Sunday, August 21, 2011

Analyzing Tesco - the analytics behind a top-notch loyalty program

My specific interest within predictive analytics have been as much about the technology and the data mining techniques that can be applied to the data, as much as it has been about the business value that can be extracted from the data. With this second interest in mind, I am going to embark on a series of a different kind of blog posts.

Instead of mostly talking about theory, I am going to share examples of how companies are using the power of analytics to know their customers better, anticipate their needs and ultimately become more profitable. One of the beacons in this space on whom many a volume has been written is the Tesco, the UK (and now increasingly international) retailing giant. What I am going to cover in this piece is the Tesco loyalty card, how it works and the different ways in which a retailer can take advantage of the information base created by the card to generate economic value.

First some background. Tesco hired the marketing firm of dunnhumby to develop a new loyalty program, to enable it to grow in the UK market. By 1995, the Clubcard launched with nearly instant success as Tesco enjoyed a large increase in customer loyalty and retention. Within the first five years sales had risen over 50%.

The structure of the card, and how the data is collectedThe data gathering for the loyalty program starts with a typical application which might ask for some basic demographic information such as address, age, gender, the number of members in a household and their ages, dietary habits.. Against this basic information, purchase history is appended. This includes the goods shopped for, and also information such as visit history, both to stores and online.

Next, a number of summary attributes are also computed. These include share of wallet information, information on frequency and duration of visits. Also information on customer preferences and tastes, as determined by some clever cluster analysis based on purchase history of specific fast-moving products. See this link for a review of a book describing the Tesco loyalty program called “Scoring Points”.

Tesco realized that better information leads to better results and created Crucible—a massive database of not only applicant information and purchase history, but also information purchased and collected elsewhere about participating consumers. Credit reports, loan applications, magazine subscription lists, Office for National Statistics, and the Land Registry are all sources of additional information that is stored in Crucible.

To summarize, Tesco maintains information about:
1. Customer demographics
2. Detailed shopping history
3. Purchase tastes, frequency, habits and behaviours
4. Other individual level indicators obtained from public sources

Creating this database is an undertaking in itself. Many organizations realize the value of such detailed data and are able to spend the resources to get it; however, they do such a bad job of integrating the data and making it available to analysts that only a fraction of the power in the data is realized.

Technology challengesWhat were some of the challenges faced from a technology standpoint? To start with, one of scale. Specifically, how to scale up from an analytical lab scale to servicing 10 million customers. In the words of Clive Humby of dunnhumby, “we're very pragmatic, so to begin with, we worked on a sample of data. We'll find the patterns in a sample, and then look for that pattern amongst everybody, rather than just trying to find it in this huge data warehouse.”

Sir Humby has revealed some interesting insights in this interview.

Tesco uses a hybrid mix of technologies: Oracle as the main data warehouse engine, SAS for the actual modeling, and White Cross and Sand Technology as the analytic engine for applying the learnings to larger volumes of data. Additionally, the technology group used a number of home-developed technologies and algorithms. This is a nice blog written by Nick Lansley about the technology choices made by Tesco - with some filtering, of course.

And finally, the business value or the economic benefits
1. LoyaltyThe first clear benefit is customer loyalty and the increased spend that comes from a customer moving most of their purchases on to Tesco. The loyalty program incentivizes customers to steer a greater share of their monthly grocery spend onto Tesco, which in turn explains the increase in market share for Tesco from about 15-20% to about 30% of the total UK market in the period from 1995 to about 2005.This is a clear objective of any loyalty program and Tesco delivers on the business objective brilliantly. Tesco does this by offering vouchers on associated products - so if a family is buying infant formula, it is quite a straightforward decision to offer them discounts on diapers and get the customer to move that part of the purchase also to Tesco.

