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Tesco’s relaunching of its Clubcard into gold, silver and bronze

tiers this summer comes as no great surprise.

It was four years last February that Britain’s biggest supermarket chain

started its loyalty card scheme, and now, with 14 million members and a

bulging database of customer information, it makes perfect sense to use

that information to refine Clubcard and reawaken interest.

Naturally, Tesco is keeping its cards close to its chest, but it is

likely that by June members will be banded into three streams, with the

top band the most generously rewarded in points, holiday vouchers and

money-off incentives tied to stores such as B&Q.

The only surprise in all this, according to Lawrence Anderson, group

consultant at WWAV Rapp Collins, is that it has taken Tesco - and the

other supermarkets - so long to do what airlines have been doing for

years, rewarding and retaining the best customers with aggressive

marketing.

’Boardrooms have been dismal about bonusing habitual buyers,’ he

says.

’Now, at last, they’re tiering, creating a programme geared to

incentivising their ’ultra’ customers.’

This ’ultra’ band is crucial, says Anderson, not only because they’re

the top 20% of customers contributing 80% of profits, but because they

also buy the high-margin products.

But while British Airways’ frequent flyers’ programme can exploit the

cachet of business travel, it’s arguable whether this strategy would

work in the more democratic world of supermarkets. One trial in the US

gave top customers an express checkout, but they preferred the anonymity

of queuing with everyone else.

Another danger is that it will alienate customers who are awarded the

bronze and not the gold card, and, says Barry Wright, director of

loyalty consulting at ICLP, may appear to be slightly Orwellian in

nature.

’They mustn’t make it look like, ’We’re watching you and we know just

what you put in your shopping bag last week’. But if it’s done well, it

can only add value,’ he says.

What’s more, the cleverer retailers such as Tesco and Boots use their

card data to support regular personalised mailings (around 36 million

annually by Tesco) which lets them tailor products to individuals

discreetly.

’You aren’t making a public demonstration of your offer, so alienating

less pampered customers won’t be a problem,’ says Simon Hay, client

services director at database consultancy Dunn Humby. ’What it will mean

is that a customer with more product holdings will be offered a lower

rate of interest on their mortgage, and there’ll be a greater difference

between the paper rate and the individual rate,’ claims Hay, who has

been analysing Tesco’s data since Clubcard was launched.

Natural evolution

In fact, most sector watchers claim segmenting membership is not only

the inevitable next development for all loyalty cards, but a revamp is

essential to maintain motivation: witness the drop in participation

levels among holders of BP/Mobil Premier Points scheme cards, which,

according to a recent Carlson report dived from 9% to 6% of all adults

in three years (Marketing, January 21).

If the percentage of customers swiping their cards falls, the quality of

data drops and the huge loyalty card investment becomes an unsustainable

drain, says Marcus Evans, chairman of Bates Communication, which works

on Safeway’s ABC account.

The cleverer the card, the better the chance of using data in a

constructive way. On this front it’s Boots’ Advantage card that’s

leading the way.

A late starter (it came on line in September 1997) and now with ten

million members, this is a smart card, which means information on the

customer is carried within a chip on the card itself.

Within three years, supermarkets claim they will all use smart card

technology, but meanwhile, it means Boots is able to do what others,

constrained by primitive magnetic strip technology, can only dream

about.

For instance, interactive kiosks have been on trial at Boots in

Warwickshire for the past six weeks, allowing shoppers to see which

offers are relevant to them in their store.

Competitive Advantage

’The Advantage Card helped us understand customers very intimately; we

know that we can make a connection with new parents and photo films, for

example. Now we can communicate directly with new parents and point them

toward offers in the photography department,’ says Boots communications

manager Priscilla Dawson.

Exploiting known shopping habits is all about encouraging good customers

to expand their shopping portfolio and buy more high-margin products

that they may not previously have considered.

For Safeway, the quality of ABC card data has added another dimension to

buying decisions. According to Stephen Taylor, sales and marketing at

First Call, and formerly in charge of Safeway’s programme, customer

value has joined volume and margins as factors in retail buying

decisions.

’The ABC card let us see who was buying what, so a young mum with kids

and 30 years’ shopping ahead of her is a high-value customer.’

Marcus Evans agrees: ’To feel loyalty is emotional, not rational, so

offers alone won’t keep customers coming back. It’s about using

information to ask your customers how they feel about you and changing

to meet their changing needs, not the other way around. Keeping a

valued, but not always high-value, product may be the difference between

keeping and losing a regular customer.’

But no one would argue that there’s a high price to pay for extracting -

and analysing - this valuable information. The question is, can it be

sustained?

According to Anderson, the answer is yes: ’No grocery chain will risk

abandoning loyalty cards,’ he claims. ’But they’ve been unhappy about

the cost and the impact on the bottom line. In some cases it has

impacted by 5%-15% on profit in some years, a significant factor. The

pay-off for Tesco has been that Clubcard has helped it overtake

Sainsbury’s.’

Nevertheless, we’re all promiscuous users of so-called loyalty cards

and, as the decline in the use of BP/Mobil Premier Points clearly

illustrates, the supermarkets will now have to work harder than ever to

keep us all swiping - and giving them that all-important peep into the

private lives of our purses.

HOW THE SCHEMES WORK

Sainsbury’s Reward Card

Established June 1996. 13 million mag stripe cards issued. Holders

receive one point for each pounds 1 spent; after 250 points they receive

a voucher worth pounds 2.50 off bill. Other redemption options include

Air Miles and Arcadia stores. 300 points for a one litre Baileys Irish

Cream is one current special offer.

Tesco Clubcard

Set up February 1995. 14 million mag stripe cards issued. Holders

receive one point for each pounds 1 spent. Each quarter they receive a

mailed statement plus vouchers which convert each point into 1p off.

Points can also be accrued through a credit card and a debit card. Till

redemption is the only option.

Safeway ABC card

Set up in October 1995. Ten million mag stripe cards issued. Holders

receive one point for each pounds 1 spent. Points can be redeemed for

products, in-store services, money-off shopping or third-party deals.

Parents with babies under one year receive 10% off bills up to pounds

1000.