Introduction

The case describes the customer relationship management (CRM) initiatives undertaken by Tesco,
“

the number one retailing company in the United Kingdom (UK), since the mid-1990s. The
company's growth and its numerous customer service efforts are discussed. The case then studies
the loyalty card scheme launched by the company in 1995. It examines how the data generated
through this scheme was used to modify the company's marketing strategies and explores the role
played by the scheme in making Tesco the market leader. The case also takes a look at the various
other ways in which Tesco tried to offer its customers the best possible service. Finally, the
company's future prospects are commented on in light of changing market dynamics, the
company's new strategic game plan, and criticism of loyalty card schemes.”

Objectives of CRM in Tesco

 To build a continuous relationship with the customers and increase on the customer base.”
“

 To assess the needs as well as values of the customers in order to raise the growth of revenue
“

by satisfying customer needs.”

 To recognize individual customers and improve on customer satisfaction.”
“

STRATEGIES ADOPTED BY TESCO:

1. Low Price Strategy: “pile it high and sell it cheap”

 In order to reduce internal operation cost, TESCO in the year 1948 opened its first
“

self-service store in St Albans.”

 In 1960s due to Retail Price Maintenance (RPM) system, TESCO was unable to
“

reduce the price of products. Hence, in order to sustain its low-price strategy, it started
issuing Trading stamps to customers which can be later redeemed in terms of discount
or gifts.”
 In 1979, company successfully launched a price cutting campaign named “Checkout
“

at Tesco”.”
  Tesco, employed a dedicated team of employees, called “Price Checkers”, who
“

continuously review the market fluctuation in prices and provide inputs”

 Pricing strategy. Comparative dynamic pricing gave a competitive edge.”
“

2. Diversification strategy:
 In 1974, Tesco has started operating petrol pumps.”
“

 In 1995, formed a joint venture with the Royal Bank of Scotland as “Tesco Personal
“

Finance” (TPF), that offered customers a wide variety of personal finance services.”
 In 1998, after the utilities business was deregulated in the UK, Tesco began offering
“

electricity and telecommunications products and services.”

3. Focused Market Strategy:

“ In 1990, Tesco came with three new formats stores based on location and product variety
requirements. Tesco Metro: To serve local community of region, Tesco Express:
Combination of petrol pump & convenience store, Tesco Extra Store: Hypermarket
focused equally on food and non-food merchandise.”

IDENTIFICATION OF ISSUES

MAIN
 Initially, Tesco faced issues for competing in the UK market over prices with local
retailers because of the Retail Price Maintenance (RPM) that was there during
company’s initial phase.
 Initially, analyzing huge five gigabytes of data generated per week took several weeks
for Dunnhumby to arrive with useful customer insights.
 Another issue was faced when Tesco found that 25% of its customers belonging to high
income bracket were defecting to Marks and Spencer and it had to develop a new
product range “Tesco Finest”.
UNDERLYING

 Although Tesco’s customer base had increased over the years but the average purchase
per customer had not gone up as much as they would have liked.
 Although the company grew rapidly in UK and some other European countries too it
was a success, there was a lot of skepticism on its global expansion as the company
was eyeing Chinese and Japanese markets.
 Tesco’s success can be widely credited to Club Loyalty Cards while many analysts believed
that its popularity would decline as other retailers would also start giving similar schemes
and maybe better benefits.

ANSWERS TO THE DISCUSSION QUESTIONS

Answer 1

The Retail Price Maintenance (RPM) system that was present in the country was a problem during
“

that time for Tesco which prohibited them and other large retailers from pricing goods below a
price which was agreed upon with the suppliers therefore, Tesco was not able to compete with
small retailing outlets on price factor.”

To overcome this problem, Tesco came up with the idea of “trading stamps”. These stamps were
“

given to customers in return for making purchases at its stores. After the customers collected a
specified number of stamps, they could exchange them in return for cash or gifts. This scheme
became very popular and Tesco’s popularity and sales soared substantially.”