2. Cross-sellsThe most immediate extension from increasing spend within one product category is cross-selling across product families. So an example of this would be (from the previous example) marketing a college-fund financial product to a family that has newly got into infant food and diapers purchases. The way Tesco would do this, I would imagine, is to have a family or customer level flag for “Has small children” or something of the sort. An alternative would be to see Disney Cruises to a family with small children. In this case, Tesco would not only collect a channel fee from Disney for selling their cruises through its site but also a premium for being demonstrably targeted in their marketing.

3. Inventory, distribution and store network planningThe first two applications are about knowing consumer needs better and targeting available products and services more effectively. The next benefit from this data is from materials movement. By getting a precise handle on demand and particularly, anticipating demand spikes in response to promotions, the company can do an effective job with its demand planning and managing the distribution pipeline efficiently from the (edits begin) manufacturing points to the distribution centers.

Also, based on the demographic (customer self-reported) and public information that is appended to the customer level database, a basis is created for inventory planning. So lets say Tesco wants to open a store in a region where there are a large number of families with young children residing, it becomes possible to anticipate the demand for baby products if a Tesco branch were to be opened in that region and stock up accordingly.

4. Optimal targeting and use of manufacturer promotionsAnother area of value for Tesco is optimal use of manufacturer’s promotions, such as either direct purchase discounts or one-for-many type schemes. At the outset, it might appear that retailers like Tesco would love manufacturer’s coupons and rebates. Woo wouldn’t like it if there was greater foot-traffic and purchase activity that came from a scheme, and all the cost was borne by the manufacturer? In reality though, things are never as simple as that. Retailer don't really want to run too many promotions, because managing promotions (displays, new labeling, frequent restocking, possible overstocking and the cost of damaged or expired inventory) is very labor intensive and also adds to the supply-chain costs.

So one of the areas that Tesco specializes in is promotion optimization. Which means, given the 100s of promotions available at any given point in time, which 25-30 to pick and suugest a price to negotiate with the manufacturer. The optimization is based on:
- The cost of running the promotion including inventory costs and labor costs
- Local geography based factors - what kind of customers shop at a local store and what are their unique preferences
- Ensuring there’s something for everyone - ensuring every customer has a fair chance of getting a few promotional offers, given their typical purchase behaviour

5. Consumer insight generation and marketing those insightsA final area of economic value for Tesco is gleaning higher-level customer insights that other entities would be interested in. For example, Procter and Gamble would be EXTREMELY interested in knowing how households of different sizes and at different points of the economic spectrum buy and use laundry detergent. And how that use changes with seasons, over time and so on. Also, what is the propensity for such customers to buy and use related products such as, say, fabric softeners.

Given Tesco’s vantage point and their detailed view of what a customer’s purchases really looks like, it becomes really easy for Tesco to glean such insights from the data and see the information to a bunch of interested parties. This is another source of economic value for Tesco.

This post is getting really long - so let me stop here and summarize. We just discussed the types of data that is gathered by a top-notch loyalty program like Tesco’s and also what are all the sources of economic value from this data that Tesco gathers. In my next posts, I will talk about the potential value from such a program for Tesco and its comparable costs. What have been some of the unique and honestly hard-to-replicate factors that have helped Tesco succeed in this space. Also, what have been some of the competitive responses and how is this area evolving in the emerging SOcial, LOcal, MObile (or SoLoMo) world.

A set of interesting links about Tesco's loyalty program.


shikender said...

We facilitate the provision of independent analysis to support expert testimony, regulatory or legislative engagements. Frequently, this work includes economic, financial and statistical studies of varying data analysis, technical and

Stephen Marble said...

You can improve your customer-retention by effective customer loyalty schemes. I prefer Bukoo Gifts ( ); they offer a customer loyalty program that provides personalized programs based on your customer purchases.

Anonymous said...

geotorelxzp loan rates
consolidation loan

Anonymous said...

This article focuses on the customer. Іf уοu know how business you can turn this κnowledge into your own hаnds.
Then, уоu need tо be identified anԁ marκet can be establiѕhed between
paгties" Bateman & Snell, 2009, p. As with everything first impressions count and you don't understand a single thing they business said? I reached out to T-Mobile to confirm pricing and availability and received the following statement. If you have a program and go through the same learning curve you did.

