joined because they see it as a (relatively) free option and/or a reward for their current
purchase behavior?
 Are customers more loyal to the scheme than the brand?
 What are the chances of a competitor retaliating to nullify the impact of the program? Have competitors
already launched a counter-initiative
 Is the need to service large numbers of members driving up running costs?
5.3.1 Challenges for Tesco
 Clubcard as a Global scheme
With Tesco going global at a rapid pace (almost half of Tesco’s retail floor space is now cited overseas), the
emerging question is , will Clubcard work as effectively in the company’s new markets? Past researches have
shown that loyalty programs travel poorly. Superficially, there are common shopping traits around developed
world , but consumer attitudes and habits in other markets often differ in subtle but important ways. Shoppers in
some countries are moved by immediate discounts and have no patience with accumulating rewards, even if the
ultimate deal is better. Other regions have under-develop retails brands and more fragmented markets, so
customers are far more likely to graze for bargains across a number of shops in their area. Even, the legal
environments may be significantly different. For example, Germany has a number of uniquely restrictive laws
such as Free Gift Ordinance and Discount Act, which make loyalty marketing more difficult. With having done the
‘hard bit’ with hosting the world’s most sophisticated loyalty program, the challenge for Tesco is to take the loyalty
program into its overseas market to give itself a competitive edge.
 Issuing Rewards
One of the hidden strengths of Tesco Clubcard has been the way that customers accumulate their rewards rather
than redeem them on an ad hoc basis. Though, the quarterly mailing program works well for Tesco, but customer
research suggests that customers value some acknowledgment for their loyal custom in the store. They also like the
freedom to claim membership benefits as and when they choose. So, Tesco may be better off designing some on-
the-spot discounts and promotions and catching the customer in the shop to reinforce Clubcard when they are
thinking about their shopping. Perhaps, personal media like SMS text messaging to the customer’s mobile phone
could be an option in the future.
 Loyalty or ‘lock in’
Supermarkets and discounting have always gone hand in hand. Eye catching promotions on specific products have
been the trusted weapon in the retail armoury. In today’s world , its all the more difficult to make the customers
move away from the mindset of discounts. Customers are losing interest in loyalty schemes and its very difficult to
get them involved. A perception against the concept of loyalty schemes is slowly developing with proliferation of
loyalty schemes. Real loyalty is elusive as customers have become more fickle than before. In such a scenario ,
Tesco should constantly work to keep refreshing the Clubcard and add value to it , perhaps by the addition of more
brand assortments in store or adding more associate partners to its Clubcard scheme. Since the days of true loyalty
Page 81 of 88
may be over, Tesco should perhaps concentrate more on ‘locking-in’ the customer with its Clubcard than trying to
develop true loyalty.
 The loyalty warriors
Tesco’s front-line (check-out) staff who deal directly with the customers are the greatest advocators of the
Clubcard and can be termed as the loyalty warriors. Interviews with them revealed their lack of awareness and
knowledge regarding the loyalty scheme, it was found out that as far as the benefits of the Clubcard was
concerned, the staff knew no better than the customers. Now, if a firm’s biggest advocators are themselves
uninformed or less informed of the actual benefits that Clubcard has on offer, how will they be able to promote it
successfully? More astonishingly, none of the front line staff were sure of the benefits of the Clubcard to the
organization. Until and less, the staff knew the importance and the relevance of the Clubcard to the firm, they
won’t be promoting it with the required vigour and enthusiasm. Observations did reveal that staff seemed hardly
interested in promoting Clubcard and lacked motivation to insist non-Clubcard customers to sign up for it. Partly,
because they didn’t knew what Clubcard meant to the organization and partly because as they treated the Clubcard
as secondary , they were too busy to be bothered. When new customers do not sign up for the Clubcard, no
information about them can be gathered which defeats the whole purpose of the loyalty scheme and may lead to its
premature death. Tesco, therefore should work hard to make its staff realize the importance of Clubcard, both for
the organization and for the customer. Efforts should be made to include majority of Tesco shoppers under the
Clubcard umbrella. Focus groups with Tesco shoppers revealed that certain shoppers weren’t even sure if Clubcard
was an open CLP and thought it was an opt in scheme where they had to pay for it. Awareness regarding the
Clubcard should also be increased , as at present the Tesco staff and the ‘word-of-mouth’ publicity are the only two
ways in which it gets advertised, which perhaps isn’t sufficient in itself. It’s of utmost importance that Tesco keeps
adding more and more shoppers to the Clubcard, otherwise Clubcard may fail to reap the required benefits and
slowly start becoming a financial burden on Tesco. It should be remembered that Loyalty cards do not go a long
way generate loyalty but generate information which can be used in a powerful way.
Evidences do seem to suggest that some sort of

