Why has Tesco's loyal card scheme been successful where competitors' schemes have not - Dissertation Example

? Tesco’s Loyalty Card Scheme Why has Tesco’s loyalty card scheme been more successful than its competitors? Owing to its success in recent years, Tesco has become one of the largest retailers of the world, fourth largest in the world and the largest one in the United Kingdom. It has over two thousand stores all over United Kingdom and has a wide range of products from everyday items of groceries to electric appliances to the mortgage market and even a clothing line. This indicates the level of diversity that this store has been into. The company does not target a specific niche; instead it has been very successful at capturing the mass market yet providing a customized approach to the masses. Thos customer centric and market oriented approach has helped Tesco become better than ever before, defeating all its competitors by making sure all their systems were intact. Its success involved its customer loyalty card which helped Tesco gauge customer interests, trends and ready-to-use market research that was in line with customer needs and wants. Surprisingly, when Tesco’s loyalty card scheme was thriving, other firms using the loyalty card concept were declining. There is no doubt about the fact that Tesco’s business model and effective strategies helped it raise its profits and give benefits to customers at the same time. Following is an analysis of Tesco’s success and the impact of the loyalty card scheme on it. (Dransfield, 2005; Trench, 2010) Research Question: Why has Tesco’s loyalty card scheme been more successful than its competitors? Objectives: 1) The aim of this research is to find out the reasons for Tesco’s loyalty card success 2) The secondary aim of this research is to see why the loyalty cards of competitors were unsuccessful 3) We also aim to find out how the loyalty card schemes have affected Tesco’s Revenues and Cash Flows. 4) The research will also focus on finding out strategies and the business model of Tesco (Marr, 2010; Gamble, 2006) Justification: This research will help us find out why even though the popularity of loyalty cards is reducing as a whole, Tesco is still doing well at maintaining their loyalty card success. Because of the fact that Tesco is a wonderful example of those companies who are benefiting greatly with the use of loyalty cards, by identifying consumer need and anticipating their demand by looking at past trends and regular patterns of buying. All customers who shop from there earn points for shopping and can later use those points for free shopping from any Tesco store. This helps gauge customers loyalty. On the other hand, Tesco itself makes sure that it shows its loyalty to customers too. Moreover, by classifying trends of consumers Tesco has been able to make huge profits even after giving benefits to customers. This mutual interest and benefit to both helps create a win-win situation maintaining loyalty of customers and raising company profits. In itself, this research, taking Tesco as a successful case of giving out loyalty cards to its customers will help analyze the circumstances in which loyalty cards actually work and whether it is worth giving benefits to customers in return for the information that they provide. Even though competitors like Sainsbury also copied this scheme of Tesco, it nearly failed because for first, Tesco had a first mover’s advantage in this industry, and it was known for being customer focused instead of product focused. As a result of this, customers were probably more inclined towards a company that positioned itself as a beneficiary for the customers, giving them benefits of the loyalty card along with excellent customer care which made them feel loyal towards the company. Along with the Loyalty card, the credit of this trust and credibility that Tesco had earned was also because of its efficient processes and fast paced technological improvements that helped it stay perfectly on track with the proficiently functioning supply chain. Thanks to the information from the loyalty cards and regular analysis of the quantitative and qualitative information loyalty cards gave, it was soon the most helpful technique for Tesco to figure out trends of customers. Not only this, it also obviously helped them predict future consumer behavior almost correctly. Modifying themselves according to the needs of the customers was what made Tesco a winner in this industry gradually and relatively very quickly. Even though they actually gave customers benefits as well, the profits they generated after a small spending on the loyalty cards and winning customers’ confidence was way more than the cost. (Gamble, 2006; McLoughlin & Aaker, 2010) Critical Literature Review: Tesco launched its loyalty card fifteen years ago earning points on which allowed customers free shopping according to the number of points they earned. After its introduction, sales of Tesco raised by over 28% and Sales of one of their greatest competitor Sainsbury reduced by over 16 %. Even though later loyalty cards were introduced by other companies as well, Tesco remains to be the Giant in Loyalty Cards support from its customers. However, another competitor of Tesco, Asda made a policy of not introducing Loyalty cards. Their concept was that instead of spending money and other resources on loyalty cards, the resources and finances can be diverted to reduce costs and give the benefits to the customer. (Trench, 2010; Agnihotri, 2010) It is an openly accepted fact that loyalty cards provide greater benefit