Analysis of Customer Relationship Management in Tesco - Case Study Example

Relationship Management Introduction relationship management (CRM) is not an entirely new concept but has received renewed interestfrom researchers in the age of information technology. One of the most notable attempts to describe CRM is to consider it as a one-to-one marketing process (Kumar, 2010.). In consequent research work the concept has emerged considerably and now it means combination of multiple forces like people, technology and process employed by a company (Chen and Popovich, 2003). The basic idea of CRM can be explained on the basis of two main concepts: the first one is retention of the existing customers and the second one is to develop the relationship with the existing customers (Chen and Popovich, 2003). It has been pointed out that maintaining good relationship with the customers helps in increasing the profitability of the company by making customers more loyal to the brand (Liang and Wang, 2007). Analyzing CRM of Tesco is the prime objective of this paper. The analysis of the existing CRM framework will be helpful in identifying the existing strengths and weaknesses and devise strategies to improve them in the future. Customer relationship management: Theoretical Framework In the marketing literature a plethora of work has been dedicated to the improvement of customer relationships of companies. The literature identifies that there are four major type of theories rooted in psychology that shapes the CRM namely attraction theory, social exchange theory and equity theory. Social exchange theory has been one of the most popular approaches that guide CRM as customers seek to establish a reciprocal relationship with the companies based on trust. The research conducted by Liang and Wang (2007) had pointed out that maintaining good relationships with customers helps retailers to create a positive impression in their minds. It is now being increasingly realized that developing CRM is based on the idea of mutual trust and can make customers more loyal. The research conducted by Crosby (2002) is particularly insightful because it has been successful in uncovering few common myths that surround CRM. His research suggests that CRM is not just about application of information technology but it is a customer relationship marketing technique which begins by segmentation of customers before establishing one-to-one relationships. The critical success of the CRM depends on the efficacy of the leadership team and the way it decides to implement this strategy. In case of the retail market, the research conducted by Moon (2000) shows that consumers only reciprocate in a positive manner to the efforts of the retailers if they find that the retailer is competent enough to meet their expectations. A similar sentiment has also been echoed in the research of Alexander and Turner (2001 cited in Claycomb and Martin, 2002) who had established that the intensive competition in the retail industry is mainly countered by developing good relationships with customers. Statistics indicate that the amount of expenditure incurred in CRM by retailers had crossed the £3.6 billion mark just prior to the recession in 2007 and this was considered as a 14% increase from the previous year (Hassan and Parves, 2013). In a recent research conducted by Morgan and Hunt (1994) the relationship between market profitability and the return from the CRM investment of retailers was investigated and it was shown that investing in CRM is directly proportional to the profitability. Researchers have also shown that in case of retail industry maintaining high level of service quality is important to ensure that CRM is successfully implemented (Kotorov, 2003). Apart from these factors the quality of the products and that of services provided by the store personnel have also been found to be of critical importance for retail stores (Arnold and Reynolds, 2003). Researchers like Kotler and Armstrong (2013) had observed that if organizations follow CRM then they can significantly reduce their operational cost and improve customer loyalty which in turn raises profitability. Company Profile There is no denying the fact the Tesco has established itself as one of the most successful retail chains in the global retail industry. The company mainly operates from the U.K. and has acquired number one position in the domestic market of the country. Globally it is in the third position. The company had inaugurated its first store in 1929 and presently has expanded operations into 12 countries with more than 5000 stores spread across three continents (Tesco, 2013). Tesco had adopted two main strategies when the U.K. market had become saturated namely, diversifying its existing range of products and expanding into foreign markets which primarily began from the decade of 90’s (Innovation Leaders, 2014). The company has a business portfolio that extends from grocery retailing on one hand to electronics, petrol, clothing and books on the other hand (Innovation Leaders, 2014). Tesco has also ventured into service sector and the services offered by the company involve telecommunication, financial and internet services (Tesco, 2013). Innovation is in the core culture of Tesco and the company has successfully introduced a number of innovative store ranges according to the requirements of the customers. For instance, there are Tesco Metro Stores designed for the metropolitan areas, Tesco Express attracting