Consumer research giant Nielsen is poised to bid for Dunnhumby, the operator of Tesco‘s Clubcard loyalty scheme. There‘s been a flurry of interest in the sale of late, with several buyers rumoured to be throwing their names into the ring.
Despite Dunnhumby having a number of clients the Tesco Clubcard programme is a significant aspect of the business and there are perhaps a number of challenges around the programme that the successful bidder needs to tackle to guarantee its long-term success.
Tesco hasn‘t changed its Clubcard scheme significantly since its last major relaunch in 2005, but the sector has evolved considerably since then. The public seemed to have been falling out of love with loyalty cards for some years now, with GI Insight reporting that while 94% belong to at least one loyalty scheme nearly half have never actually used them, so the new buyer will have to work with Tesco to reinvigorate the scheme and make it more relevant to today‘s consumer.
These days rewards need to be tangible, in that customers need to know exactly what they‘re getting for their loyalty, and this is an area where Tesco must improve its offering. The challenge with points-based programmes is how to continue rewarding points at a level which is interesting to the consumer but not prohibitive to the margin. They can still work as long as retailers equate points to products to make them real, but cash remains the winner.
Gone too, are the days of gamifying shoppers to spend hundreds in pursuit of a small prize – the modern consumer is well versed in distinguishing the difference between a real deal and an attempt to dazzle them with something that will always be out of their reach, or requires too much of an investment to be of value.
Over the past 12 to 18 months we‘ve seen an increase in ‘freebies‘ schemes such as Waitrose‘s free coffee for customers, proving that rewards can be soft as well as hard. This offer worked wonders for customer perception, but it‘s worth urging caution as it was also reported in the media this week that Waitrose lost £150,000 as a result of customers abusing the scheme by picking up extras for their friends. So it‘s important to weigh up the benefits of simply giving away limitless product against potential losses.
That said, the biggest challenge facing the Clubcard scheme is digitisation. As a predominantly offline operation it currently takes months to prepare a personalised mailing, and this makes it unfit for purpose in an era where consumers are beginning to expect tailored offers in real time across web, mobile and email.
If the new buyer chooses to focus on one thing it should be taking the scheme digital, which will allow Tesco to deliver a more immediate, targeted proposition to individuals, wherever and however they shop, and increase take-up and loyalty as a result. In the long-term this will also give it the flexibility to trial different ways of operating, making it easier to adapt as and when consumer tastes change again in the future.
Andy Oldham, MD, Quidco