to the company itself than it does to its customers. It has previously helped gauge buying trends and habits of customers such as linking their needs to their wants and creating a connection between them. For instance, one research showed that in America, it was seen that fathers of toddlers came to superstores to buy nappies mostly on Fridays. Seeing this trend, the store placed beer nearby and it was amazing to see that the sales of beer went up. The point being made over here is that, loyalty cards are a quick and simple way to estimate, rather nearly accurately about what kind of customers need what kinds of products and when will they spend how much on a certain product. Tons of information can be gathered from these cards helping the firm to make huge profits for a minimum amount of token points that people get for shopping which they can later spend happily for free. The power of the loyalty cards can be proven by seeing that around 85 percent of the people in America own loyalty cards of someone sort. This means that almost the whole population is under a constant survey of buying habits or changing trends. They not only help companies judge their current status but also judge their future production and cash flow cycles as well as other dimensions of finance. (Gamble, 2006; Haerifar, 2012; Trench, 2010) Even though it is not claimed that Tesco’s club card is entirely responsible for its success, other factors like a marvelous management team and technology orientation were also contributing factors. Tesco has its operations spread throughout the world and it is widely accepted that it would not have been able to achieve this position so quickly without the existence of its club card. Tesco has struggled long and hard to become the largest retailer in the UK beating Sainsbury which was previously number one. One significant factor that helped Tesco take up the number one position was that it followed the concept of market orientation, d=which can also be termed as mass customization in this case, catering to the needs of a variety of customers regardless of their characteristics. The loyalty card has helped them talk to the customers directly and intrude into their buying habits, which ultimately aids in making future plans as per past trends. Tesco’s club card is known as the world’s best ‘thank you’ card making customers feel at home and providing them a stake in the company. Tesco has used appropriate resources over the years along with an effective supply chain management system incorporating information technology as well as practicality in its customer loyalty card, promoting and marketing it correctly aiming to improve customer experience. Tesco’s customer centric approach was what made it more successful than its competitors. In fact, Tesco’s club card is considered as a pioneer in loyalty cards, making Tesco known as a company that knows how these work to the advantage of the company effectively (Turner & Wilson, 2006; Humby, 2009). In a comparison of Walmart with Tesco as two successful companies in similar business, it was deduced that the two companies followed very different models. Walmart focused more on their relations with suppliers and having close contacts with them in order to keep their shelves filled with products that their customers need. Another important factor for them is reduction in costs and managing its supply chain to reduce costs. On the other hand, the model that Tesco works on revolves around customers and their requirements, understanding their needs and anticipating their future demands as well as linking their demands with potential related products that the customers might be interested to buy. One of the competitors of Tesco, Asda (now owned by Walmart believed that customers could only be attracted by offering them lower prices and their loyalty was not affected by marketing or promotion. According to Asda, the money spent or wasted on marketing could be spent on reducing costs which actually attract customers. Asda never adopted this customer loyalty card strategy and later had to face its consequences when Tesco became number one in this business (Gamble et al, 2006; Mutch, 2008; Tesco Website) Methods: Basically, what we are trying to find is the reasons for Tesco’s Loyalty card success despite the fact that over the past 5 years, this trend has been reducing because of saturation in this market. The quantitative information regarding any survey can be gathered by the results from loyalty cards however for a research question like this one, it is very important to gather qualitative information which can be gathered through primary research. To begin with, first of all, it is important to identify the target market and customers who use the services of Tesco. Next, it needs to be decided how information needs to be gathered from those customers. There are several ways to gather primary information about customers. They can include general observation, interviews, questionnaires, focus groups, mystery shoppers, hall tests and e-polls. For this particular survey, since we are trying to find reasons for Tesco’s success and its correlation with the loyalty card, we need detailed qualitative analysis from which it can be deduced. For details and in depth information, it will be necessary to directly talk to the customers, as their feelings, gestures and spontaneous responses are what will be needed to meet the targets of our objectives and research question. For this purpose, the best thing is to take interviews of customers while they are shopping at the store. Interviews will help in