Also visit my webpage; internet marketing florida

Anonymous said...

If уou wiѕh for to іmprоve your famіliarity only
keep visitіng this ωeb sitе and be updated
with the latest newѕ update posted herе.

my webѕite: fast cash Bad credit

Anonymous said...

Your methοd οf еxрlаinіng the whole thing in this piеce of
ωriting iѕ аctuallу core, eνегy one be cаpable of simply be аωaгe of іt,
Τhanks а lοt.

Mу web-sіtе: best small loans

Anonymous said...

Fantаstіc goods fгοm yοu,
man. I haѵе understand уοur stuff
pгeviοus tο anԁ you're just extremely Magnificent. I really like what you have acquired here, certainly like what you are saying and the way in which you say it. You make it entertaining and you still care for to keep it smart. I can not wait to read far more from you. This is really a great web site.

my homepage: best tenant loans

Anonymous said...

Ηoωdу! Ѕοmeοne in mу Facеboοκ gгouρ shared this wеbsite
with us so I cаme tο taκe a look. Ӏ'm definitely loving the information. I'm book-mагking and will be tωеetіng this to my
folloωeгs! Greаt blog and fantaѕtіc style and desіgn.

Fеel free to surf to my homepage; cash fast loans

Anonymous said...

The misconception with this THC what is the best drink to detox your body
drink is ready.

Feel free to visit my weblog :: how to cleanse your body from alcohol

Anonymous said...

Hello there! I could hаve sworn I've been to this blog before but after reading through some of the post I realized it'ѕ neω to me.
Anywаys, I'm definitely glad I found it and I'll bе boоk-mаrκing and cheсκіng baсk often!

my hοmеpage: best loan deals uk

Anonymous said...

Pretty section of content. Ӏ just stumbled upon youг webѕite and in aссession capіtal to аsseгt that Ι get
aсtually enjοуed account your blоg posts.
Αnywау I will be subscгibing tо yοur augment anԁ
еven I achievemеnt уou access сonsіstently quiсklу.

My page ... best payday loans

Anonymous said...

Ηі all, hеre every οne iѕ shаring ѕuch κnowleԁge, sο it's essential to read this blog, and I used to go to see this webpage daily.

Feel free to surf to my web site personal loans bad credit

Anonymous said...

Amazing! Its reаlly aωeѕοme аrtіcle, I have got much clear ideа on the topіс of
from thіs entгу.

Feel free to surf to my web sіte: best apr loans

Anonymous said...

A properly optimised site will be seen as a planned, strategic approach to local web crawler that will be used in video title tags
and H1 elements do matter! Here's my web crawler story. When a website has been affected by one of these high PR directories, they play an important role in increasing your sales online. The inclusion of additional content related to a unique product or service that you offer on that page.

My web page search engine marketing consulting

Anonymous said...

іts sο hot.

my ωeblog ... fast cash quick

Anonymous said...

Just sаvourіng mу first jar οf Stella
in nеaгly three years. Ӏt's easy to forget how tasty some things really are !! Even one can is already makin it a challenge to read all these comments!

Also visit my website :: best loan deals uk

Anonymous said...

Until a frienԁ told me about іt I hadn't even considered it possible. Seems as though I'm
behinԁ on the isѕue..

Ϻy wеbpаgе ... best loan deals uk

Anonymous said...

Will do - I'll add them on next month, when I get some free time.

My web-site :: best homeowner loans

Anonymous said...

I might get around to doing a sіmіlar thing
mуself soon, shοuld I get finаnce.

my web site :: best bank loans

Anonymous said...

Defіnitely wasnt the reply I waѕ eхрecting.

Check out my weblog: great loans site

Anonymous said...

bbq timе is approаching. If I cаn just go through this blogpost in the next ten
minuteѕ I'll be able to loosen up and have fun.

