Thursday, December 8, 2011

Tesco Clubcard - Metrics and Success Factors

Getting back to this subject after a really long break. In the first part on this subject, we reviewed Tesco’s loyalty program and the types of business decisions aided by the Clubcard. The Tesco crucible 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

Tesco then uses this information for a number of business benefits such as:
1. Loyalty
2. Cross Sells
3. More optimal inventory and store network planning
4. Optimal targeting and marketing of manufacturer’s promotions
5. Generating customer insights and marketing those insights

The link to the previous article that details out these points is here

So what else goes into making this program successful?

Metrics
One important factor is the metrics used by Tesco to measure success. Primarily two metrics. The first is the change in share of wallet. Based on demographic information collected, Tesco has an estimate of the total spend of that household. Based on that estimate, a share of wallet can be computed based on Tesco sales. This is of course an estimated measure, but given the right kinds of assumptions, not a particularly ambitious estimate to make.

(The key here is make sure the estimates are generated in an unbiased manner. An estimated metric is always prone to manipulation. For instance, a small increase in unit sales can be projected to be a larger increase in share of wallet, by manipulating the projected overall spend. This problem can be avoided if the estimation is done by an independent group that is incentivised to get its estimates right and not as much on the volume of sales. This is the role of Decision Sciences groups found in many organizations.)

A related measure of share of wallet is the number of purchase categories into which Tesco has penetrated. Remember that Tesco is present in many purchase categories such as groceries, apparel, durables, banking products, vacation packages, insurance, auto sales, pharmacy products, gas, etc. Effectiveness of the Tesco brand is realized when the customer begins to use Tesco for multiple product categories. So that is a useful metric to track, both as an indication of overall profitability as well as marketing and cross-sell effectiveness.

The second main metric being measured is just pure customer behaviour from a frequency standpoint. How is the company changing the frequency of visit of customers, and what sorts of visits are they getting from them? Of course, with the wide use of smart phones and the tracking devices which are inherent in these phones, it is possible to gather a lot of spatial and temporal information such as: Which store? Duration of the visit? At what time of the day or week?

Other Success factors
No company can maintain sustained growth and profitability on the strength of purely analytics without addressing the human face of the analytics - in other words, the customer service aspect. Tesco management was clear to convey the message to the store staff that the Clubcard program was an important value-add for customers and hence an inherent part of customer service. That it wasn’t fundamentally manipulative. This was done through a communication program that was rolled out across all stores and that involved every store employee of Tesco.

The other important success factor that was critical was management vision. Many organizations tend to see these programs as cost drivers  and strive to minimize cost while maximizing customer satisfaction, often conflicting goals. But the Tesco management was clear about the ultimate goal of the Clubcard which is to drive loyalty. What also helped was the breadth of vision that allowed for multiple revenue streams from the ClubCard program that were not directly related to the core idea of give-back to the customers and loyalty benefits.

Another philosophy that the Tesco management employed fairly successfully was test-and-learn. Most of the major improvements and enhancements were first piloted in smaller stores. Extremely rigorous measurement mechanisms were then employed to make sure that the right inferences were drawn from the test.

Overall, the key realization was that the Clubard program is not just an electronic sales promotion, but rather the entire business has to be physically re-engineered to be customer-insight led.

In my final piece, I will touch on the impact to the overall bottom-line - and the top-line benefits that came from the Clubcard program.

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