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UK: Tesco Clubcard goes contactless

If there is one program to which loyalty industry observers can point as beginning the retail loyalty revolution, it's U.K. grocer Tesco's Clubcard. Championed by Tesco executives Sir Terry Leahy and Tim Mason, and powered by the analytical skills of husband and wife team Edwina Dunn and Clive Humby, Tesco's Clubcard database provided the grocer with unprecedented insight into the shopping habits of Tesco's most loyal customers. With some grocers now questioning the wisdom of continuing to offer points in exchange for analytical insight, Clubcard continues to march on - most recently with a host of new features to provide a more frictionless experience for Tesco shoppers.

By Rick Ferguson

The new Clubcard, which officially launched last week, includes upgrades such as:

  • A new contactless Clubcard, which allows members to tap the card at checkout to earn points on purchases instantly.
  • A new mobile app that allows new customers to join Clubcard immediately upon downloading the app, and existing customers to access their vouchers immediately at the point of sale.
  • A host of new earn partners added to a list already 400 partners strong.
  • Tesco stores will be staffed with 2,500 "Clubcard Champions" to help in-store shoppers understand the changes.

Money quote from Chief Customer Officer Alessandra Bellini, from the company press release:

"Tesco Clubcard is one of the most uniquely helpful things we do and it's our way of saying thank you to our customers for shopping with us. We've listened to customers and we're delighted to have made Clubcard even simpler and easier to use, introducing a brand new contactless card, an upgraded Clubcard app, and added to our list of partners too. Clubcard is the most rewarding loyalty scheme in the sector and we're looking forward to seeing how customers respond to the improvements."

Not every UK grocer believes in the power of loyalty marketing; deep discounters Aldi and Lidl have been eroding sector margins for years, leading to rampant price wars and the highest share of food volume sales on promotion in Europe. Waitrose famously eschewed a points program in favor of simple promotions such as their famous free cup of coffee for loyalty program members - until the promotion became so costly that the grocer was forced to add a purchase requirement to the free cuppa offer.

Despite the holdouts and naysayers, Tesco still leads in UK sector market share, with number two grocer Sainsbury's benefiting from similar analytical insight via the Nectar coalition program. Despite Tesco's success with Clubcard, some analysts continue to call for the grocer to slash or eliminate Clubcard funding; in 2014, HSBC analyst Dave McCarthy famously called for Tesco to eliminate Clubcard, claiming that the grocer's estimated £500 million program investment per year could not possible pay out. "Abandoning Clubcard would give Tesco extra firepower and allow it to use its resources across a wider market, and not just targeting Clubcard holders," McCarthy said.

The ignorance of the fundamental purpose of loyalty marketing on display by McCarthy in this quote is rather breathtaking. It is precisely Tesco's Clubcard focus that allows them to target their discount dollars where they can do the most good; their analytical prowess allows them to target their promotions by customers' predilection to buy. Abandoning their program would force Tesco to spread those discount dollars across their entire customer base, from their least profitable and most disloyal customers to their most profitable and most loyal ones. They'd be competing solely on price with Aldi and Lidl, but without those competitors' low overhead.

Fortunately, Tesco ignored McCarthy's advice, and continues to enjoy both the UK market share lead and the healthiest margins in the business - thanks at least in part to their investment in Clubcard. Indeed, with the launch of these new frictionless benefits, the grocer has now demonstrated their commitment to Clubcard, and to the return on their investment in loyalty.

No one claims that a grocer loyalty program is a shield against any and every downward market trend; in the US, Kroger has made a similar investment in retail analytics, and now finds its unprecedented 13-year streak of same-store sales gains ending under price pressure from Amazon and Walmart. Investment in loyalty doesn't make a business immune to market forces. What the loyalty investment allows is a hedge against those downward trends by demonstrating loyalty to the grocer's best customers. Tesco is a prime example of the power of loyalty marketing - and a testament to its enduring value to retailers.

Rick Ferguson is Editor in Chief for the Wise Marketer Group.
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