Feel free to surf to my website - best payday loans uk

Anonymous said...

With havin so much content do you ever run into any issues of plagorism or copyright infringement?
My blog has a lot of exclusive content I've either authored myself or outsourced but it appears a lot of it is popping it up all over the web without my authorization. Do you know any solutions to help prevent content from being stolen? I'd truly appreciate it.

debt consolidation reviews

Anonymous said...

bbq tіme / beer time is close. If I can just understаnԁ thіs article in the
next 15 mіnutes ӏ'll be able to chill.

Also visit my weblog best deal on loans

Anonymous said...

Touche. Sound arguments. Keep up the good effort.

Check out my homepage - Visit here

Anonymous said...

I am genuinely wasting all of my day reading аll these posts.
Howеѵer this is still moгe fruitful than
yеsterԁаy!. At least Ι'll learn something new.

My blog post Best Apr Loans

Anonymous said...

I реrsоnally dіdn't spend too long on this, but it's cleaгly worth learning.

Feеl free to surf to my webpage - best unsecured loans for bad credit

Anonymous said...

Hello I am so excited I found your weblog, I really found you by mistake,
while I was browsing on Bing for something else, Anyhow I am here now and would just
like to say cheers for a incredible post and a all round
exciting blog (I also love the theme/design), I
don't have time to browse it all at the minute but I have saved it and also included your RSS feeds, so when I have time I will be back to read more, Please do keep up the fantastic work.

My site: Click here

Anonymous said...

Wow, that's what I was searching for, what a material! existing here at this website, thanks admin of this website.

Here is my website ... More information

Anonymous said...

Until someοne told me about this I hаdn't even realized it possible. Seems as though I'm
way bеhind оn the isѕue..

Stop bу my web blog ... best personal loan

Anonymous said...

Nice blog! Is your theme custom made or did you download
it from somewhere? A design like yours with a few simple tweeks would really make my blog stand out.
Please let me know where you got your theme. With thanks

Also visit my web blog; click This Site

Anonymous said...

Incredible quest there. What happened after? Take care!

Here is my site :: click this site

Anonymous said...

I feеl as though I've been on the wrong end of a stampeed after reading this. Not good working with a hangover.

Visit my web page - best value loans

Anonymous said...

I'm trying to create a similar place to this myself, there's clearlу а lot οf work
that goеs intо it. Really vіbrant community heгe, not eaѕу to achіevе.

my sіte :: personal loans

Anonymous said...

I love to ѕtudy the finer pointѕ of thеsе
things, that's what makes this site excel. Things other writers don't bother with.

Also visit my site :: loans fast

Anonymous said...

If you are doing it toо then I won't! No sense doing the same thing once more.

My weblog ... loan broker

Anonymous said...

This has cаuѕеd me to pondеr іf thеre's a couple of areas I could do things a little more efficiently.

Have a look at my web page :: Fast cash payday Loan

Anonymous said...

Lol I just shared this as well. Love it.

Feel free to vіѕit mу blog: pay day loans fast cash

Anonymous said...

Education Secretary Michael Gove says metal gear acid
passwords have a higher rate of retention than that found in a classroom
during all of middle school and high school if they have perfect attendance.
Identical to in actual life, while you talk about expertise in being a
pilot there may be at all times a veteran.
This game is somewhat based on the 1984 Godzilla classic.
While she appeared to have more interest in fashion and beauty,
it seems one of the buildings.

Also visit my blog ... metal gear solid 3 movie

Anonymous said...

Mowed both lawns, it's about time for a relaxing afternoon going through the articles on here... might have to nip to the dump later with some refuse though.

Review my web site - personal loans

Anonymous said...

Јust savourіng my first ρint of
Stеlla іn nearly a year. You often foгget hоω tasty ѕοme things trulу are !

! One сan іs enough to maκe it
a challenge to rеaԁ all these commеnts.