In 1970’s Tesco had to rethink its pricing strategy because customers were no longer looking for
“

bargains but there was a growing need for costly luxury merchandise. And in order to tackle this
situation Tesco’s management carried out a strategic overhaul of the company’s operations the”
company closed down many of its stores to concentrate on superstores. The stores that were not
“

closed down were refurbished through better layouts (such as wider aisles) and improved
atmospherics (including better lighting). The product mix was also changed, and Tesco now began
offering a much wider range of goods. In addition, the company renewed its focus on customer
service and quality. the company successfully launched a price cutting campaign named Checkout
at Tesco. Tesco launched the Healthy Eating initiative, a path breaking move that aimed at
conveying the nutritional value of the company’s merchandise to the customers. The company
felt the need to launch Clubcards because they entered France in 1994 and Hungary and Poland in
1995. This was the year when Tesco entered the international markets and the it launched
Clubcards. The primary motive behind the club card scheme was to retain customers by rewarding
them for their repeat purchase behavior. Loyalty programs increase overall revenue by 5-
10%. Loyalty members spend 5-20% than non-members on average. Loyalty program members
buy 5-20% more frequently than non-members.”

Answer 2

Loyalty card scheme was launched in 1995. This initiative was partly inspired by the growing
“

popularity of such schemes in other parts of the world and partly by Tesco’s belief that it would
be able to serve its customers in a much better (and profitable) manner by using such a scheme.
Tesco knew that at any of its outlets, the top 100 customers were worth as much as the bottom
4000. While the top 5% customers accounted for 20% of sales, the bottom 25% accounted for
only 2%. The company realized that by giving extra attention to the top customers (measured by
the frequency of purchases and the amount spent), it stood to gain a lot.”

May 1994

Tesco began testing of the Clubcard loyalty scheme at two of its stores for a period of six months.
“

The scheme started off like any other loyalty card scheme. Customers became members by
paying a joining fee and providing personal details such as name, address, date of birth, e-mail,
family composition, dietary requirements and product preferences. The stores captured every one
of the over 8 million transactions made per week at Tesco stores in a database”
All the transactions were linked to individual customer profiles and generated over 50 gigabytes
“

of data every week. Dunnhumby used state-of-the-art data mining techniques to manage and
analyze the database. Initially, it took a few weeks to analyze the vast amount of data generated.
The analysis of the data collected enabled Tesco to accurately pinpoint the time when purchases
were made, the amount the customer spent, and the kinds of products purchased. Based on the
amount spent and the frequency of shopping, customers were classified into four broad categories:
Premium, Standard, Potential and Uncommitted.”
Profiles were created for all the customers on the basis of the types of products they purchased.
“

Customers were categorized along dimensions such as, Value, Convenience, Frozen, Healthy
Eating, Fresh and Kids.”
Tesco also identified over 5000 need segments based on the purchasing habits and behavior
“

patterns of its customers.”

Answer 3

Using the information regarding customer classification, Tesco’s marketing department devised
“

customized strategies for each category. Pricing, promotion and product related decisions were
taken after considering the preferences of customers. Customers received communications that
were tailored to their buying patterns. The data collected through the Clubcard scheme allowed
Tesco to modify its strategies on various fronts such as pricing, inventory management, shopping
analysis, customer acquisition, new product launches, store management, online customer
behavior and media effectiveness”

In February 2003, Tesco launched a new initiative targeted at its women customers. Named „Me
“

Time, ‟ the new loyalty scheme offered ladies free sessions at leading health spas, luxury gyms
and beauty salons and discounts on designer clothes, perfumes and cosmetics”

Creating new product lines

Reviewing the marketing mix was also required and one of the steps Tesco took was to launch a
“

new line of new farm brand products. This dramatic rebranding of products such as beef, fish, pork
and fruit allowed the company to appeal to cost-conscious consumers who didn't previously value
Tesco's offerings. Prior to the rebranding, Tesco's basket of farm-style products was about 15%”
more expensive. The brand understood the need to compete in this category and prices were
“

reduced. The result was a dramatic increase in farm and fish sales at the new price point. The
reinvigoration of Tesco's strategies – and subsequent financial rebound – is a testament to the
power of marketing. As businesses continue to feel the strain of competition both domestically and
internationally, these entities will need a response plan. In the wake of multiple scandals and plenty
of competition, Tesco has managed to deliver both to its shareholders and shoppers. This truly
successful and innovative resurgence is a far cry from such a horrible slump that haunted the
company just a few years prior.”

