Tesco PLC British-based international grocery and general merchandising retail group. The company is the third largest retailer in the world measured by profits, has over 6,500 stores and employs more than 475,000 people.
Like most companies, one of Tesco’s priorities was to gain better insights into their customers and develop a way to measure and track the shopping habits of the people using their stores.
Tesco introduced its loyalty programme called Clubcard as the main tool to measure customer behaviour back in 1994. However, while it was introduced as a loyalty scheme, the main premise underpinning the Clubcard was to gain insights to help Tesco improve the way it runs its business.
Experts agree that loyalty schemes that are only used to target customers with discounts and offers are ultimately self-defeating. However, it was the potential to generate competitive advantage from the data that made senior leaders in the company back the idea.
Today, Tesco operates one of the most successful loyalty programmes ever created. With over 16.5million users the Clubcard scheme allows Tesco to collect detailed transaction information on two thirds of all shopping baskets processed at their tills. For the scheme to remain useful, it was critical that Tesco was able to turn its data into customer knowledge it could act on.
The power of analytics
The ability to collect and analyse data has transformed Tesco from a company that thinks it knows what customers want to one that has the knowledge and insights into what customers prefer and how these preferences keep shifting over time. During his time as CEO, Sir Terry Leahy, said "We don't spend a pound or dollar on a store without talking to our customers - They are the best management consultants."
Mastering the data through partnership
Many of Tesco's competitors abandoned their loyalty card schemes and argued that analysing all the data would be madness. When Tesco started with the Clubcard scheme it decided to outsource the data analysis to dunnhumby - a company that specialises in data analysis. Tesco realised it didn't have the skills to systematically analyse mass data and therefore left it to dunnhumby to develop the strategy for the data analysis. Later on Tesco, realised the strategic importance of the analysis capabilities and decided to buy thecompany. Today, dunnhumby is wholly owned subsidiary of Tesco that delivers customer insights to the business as well as to other brands across the globe.
Experiments as a Way of Life
In its quest for more fact-based and data-informed decision making, Tesco ensures it uses its customer data to run experiments to test ideas before implementing them on a wider scale. The performance data plays a vital role in this process and has enabled Tesco to take new ideas and offers to smaller groups of customers while using the remaining customers as control groups.
This takes a lot of risk out of innovative ideas. In many ways the performance and customer data has become a powerful test bed to analyse whether new ideas work or not. Clive Humby, Terry Hunt, and Tim Phillip recall that Tesco's performance information, especially its Clubcard data, is not just about passively observing trends, it is a massive laboratory of customer behavior: "When it was doing something wrong, it knew about it in days. When it was doing something right, it could implement it nationwide in weeks."
Simon Uwins, Tesco's marketing director at the time, said: "As a company we have moved from being intuitive to being analytical. This is a much more complicated business than it used to be. We don't forget our intuition, but better data lead to better thinking, and our data give us the confidence to ask the right questions. You can have all the data you want, but the key is to use them to ask the right questions."
For example, Tesco is now able to conduct experiments to understand whether new product lines, innovative offers and price reductions have the desired effects. Using its customer data allows Tesco to track the response immediately, which takes a lot of guess work out of business decisions.
Ideas and insights you can steal
Tesco was able to find a powerful new way to measure and track customer behaviour using the Clubcard tool. Today, every company has access to new ways and tools to track what customers (or potential customers) are doing. Tesco also realised the importance of building (or in their case acquiring) the competencies to turn data into insights, every company needs to invest in their analytics capabilities now. Finally, Tesco has successfully created a culture in which data-driven decisions are valued and where experiments are a way of life. This is again something every company should start doing.
Bernard Marr is a bestselling author, keynote speaker, and advisor to companies and governments. He has worked with and advised many of the world's best-known organisations. LinkedIn has recently ranked Bernard as one of the top 10 Business Influencers in the world (in fact, No 5 - just behind Bill Gates and Richard Branson). He writes on the topics of intelligent business performance for various publications including Forbes, HuffPost, and LinkedIn Pulse. His blogs and SlideShare presentation have millions of readers.