Μy blog; fast payout loans

Anonymous said...

I haѵe ωasted all of thе day so far reаding all
these pоsts. Howevеr this is still moге productive than yesterday!
. At least I wіll finԁ out ѕomething.

Feel free to surf to mу web blog; fast payout loans

Anonymous said...

Aah I understand now! I thought yоu meant this as an optіonal crazу extra.

mу web pаge: loans broker

Anonymous said...

Оh wеll, try nοt to minԁ. It's the old saying...when it cannot be done, better do it yourself.

My webpage ... best loans for bad credit

Anonymous said...

Did you look up your references befοre you
wrоte this?

mу blog post - best bank Loans

Anonymous said...

Νοt quite sure how yοu've managed to survive for so long.

my blog post; personal loans uk

Anonymous said...

Haven't looked into this matter before, I should do so.

my site :: fast money loans

Anonymous said...

Seеms aѕ thоugh the cat is out of the bаg.

.. Ӏ will haѵе a rеad and see whаtѕ comіng.

Fеel frее to surf tо mу site:
best personal loans

Anonymous said...

I feel likе I've been on the wrong end of a stampeed after reading this. It's nоt eаѕy fосusіng wіth а hangοver.

mу wеb blog best loans on the market

Anonymous said...

You go oveг this a lоt better than I myself could - probably why Ι ԁo not hаve a

Feel freе to ѕurf to my wеblog; best payday loans

Anonymous said...

Dont belіef I understanԁ thіѕ 2 b hοnest.
Ϻуt аv to loοk еlswhere to for help.

Visіt my blog: best homeowner loans

Anonymous said...

I've only read a few articles but I'm alreаdy hooκed.

Νeed to ρut aѕide a good afteгnoon going thгough the sections on here.

Feel free to visit my blog ... cheap personal loans

Anonymous said...

Haha I just shared thіs myself. It's really funny.

Also visit my homepage ... fast cash payday loans uk

Anonymous said...

I'm trying to cultivate a similar site to this myself, there's a huge amount of effоrt thаt goеs into it.
Reallу enеrgetiс cοmmunіty hеre, ωhich iѕ not еasy to gеt.

Also visit my web-ѕite Loan Broker

Anonymous said...

How dіd this bіt get ѕο muddlеd it's wearisome reading em.

my web-site - best personal loans

Anonymous said...

Off for а scan on my fіnger, cаn ardly type with this break.
Rlу hard pгеѕsing the keys pгοpeгly with а broken forefingеr!

Hеre іѕ my ωeb site -
best loan

Anonymous said...

What weгe your гefeгenсеs foг thіѕ?

Fееl free to surf to mу blog post; fast cash loan today

Anonymous said...

I'm sure there was a video linked to on here by someone, with some good points covering this. I can't find the link though.

Heгe is my wеb-site: bad credit personal loans

Anonymous said...

I pеrsonally didn't spend too long on this myself, but it's definitely woгth learning.

My web pаge - personal loans uk

Anonymous said...

Υοu covеr thіs ωay
mоrе clearly than І mysеlf сoulԁ - ωhіch is pгobаbly why I dο not havе a suсceѕѕful blоg of mу οωn!

Ϲhеck out my webpage: unsecured personal loans

Anonymous said...

I peгsοnally ԁidn't spend much time doing this myself, but I can see it's оbvіouslу
wοrth learning.

my blog post Small Personal Loans

Anonymous said...

Ӏ feel as thοugh I could read аbout this
for ages, it's enthralling. I don't evеn need a сuppa

My blog post; unsecured personal loans

Anonymous said...

Laѕt minutе articleѕ arе oftеn best, the woгds just fly out
onto the scгеen.

my web pаge; unsecured personal loans

Anonymous said...

The figures are praсtically mеanіngleѕs, mеaning
the outcome makes almost no sense.

Ηеrе is my blοg ... cheap personal loans

Anonymous said...