complacency and increasing arrogance is developing with
regards to the Clubcard which Tesco has to watch out for in
future.
Page 82 of 88
Page 83 of 88
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TABLE OF CONTENTS

Aims and Objectives……………………………………………...8

Conclusions & Recommendations………………………………11

Chapter 2 Literature Review

The Concept of Loyalty………………………………………………

Customer Loyalty Programmes………………………………….23

Rhetoric Vs. Reality……………………………………………..36

Origin and Motives………………………………………………64

Tesco’s definition of Loyalty…………………………………….63

Strategic implications of the Clubcard……………………72

Fig 1 Categorization of The Loyalty Concept

Fig 2 Conceptualizations of Loyalty Models

Fig 3 Categories of Loyalty (O’ Malley model)

Fig 4 Motivator, De-motivator (Diller model)

Fig 5 The 5P Loyalty Strategy

Fig 6 Characteristics of Loyalty programmes (Butscher model)

Fig 7 Opportunities for using customer information

Fig 8 Behaviour based CLP (Morgan et al model)

Fig 9 Relationship-based CLP (Morgan et al model)

Fig 10 The Ideal Customer experience (Fournier et al Model)

Figures 11-19 depict survey results

Fig 12 Customer loyalty dimensions: Female and male Clubcard members

Fig 13 Overall customer loyalty for Tesco-Clubcard members and non-members

Fig 14 CLI of Clubcard and non-Clubcard members on loyalty parameters

Fig 15 CLI of Clubcard members by occupation

Fig 16 CLI of Clubcard –members by size of household

Fig 17 Percentage of monthly grocery budget spent with Tesco (Clubcard-members)

Fig 19 Factors in selecting a supermarket

Fig 20 The Loyalty Cube

Fig 21 Six Key success factors

Fig 22 COFP diagram

CIU – Customer Insight Unit

CLP – Customer Loyalty Program

CLI – Customer Loyalty Index

CRM –Customer Relationship Management

LTV – Life-time Value

LTVA – Life-time Value Analysis

RFV – Recency, Frequency, Value

ROI – Return on Investment

SWOT – Strengths, Weaknesses, Opportunities, Threats

TPF – Tesco Personal Finance

4P’s - Price, Place, Product, Promotion,

1.6 Conclusions and Recommendations

2.1 Loyalty – The elusive phenomena

2.1.1 Categorization of The Loyalty Concept ( from the Retailer’s perspective)

Adapted from Bergeron, 2000, pg 135-147

Repeat Purchase Transactional Persistency

Aw areness Brand Value

 Persistency - maintaining a relationship rather than concluding it.

2.1.2 Conceptualizations of loyalty (from the customer’s perspective)

Adapted from Uncles et al., 2002

2.1.3 Loyalty Frameworks

Adapted from O’ Malley 1998, pg 47-55

High Patronage Behaviour Low

High Loyalty Latent Loyalty

Organisations must not become complacent

likely to be targeted by competitors. This

Adapted from: Diller, 2000, pp 39 – 43

 Opportunism versus Relief

Arguably the strongest factor constraining loyalty has been termed

The model suggests that everyone is a smart shopper to a certain degree,

 Variety versus Continuity

The second pair of ambivalent loyalty forces suggested by the model

 Autonomy versus Social Integration