Tesco: the game-changing initiatives it is making cuts to fund

Will Adams, senior strategic planner at marketing agency Zeal Creative says value is the retailer’s big strategic priority right now, and while this is not new, it is investing in new value initiatives that are giving it a competitive advantage.

“Tesco is willing to drive forward with key new initiatives like Aldi Price Match and Clubcard Prices, even though there was no guarantee of success, in order to improve their value perception and keep shoppers from needing to go elsewhere.

“This is now paying even larger dividends as inflation rises in the UK and customers seek value more and more.”

Aldi Price Match, launched by Tesco in March 2020, was designed to woo customers back from the discounters – and it’s worked. Although the grocer believes it has made the bulk of its market share switching gains from Asda and Morrisons, Aldi is next on the list.

The grocer said it had made around £10m of switching gains from Aldi in the first half of its financial year to 28 August.

The retailer has since extended the Aldi Price Match to cover 650 products.

Tesco Clubcard

Tesco’s Clubcard loyalty scheme has also proven successful with customers and the supermarket is clearly keen to leverage this success through its newly launched Clubcard Pay+, a new debit card giving its 20 million Clubcard members shoppers the opportunity to allocate and budget grocery spend at the retailer.

Achille Traore, chief executive at the loyalty and marketing platform White Label Loyalty explains that whilst most retailers focus on how to get customers to take part in loyalty programmes, Tesco’s bold move to make Clubcard and non-Clubcard members pay different prices has made it almost foolish to not sign up.

“This strategy creates loyalty in customers who no doubt want to pay less, but an even more compelling benefit lies in what it allows Tesco to do with data,” says Traore.

“The Clubcard scheme has given Tesco a huge ‘data bank’ of insights into customer behaviours, helping the supermarket to make the entire shopping experience more effective by ensuring they are offering the right products at the right prices.

“What’s more, the loyalty programme essentially feeds itself – customers use their cards to get members-only prices, and Tesco uses transactional data to create more valuable benefits to shoppers ,which in turn makes them more loyal to the brand.

“Such data can also feed future strategies for the supermarket, such as new product development, promotional campaigns, and supply-chain forecasting.”

With each purchase linking to a specific customer loyalty card and profile, Traore says that the success of the Clubcard shows the market how to use technology to gain an advanced understanding of how customers behave across stores and online, and has ultimately positioned Tesco as a leader in the digital loyalty space.

Online shopping

Tesco also saw its online sales rise a whopping 64.4% across Christmas and is clearly expecting ecommerce to remain strong even after customers return to post-pandemic normality.

One million new customers used Tesco online during the pandemic, and the retailer said that 700,000 of them are still using its online service.

Ben Davies, insights partner at Econsultancy, part of the Xeim Marketing Group, says  it’s clear that customers want to buy groceries online and that Tesco has been very good at articulating the value of the multichannel shopper.

“Go back to 2014 and then group multichannel director Robin Terrell said customers who shop in store and for food online spend twice as much as those who shop in store only. That is not just because they are spending online; these customers are spending more in store too.”

“Though 2014 is not the distant past for Tesco – click-and-collect, for example, was available in 230+ locations then, compared to 400+ now – it is still impressive that it fully recognised the ongoing impact of smartphone penetration and more complex customer journeys.”

Davies explains that since then, new products such as the digital Clubcard have made the multichannel experience and proposition stronger and with so many of the retailer’s promotions now linked to Clubcard, it’s easy to see how all that first-party data and millions of app users puts Tesco in a strong position to cater for customers however they shop.

It is investing to make sure customers have a wealth of opportunities to choose how they shop. It has opened a second urban fulfilment centre in Bradford last month, rolled out its one-hour Whoosh delivery services to 50 stores and now does speedy delivery by Deliveroo at 450 branches.

These initiatives are paying off. Its online sales were a whopping 58.7% higher than pre-pandemic levels in the golden quarter with around 1.2 million orders each week. It also achieved its highest online share since the pandemic began over the quarter.

The results of Tesco’s focus on price, online and its game-changing loyalty scheme are plain to see. The grocer is winning new customers, and stealing share.

It is little wonder it is being forensic with other parts of the business that are not driving similar results in order to find savings it can plough into these high reward initiatives.