Page 172 - Marketing Management

CREATING LONG-TERM LOYALTY RELATIONSHIPS | CHAPTER 5 149

operates 4,300 stores in 14 countries, with a strong focus on
high-growth markets in Asia. The company has used the
same customer-centered strategies that worked in the United
Kingdom to expand into these new markets.
Tesco continues to diversify its product and service of-
ferings in order to reach more consumers. In the late 1990s,
Tesco launched its own ISP service, Tesco Broadband, to
provide Internet access to homes and businesses. During
the 2000s, the company partnered with existing telecoms
to create Tesco Mobile and Tesco Home Phone, a service
now used by over 2 million UK residents. Recently, Tesco
joined forces with the Royal Bank of Scotland to create a
banking division, Tesco Bank. In addition, Tesco offers in-
based on surance policies, dental plans, music downloads, and finan-
shopping habits. To build this profile, it cial services. One Citigroup analyst said the chain had,
classified each product purchased by a customer on a set “pulled off a trick that I’m not aware of any other retailer
of up to 40 dimensions, including price, size, brand, eco- achieving. That is to appeal to all segments of the market.”
friendliness, convenience, and healthiness. Based on their Tesco has accomplished this feat by creating three distinc-
DNA profile, Tesco shoppers received one of 4 million dif- tive Tesco-branded price ranges in order to appeal to every-
ferent variations of the quarterly Clubcard statement, which one: “Finest,” “Mid-range,” and “Value.” In addition, Tesco
contained targeted special offers and other promotions. has categorized its stores into six different formats, depend-
The company also installed kiosks in its stores where ing on where they are located and whom they are targeting.
Clubcard shoppers could get customized coupons. From largest to smallest, these stores include Tesco Extra,
The Clubcard data helped Tesco run its business more Tesco Superstores, Tesco Metro, Tesco Express, One Stop,
efficiently. Tracking Clubcard purchases helped uncover each and Tesco Homeplus.
product’s price elasticity and helped set promotional sched- Throughout Tesco’s massive expansion, both globally
ules, which saved Tesco over $500 million. Tesco used its and through its product and service offerings, Tesco has
customer data to determine the range of products and the stayed true to the importance of its Clubcard loyalty pro-
nature of merchandising for each store, and even the location gram. Consumers can now earn points on their Clubcard
of new stores. Within 15 months of introduction, more than every time they shop at a Tesco store, use one of Tesco’s
8 million Clubcards had been issued, of which 5 million were services (Tesco Mobile, Tesco Home Phone, Tesco
used regularly. Tesco’s customer focus strategies enhanced Broadband, Tesco Credit Card, or Tesco Financial), or use
by the Clubcard helped propel Tesco to even greater success one of Tesco’s partners’ services. During the recent world-
than in the early 1990s. The company’s market share in the wide recession, Tesco helped trigger spending through spe-
United Kingdom rose to 15 percent by 1999, and that year cial loyalty promotions such as double reward points.
other British companies voted Tesco Britain’s most admired During a double points promotion, consumers receive 2
company for the second year in a row. points for every £1 spent. For every 100 points, consumers
In the following years, Tesco continued to apply its win- receive a £1 voucher good for any Tesco product or service.
ning formula of using customer data to dominate the British In 2009, Tesco’s profits reached £3 billion, which
retail landscape. Tesco moved beyond supermarkets to “big- resulted in £59 billion in revenues. Today, it is the largest
box” retailing of general merchandise, or nonfood products. British retailer measured by both sales and market share
This strategic growth not only provided additional conven- (30 percent). Based on profit, it is the second largest
ience to consumers who preferred shopping under one roof retailer in the world after Walmart.
but also improved overall profitability. In 2003, the average
Questions
profit margin was 9 percent for nonfood products versus
5 percent for food and nearly 20 percent of Tesco’s revenues 1. What’s next for Tesco? Where and how can it grow?
came from nonfood items. That year, the company sold more Who will it target?
CDs than Virgin Megastores and its apparel line, Cherokee,
2. How can Tesco take its customer loyalty programs to
was the fastest-growing brand in the United Kingdom.
the next level?
Tesco continued to conduct extensive customer
research with telephone, written surveys, and customer pan- Sources: Richard Fletcher, “Leahy Shrugs Off Talk of a ‘Brain Drain,’” Sunday Times (London),
January 29, 2006; Elizabeth Rigby, “Prosperous Tesco Takes Retailing to a New Level,” Financial
els to extend its lead in the grocery market. By 2005, the
Times, September 21, 2005, p. 23; Laura Cohn, “A Grocery War That’s Not about Food,”
company had a 35 percent share of supermarket spending in BusinessWeek, October 20, 2003, p. 30; “The Prime Minister Launches the 10th Tesco Computers
the United Kingdom, almost twice that of its nearest competi- for Schools Scheme,” M2 Presswire, January 26, 2001; Ashleye Sharpe and Joanna Bamford,
“Tesco Stores Ltd,” paper presented at Advertising Effectiveness Awards, 2000; Hamish Pringle
tor, and a 14 percent share of total retail sales. Tesco sought
and Marjorie Thompson, Brand Spirit (New York: John Wiley & Sons, 1999); Hannah Liptrot, “Tesco:
growth overseas in the mid-2000s and today, the company Supermarket Superpower,” BBC, June 3, 2005.