convenience consumers frequenting petrol stations and virtual stores catering to the online customers. As of 2013, the annual sales of the company has been reported to be £72.4bn which is a 1.3% increase compared to the previous year. The profit before tax of the company has been estimated to be around 14.5% (Tesco, 2013). Analysis of CRM in Tesco Management of customer relationship is a priority for Tesco. The strategies that had been adopted by the company over the years clearly indicate that the company has been ahead of its key competitors in terms of dealing with customers. Tesco had strategically framed its CRM policies to build a long-lasting relationship with the customers. Firstly, the company had introduced Loyalty cards for its customers under the Club Card scheme of the company. This was introduced mainly to improve the service benefits of the customers (Cuthbertson and Laine, 2004). The introduction of Loyalty cards by all major retailers has been described as an attempt to transform mechanical data on consumer behaviour into ever-lasting consumer relationships which eventually turns frequent customers loyal who value the mutual trust (Rafiq and Fulford, 2005). According to the research of Buttle (1996), loyalty cards have proved to be beneficial for retailers for three main reasons namely less responsiveness of customers to changes in price, reduction in the expenditure of bringing in new customers and enhancing the profitability of the organization. Tesco Clubcards were introduced to provide not only reward points to the customers but also build a relationship of the customers with the brands. The major attempt of Tesco in establishing CRM began only in the decade of 90s. The concept of First Class service was introduced in 1994 and the One on front service came into existence in 1995. Customers were introduced to the various brands sold by Tesco with the help of their clubcards (Humby and Hunt, 2003). The clubcard option provided by Tesco has helped the company on three main fronts namely providing rewards, deals and integrated channels. Clubcards have helped Tesco immensely to understand the behaviour of their buyers beyond their immediate purchase from the supermarket. This is because Tesco had allowed customers to earn points on their clubcards even from partner organizations. The introduction of the “Clubcards deals” concept shows that Tesco provides greater care to customers with high spending ability (Cuthbertson and Laine, 2004). Clubcard Deals had actually been introduced with the concept of making Tesco as a lifestyle choice for the customers. This effort can be considered as an attempt by the company to introduce customers with other partner businesses implying that being a part of Tesco also meant being a part of a whole new world of brand experiences. Critics have argued though such an attempt can prove to be beneficial there is no denying the fact that it is highly risky too because if the consumers are dissatisfied with the performance of the partner organizations then Tesco suffers eventually. Tesco’s position can be described as a central one in the brand web representing a host of other brands (Beckett and Nayak, 2008). Some of the other attempts of Tesco includes introduction of Tesco has not only limited itself only in terms of clubcard. The launch of the virtual store on part of Tesco was its attempt to acknowledge the growing importance of information technology and social media in the marketing scenario. Integration of the online and offline marketing channels have helped Tesco to build an interactive relationship with its customers (Rafiq and Fulford, 2005). In order to improve the interaction with the consumers Tesco had also introduced Learn Thinking, Customer Companionship and My Time incentives which were also introduced. These activities have allowed Tesco to improve its media effectiveness, promotions, pricing and merchandizing, services and market research apart from establishing a relationship with the customers (Kardes, Cronley and Cline, 2010). Current Problems Tesco had to face difficult market situations in 2009 which had hampered the sales of the company (Gilligan, 2012). Industry commentators had argued that the main problem of Tesco arose mainly because of saturation in the U.K. market and the intensifying competitive market scenario. During the same time, the growth of heavy discount retailing in the U.K. had been particularly harmful for Tesco business (Gilligan, 2012). The global financial crisis had also changed the purchasing behaviour of the consumers and they conducted a series of research online, primarily comparing prices before making purchases. Industry experts had claimed that very high focus on sales accounting and relatively lesser focus on consumer engagement or account management had alienated Tesco from its customers and the company began to lose its grip over the market. The main problem is that market dynamics has changed dramatically from the times when the Clubcard was launched as consumers are unwilling to wait to build up points on their loyalty cards (Gilligan, 2012). The high discount retailers are also making customers go to them. Industry experts also comment that the vantage point of storing online data via clubcards is redundant as there is proliferation of multiple companies that stores consumer’s data (Schamotta, 2013). Conclusion and Recommendations Though Tesco has been quite successful in its attempt to maintain a long-term