finding out why people prefer Tesco in comparison with others, and whether it is the loyalty card that is the reason. For Tesco being the first preference of the customers. Moreover, focus groups can be carried out which even though cumbersome, they can help gather detailed responses from which probing questions can be asked to evaluate the customers’ feelings and desires (Stapleton and  Thomas, 1998; McLoughlin & Aaker, 2010) In today’s world, internet is a very good, quick and easy option to find out all kinds of information required. It will make it easier to identify target population and to see who uses Tesco. Those people who come under the category of Tesco users can then be contacted via e-mail or other ways over the internet and telephone to provide information that is needed to complete the survey. A similar but more detailed interview guide could be uploaded where people who are direct users can fill in the forms and their data can be easily accessed as well as conveniently collected. People can also be contacted over the phone if they are willing to give a telephonic interview. In these kinds of situations however, it is going to be very helpful to pinpoint the right people for a focus group of around 8-10 people from different categories like gender, age group or geographical location to contribute their input into the focus group session. This will make it more detailed and provide more information for analysis. It may also bring up more ideas or elements that had not previously been considered. Hence, 3-5 focus groups will be very helpful in the purpose of analysis (Fernie, 2004; Plunkett, 2006). Timescale and Resources: Since it is qualitative information that is needed, it will require more time to be analyzed and evaluated. It is relatively more difficult to give qualitative information in a meaningful way. Moreover, it depends on the approximate number of target market elements from which a sample will be taken which has to be a representative sample, at least representing 30% of the population with relatively lower standard deviation in order to ensure accuracy. In developing the research, Considering that the work will begin in July 2010, the first thing that needs to be done is to identify the target population and choose a certain sample from amongst the people available, who will be shoppers at Tesco. It will be a longitudinal survey, conducted at different times of the day and on different days of the week to make sure that information can be gathered from all kinds of individuals, that is working people, teenagers, old people, women and children. After identifying this, the interview guide needs to be designed, which will help in asking related questions to the respondents of the survey. This guide can include open ended questions like: What is the best feature of Tesco store? Why would you choose Tesco over other stores such as Sainsbury and Asda? Do you think the loyalty card is an important element of Tesco’s success? If yes then how? Why do you think is Tesco’s loyalty card considered as a reason for its success? If other companies gave you a loyalty card with better opportunities and lower cost, would you switch from Tesco to the other company? Since we are looking for customers’ views, we need to have mostly open ended questions in this survey. After making the interview guide, it needs to be pilot tested in order to confirm its authenticity and impact. Then the survey will begin by interviewing customers at different Tesco stores in different geographic locations if possible, to ensure that the sample is not biased or restricted to a certain category of people. After the results have been collected which is going to take a long time that is around 3 months in data gathering, the greatest time will be spent on the analysis of data that has been gathered. As mentioned before, it is going to take a longer time in evaluating qualitative responses and dividing them into categories. 5 months will be required to analyze this data and the last month that is, April will be spent on making the final report and presentation of the data gathered from the survey in both qualitative and quantitative forms, including statistical measures as well as qualitative analysis (Dransfield, 2005; Rafiq & Fulford, 2005) Bibliography AGNIHOTRI, R. 2010. Effective Sales Force Automation and Customer relationship management. United States. Business Expert Press, LLC. DRANSFIELD, R. 2005. GCE AS Level Business Single Award for OCR. Great Britian. Bath Press Ltd. FERNIE,J. 2004. Logistics and Retail Management: Insights Into Current Practice and Trends. London: Clays ltd. GAMBLE,P et al. 2006. Up close and Personal. Customer Relationship Marketing at work. United States. Thomson Shore Inc. HAERIFAR,P. 2012. Knowledge Management Within Tesco. London HUMBY, C et al. 2009. Scoring Points: How Tesco Continues to Win Customer Loyalty. London. Kogan Page Ltd.   MARR,B. 2010. The Intelligent Company: Five Steps to Success with Evidence-Based Management. West Sussex: John Wiley & Sons ltd  MCLOUGHLIN, D and. Aaker, D. 2010. Strategic Market Management: Global Perspectives. United States: John Wiley & Sons. MUTCH,A. 2008. Managing Information and Knowledge in Organizations: A Literacy Approach. New York. Routeledge. PLUNKETT, J. 2006. Plunkett's Retail Industry Almanac 2006: The Only Complete Reference To The Retail Industry. RAFIQ, M & FULFORD,H. 2005. Loyalty transfer from offline to online stores in the UK grocery industry. International Journal of retail and Distribution management. 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