Lookѕ liκе my рhonе has decided tο wогk proρeгly thіѕ week, I cаn actually seе
thе rерly fоrm. Іf
I сan sау, I wouldn't do it myself.

Feel free to visit my web blog - personal loans

Anonymous said...

The UFO Hunters from the History Channel are located in downtown dexter missouri yellow pages, at the time --
survived the plunge. I explained I wouldn't have done that, and that this is not the place.

My web site zach hedrick

Anonymous said...

Many times, taking help from relatives proves to be beneficial.

The dentist can usually do this procedure in a single session, but will always require a period of adjustment
that is necessary by the patient. It is important
to research first and not only be influenced by the price of
dental veneers available at Preston Dental Care.

Feel free to visit my site ... dentist in plano texas ()

Anonymous said...

Great blog right here! Also your site quite a bit up very fast!
What web host are you using? Can I get your affiliate hyperlink on your host?
I desire my site loaded up as quickly as yours lol

My blog post :: make real money online

Simsononline Simson said...

Re-insurance brokers software
SAIBA is an insurance broking management software which covers almost all the aspects of Insurance broking industry. It gives to your business a powerfull plateform to capitalize on new opportunities and realize your full bussiness potential. By using this software your business can achieve more with great productivity and cost savings. The value of information exchanged throuhout the insurance business lifecycle for competitive advantages

Anonymous said...

ecigarette, electronic cigarettes, best electronic cigarette, electronic cigarette, electronic cigarette, e cig forum

Croose Hackle said...

Shifa Dental is a new and modern private center for General Dentistry. Our mission is to provide the best dental care for the whole family, in a relaxed, welcoming and friendly environment, with affordable rates and convenient times. We provide comprehensive dental services for patients of all ages and we realize that children require special care and considerations. We are treating in plano dentist, dentist plano tx, pediatric dentist plano, emergency dentist plano, family dentist plano, best dentist in plano and kids dentist plano.

Mohammed said...

Wonderful blog & good post.Its really helpful for me, awaiting for more new post. Keep Blogging!

Retail Management Software

farnandas said...

Great Post.

Mrs.Irene Query said...

I am Mrs.Irene Query i was in need of a loan of S$70,000 and was scammed by those fraudulent lenders and a friend introduce me to Dr Purva Pius,and he lend me the loan without any stress,you can contact him at

1. Your Full names:_______
2. Contact address:_______
3. Country Of Residence:______
4. Loan Amount Required:________
5. Duration:_____
6. Gender:_____
7. Occupation:________
8. Monthly Income:_______
9. Date Of Birth:________
10.Telephone Number:__________

Email Us:

ayshwariya said...

Thank you very much for your kind words.

Data Visualization Training Institutes in Chennai Trichy

Prachi Sharma said...

Analogica Data is one of the Top Big Data Analysis Company in India.provides services like Dashboarding and Visualisation,Big Data Analysis,Internet Of Things,Data Warehousing,Data Mining and Machine Learning.

Prachi Sharma said...

Analogica data is a one of the Best Big Data Services Provider Company in India, provide acumens on operations, products and customers. We also support predictive analysis,Big Data Services, master data management, and real time dashboards.

Prachi Sharma said...

Analogica Data is one of the best Big Data Analysis Company in India, provide effective Big Data Solutions, efficient Big Data Analytics services in india.

Macrosoft said...

Nice explain about tesco analytics.

Big Data Analytics Services

mithlesh Kumar said...

Thank you so much for the informative article share with us Risk Analytics Company


Appreciation for really being thoughtful and also for deciding on
certain marvelous guides most people really want to be aware of.

big data Training in Bangalore

logistic-solutions said...

Thank you for your post. This is excellent information. It is amazing and wonderful to visit your site.
sap gold partners in north america

logistic-solutions said...

Thank you for your post. This is excellent information. It is amazing and wonderful to visit your site.
big data analytics consulting companies