relationship with the customers there are some ways in which the account management and the sales management of the company can be improved. Firstly, it has become imperative for Tesco to introduce some innovative features in its clubcard to outperform its closest competitors. Offering higher discounts on bulk purchase can be included to rejuvenate the existing schemes. Secondly, Tesco can also improve its CRM activities by making the website of the company more interactive. For instance, the websites should provide a complete range of products and help customers to compare the prices of their product with other companies. This will be lucrative to the customers and be easier for them to take purchase decisions. As consumers have become highly demanding in the contemporary times interactive communication with the company website can help to cement long-term relationships. Thirdly, social media can be effectively used by Tesco in order to improve its consumer base. Use of blogs and press releases about launch of new products have been found as successful tools that are employed by marketers to establish a dialogue with the customers. Tesco has been criticized on the grounds of focusing very heavily on sales aspect and interacting less with customers. Social media is expected to overcome this difficulty by establishing a close association with them. Finally, apart from improving the virtual customer relationships Tesco can also improve its store experience. It has been widely accepted that improving service quality is an integral part of retail service industry and improving the store visit experience of Tesco can also be expected to improve its customer relationship. Tesco had already proved its merit in the past. It can continue to do the same if it modifies few of its existing strategies. Reference List Arnold, M.J. and Reynolds, K.E., 2003. Hedonic shopping motivations. Journal of Retailing, 79(2), pp.77-95. Beckett, A. and Nayak, A., 2008. The reflexive consumer. Marketing Theory, 8(3), pp.299-317. Chen, I. J. and Popovich, K., 2003. Understanding customer relationship management (CRM): People, process and technology. Business Process Management Journal, 9(5), pp.672-688. Claycomb, C. and Martin, C.L., 2002. Building customer relationships: an inventory of service providers’ objectives and practices. Journal of Services Marketing, 16(7), pp.615-635. Crosby, L.A., 2002. Exploding some myths about customer relationship management. Managing Service Quality: An International Journal, 12(5), pp.271 – 277. Cuthbertson, R.. and Laine, A., 2004. The role of CRM within retail loyalty marketing. Journal of Targeting, Measurement and Analysis for Marketing, 12(3), pp.290-304. Gilligan, C., 2012. Tesco’s Clubcard customer relationship management programme: The challenges of coming to terms with a changing market. [pdf] PCG. Available at: [Accessed 8 December 2014]. Hassan, A. and Parves, M., 2013. A Comparative Case Study Investigating the Adoption of Customer Relationship Management (CRM) The Case of Tesco and Sainsbury’s. International. Journal of Managing Value & Supply Chains, 4(1), pp. 1-8. Humby, C. and Hunt, T., 2003. Scoring points: How Tesco is winning customer loyalty. London: Kogan Page Publishers. Innovation Leaders, 2014. Profile: Tesco. [online] Available at: [Accessed 8 December 2014]. Kardes, F.R., Cronley, M.L. and Cline, T.T., 2010. Consumer behaviour. Connecticut: Cengage Learning. Kotler, P. and Armstrong, G., 2013. Principles of marketing. New York: Pearson. Kotorov, R., 2003. Customer relationship management: strategic lessons and future directions. Business Process Management Journal, 9 (5), pp.566-571. Kumar, V., 2010. Customer relationship management. New Jersey: John Wiley & Sons, Ltd. Liang, C.J. and Wang, W.H., 2007. An insight into the impact of a retailer’s relationship efforts on customers’ attitudes and behavioral intentions. International Journal of Bank Marketing, 25(5), pp.336-366. Moon, Y., 2000. Intimate exchanges: using computers to elicit self-disclosure from consumers. Journal of Consumer Research, 26(4), pp.323-339. Morgan, R.M. and Hunt, S.D., 1994. The commitment: trust theory of relationship marketing. Journal of Marketing, 58(3), pp.20-38. Rafiq, M. and Fulford, H., 2005. Loyalty transfer from offline to online stores in the UK grocery industry. International Journal of Retail & Distribution Management, 33(6), pp.444-460. Schamotta, J., 2013. Clubcard vs Nectar: the ultimate guide. [online] Available at: [Accessed 8 December 2014]. Tesco, 2013. Tesco PLC annual report and financial statements 2013. [pdf] Tesco. Available at: [Accessed 8 December 2014]. Bibliography Bose, R. and Sugumaran, V., 2002. Application of knowledge management technology in customer relationship management. Knowledge and Process Management. 10 (1), pp.3–17. O’Malley, L. and Tynan, C., 2000. Relationship marketing in consumer markets: rhetoric or reality? European Journal of Marketing, 34(7), pp.797-815. Odekerken-Schroder, G., Wulf, K., Schumacher, P., 2003. Strengthening outcomes of retailer-consumer relationships: the dual impact of relationship marketing tactics and consumer personality. Journal of Business Research, 56(3), pp.177-190. Passingham, J., 1998. Grocery retailing and the loyalty card. Journal of the Market Research Society, 40(1), pp.55-63. Peck, H., Payne, A., Christopher, M. and Clark, M., 1999. Relationship Marketing: Strategy and Implementation. Oxford: Butterworth-Heinemann. Read More