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"If you say promotions can work five ways," says Clive Humby, chairman of dunnhumby, "then Clubcard tells us which way they work, and even if they work at all."

For nine years, Humby's company has been analysing data from Clubcard, Tesco's loyalty card, which tracks four out of every five pounds spent in store. The core purpose of Clubcard - to reward Tesco customers for their custom four times a year - remains unchanged and is, as all staff are trained to understand, "to create value for customers to earn their lifetime loyalty". But Clubcard now has a much richer store of data that can be used for more than direct marketing.

And in the past two years that data has been able to answer a straightforward question: do promotions work?

Humby defines his five types of promotion as: you get the same product for less cost or with an extra bonus; if you buy more of it, we discount the price; try switching brands; trade up to a premium brand; or try something entirely new. With around 8,000 new products landing on supermarket shelves every year - and 45,000 items already in store - knowing which one could usefully be promoted can make an enormous difference to suppliers, Tesco and its customers.

The problem, says Humby, is that when you don't know your customers you can't measure how a promotion works. Without knowing who was buying the promoted product, why and what happened later, no one can be certain whether the doubling of short-term sales, say, is really a successful promotion.

Measuring a promotion only by its sales rate is a one-dimensional measure - it's just that in conventional retailing terms it's the easiest thing to record and compare. But that sales rate could be achieved only for the life of the promotion and will have no long-term effect on behaviour.

It could be that existing customers are simply stocking up, when what you really want is new customers to try the product. Or it could be bought by lots of customers, who all hate it and never buy it again. Without data, you can't see whether a promotion is working or why it failed.

The opportunity to look into each basket, knowing what the profile of that customer is and what that household prefers to buy, gives Tesco the capacity to minimise the risk of the promotions it runs. The transactional history of millions of customers bridges the gap between how customers think they act, reported through a selective research panel, and what they really do when they are shopping.

Today, through the Tesco Supplier Insight programme, Clubcard offers the data to suppliers while a promotion is running, aggregated to protect the anonymity of customers. Brands can then make their own analyses of the transactional information. More usefully, they can use Clubcard's analysis team and subsets of Tesco customers that answer specific questions - for example, to see how many "brand switchers" responded to a particular offer compared with the take-up from "brand loyalists". By taking part in the programme, firms can ask any question Clubcard data will answer, and dunnhumby provides them with a continuously updated set of results through a secure web page.

Less reliance on gut feel

It will trigger alarms when a particular sales level is reached - by, for example, sending emails automatically to the supplier. Internally, the effect for Tesco has been less reliance on gut feel. "As a company, we have moved from being intuitive to being analytical," says Tesco's marketing director of operations in corporate marketing Simon Uwins. "This is a more complicated business than it used to be. We don't forget our intuition, but better data leads to better thinking, and our data gives us the confidence to ask the right questions. You can have all the data you want, but the key is to use it to ask the right questions."

One question suppliers need to see the answer to is "does our promotional strategy work?" On the one hand, Tesco can simply say whether the promotional strategy has influenced the right people in the right way. On the other, it can also help it to decide how to support those promotions. Using its customer segmentation model, Tesco can now tell a brand which customers find its offer most relevant and where the return on investment is most likely to be highest.

By comparing that data to the magazines shoppers buy, the TV programming they watch and the radio shows they listen to, Tesco can advise suppliers whether or not they need television advertising at all, whether they need more of it and what the effect of advertising will be tomorrow, next week and next month.

Tesco and the Radio Advertising Bureau recently analysed the effect of radio advertising on 31 brands and found that it increased sales by an average of nine per cent. Using data such as this, Clubcard could create media packages that combine couponing, communication, pricing and media buying advice and will provide a predictable effect.

The downside for Tesco is that nothing stops suppliers from taking this insight and using it to help promotions in the other major supermarkets.

Its reward is to get the most important promotions first and to have more influence over which promotions are used in-store.

One idea encouraged by Tesco is for suppliers to create promotions that are useful for customer segments usually excluded from the promotional blitz: the less well-off, older couples or groups that prefer ingredients to pre-prepared food, for example. It has also reduced the overall number of promotions in Tesco stores in favour of fewer, more effective campaigns.

Tesco chief executive Sir Terry Leahy claims that no one at Tesco forgets the core purpose of the company - unless promotions are giving customers more of what they really want, they have no long-term purpose. He says that one result of Clubcard is that promotions will become more meaningful to shoppers, with fewer cynical or wasted efforts.

"You could sell our data to suppliers so they can discount products; then you're using it as a tool to sell more things to customers," Leahy says. "You can approach it that way, but we never wanted to. The end doesn't justify the means."

Scoring Points: How Tesco is Winning Customer Loyalty, by Clive Humby, Terry Hunt and Tim Phillips, is published by Kogan Page in November. Phillips is a business journalist who has written for The Wall Street Journal Europe, The International Herald Tribune, The Guardian and The Observer.