TESCO LONG TERM EFFECT OF CUSTOMER LOYALTY PROGRAMS

TESCO long term effect of customer loyalty programs

Table of contents

Introduction3

Literature review3

Loyalty Programs Are Everywhere3

Case study methodology3

Tesco Clubcard3

Earning rewards3

Deals3

Integrated channels3

Nectar3

Conclusions3

References3

Appendix3

TESCO long term effect of customer loyalty programs

Introduction

The technology of loyalty cards allows retailers to transform cold data on consumer behavior into warm relationships and eventually into a genuine customer loyalty founded on mutual understanding and trust. A warm relationship is also a learning relationship (Mauri, 2003, pp. 13-14).

A number of retailers and other service providers have introduced loyalty schemes over the past few years. These loyalty schemes usually involve the customer being given a plastic card to which credit points can be added when the customer makes a purchase. When the customer joins the loyalty scheme they may be asked to complete a form which asks for details such as their name and address; these are subsequently entered into a database. Once a customer has an entry in the database, further records of customer purchases can be added, so that ultimately it is possible to build a profile of individual customer purchasing habits. This database of customer purchase profiles can then be used to segment the retailer's customer base, for purposes of direct marketing and tailoring other marketing communications and special offers to customer requirements. In exchange for registration, the customer receives points that can be used in full or part payment for products or services.

There has been considerable debate about the value of loyalty cards for both the consumer and the scheme's sponsor. Criticism can be grouped into those that cast doubt on whether what might merely be viewed as a modest discount arrangement, akin to electronic green shield stamps can generate customer loyalty, and those who comment on the difficulties associated with the analysis of the customer purchase data that retailers can collect through loyalty schemes(O'Brien, 1995, pp.75).

This paper undertakes a case study based analysis of the Tesco Clubcard loyalty scheme. This loyalty scheme extends beyond the traditional model of a loyalty scheme in which customers exchange modest rewards for customer data and information, to the creation of a relationship or brand web. Customers are invited to engage with this web at a number of different levels(Mauri, 2003, pp. 13-14).. After a review of some of the earlier work on loyalty schemes, this paper first describes elements of the Tesco Clubcard loyalty scheme, in terms of rewards, deals, and integrating channels. Finally, the paper poses a number of research questions that extend beyond the more parochial assessments of the impact on loyalty scheme membership loyal behaviours, customer value, and business performance, to the potential of loyalty schemes in building brand perceptions and experience.

Tesco, one of Europe's largest and most data-advanced retail chains, is one company that knows how to gather and apply in-depth customer information to optimize customer share. Its customer database contains not just demographic and lifestyle data (including total dollars spent on food items in stores and customer response to its promotions and other programs), but also ...