Answer 4

Tesco & CRM

CRM was introduced in Tesco to increase revenue. For this reason, Tesco started Club card.
“

According to Tesco’s Chairman Sir Terry Leahy Tesco’s Club card program boasts 10 million
active households and captures 85% of weekly sales. In the five-year period following the
implementation of the Club Card program, sales have increased by 52% and still grow at a rate
higher than the industry average. Store openings and expansions have increased Tesco’s floor
space by 150%.”

The 13th February change the way Tesco makes decision, develop products manage it stores the”
“

most importantly the way it serves its customers. On the day Tesco launched Clubcard, its ”
“

customer loyalty program. Clubcard has given Tesco a way regularly to show its appreciation to”
“

customers. Tesco designed Club card not just to show customer loyalty to Tesco, but more”
“

importantly to recognize Tesco’s loyalty to its customers. Today because of CRM Tesco in not”
“

only UK’s largest grocery store but also the world’s most successful internet supermarket.”
“

Beginning with the Customer Insight Zone because exploiting customer data is of critical
importance for identifying new value, balancing resources and building closer relationships with
customers. Tesco clearly recognize the value of the customer knowledge created by the scheme
yet there is another significant dimension to their success at applying customer data. Rather than
analyze the data in a random fashion, Tesco maintain 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.”

At Tesco, the leading grocery retailer in the United Kingdom (U.K.), there is a permanent drive
“

to improve customer service. The organization is constantly gathering customer feedback for
improving existing offerings and delivering new services for the future.”

Answer 5

“Given the fact that the company was moving away from its core business within UK (thrust on
non-food, utility services, online travel services) and was globalizing rapidly (reportedly, it was
exploring the possibilities of entering China and Japan), industry observers were rather skeptical
of its ability to maintain the growth it had been posting since the late-1900s. The Economist
stated that the UK retailing industry seemed to have become saturated and that Tesco’s growth
could be sustained only if it ventured overseas. However, it also cautioned that UK retailers had
usually not fared well abroad and mentioned that Tesco needed to act carefully.”
Commenting on the philosophy behind Tesco’s CRM efforts, Edwina Dunn (Edwina) said,
“

“Companies should be loyal to their customers – not the other way round.”14 Taking into
consideration the company’s strong performance since these efforts were undertaken, there
would perhaps not be many who would disagree with Edwina.”
The company should do to retain its growth pace and leadership status by-
 “Organizing events for better customer engagement. We know as per data that although
customer base for Tesco increased but average purchase per customer didn’t increase as
they would have desired. In this type of situation, customer engagement is really important
which would have resulted in an increased purchased from its customers. Being a retail
store, customers of all age group might to coming to their stores, so Tesco could have
organized some engaging events on regular basis at their stores to attract customers,
especially for kids because along with kids would come their parents/guardian and they
would end up buying more products than they would have expected.”
 Tesco could have given out samples for their less popular products to their frequent
“

customers. By doing this they would have increased market for their products without
having to enter any new market.”
 “Tesco could have altogether setup a different company and a brand name to compete with
growing demand for luxury merchandise. Tesco could not position one company into two
income brackets and thus should have had a different subsidiary company to target the
needs of its high-income bracket customers and compete with companies like Marks and
Spencer.”
The case is structured to enable:

 “Understand the concept of CRM and its importance in deriving advantages in a highly
competitive market.”
 “Study the nature of the retailing industry in the UK, particularly the evolution of Tesco as
a leading company by the end of the 1990s.”
 “Understand the need for loyalty card schemes, their implementation, and the role of data
mining and analysis in running such schemes successfully.”
 “Examine how the information gathered through CRM tools can be used to modify
marketing strategies and the benefits that can be reaped through them.”
 “Analyze the various issues companies need to address when devising a comprehensive
CRM system.”