Loyalty Programs: What Are They For and How Do They Work? The experience of Tesco Loyalty programs are structural marketing efforts aimed at encouragement of repeat buying, increase of their rate and establishment of long-term relationships with consumer. The scope of loyalty programs application is rather wide: drugstores, cosmetics and food retailers, cafes, bars, restaurants, household appliances and electronics retailers, sport clubs, banks, airlines and so on. Besides, more and more of FMCG brands also start thinking about their “branded” loyalty programs, adoption of CRM and other automation. As a matter of fact, 14.5% of the world population is enrolled in at least one loyalty program and 71% of them are ready to join one program more, while a standard consumer takes part in 7 loyalty programs on the average. One may find answers to the said questions in the book “Scoring Points: How Tesco is Winning Customer Loyalty”. The book is absolutely not new, it was published in 2006 but it has lost almost nothing of its topicality and it is a must-read for anyone who is concerned about building relationships with their customers. We don’t want to iconize the book, we shall just quote Don Schultz, a lecturer on Integrated Marketing Communications at Northwestern University (USA): "If you`re in marketing and you don`t know the Tesco story, you`re using antiquated techniques and approaches. This is the future of marketing. Read it and profit”.

1. Key ideas of the book
“Scoring Points: How Tesco Is
Winning Customer Loyalty”
New Strategies Group
Knowledge Share Project
#nsgknowledgeshare

2. Having in 1995 introduced “Clubcard” – the most
successful loyalty scheme in the world among all those
used by retail companies – Tesco has moved to the
new level of company-customer relationships.
As of today it is not only the largest food store chain in
the UK but also one of the world most successful
online supermarkets, one of the fastest-growing
European companies in the field of financial services
market and probably one of the world most outstanding
examples of CRM (customer relations management).
Brief

3. Contents
1. Questions of loyalty
2. Making loyalty pay
3. Clubcard on trial
4. Because we can
5. Every little helped
6. Data, lovely data
7. Four Christmases a year
8. You are what you eat
9. Lifestyles become habits
10. Launching a bank
11. Babies, beauty and wine
12. A bigger deal
13. From mouse to house
14. Five tasks for the future

4. MANAGING DIGITAL
1. Questions of loyalty

5. “It was a direct result of comments from our customer panels that Tesco
launched its Clubcard scheme…’OK’, they said, ‘so we’re royal to Tesco, why
not show us a bit of loyalty in return?’… And they were right, which was why,
after examining the idea, Tesco launched its Clubcard”.
from the autobiography of Lord McLaurin,
the Chairman of Tesco

6. Competitors didn’t believe in loyalty program…
«Customers aren’t fooled by marketing gimmicks. Shoppers’ real loyalty
only comes from offering the lowest prices on the right range of
products”.
Richard Baker,
Asda Deputy Chief Operating Officer

7. McKinsey has confirmed
the “strength” of loyalty programs
Loyalty programs are popular among buyers: in the USA 53% of grocery
supermarkets customers are enrolled in such programs
48% of buyers (of those who joined supermarkets’ loyalty programs) made
shopping to the sum bigger than they would do otherwise
McKinsey Management Consultancy Report (2000)

8. KPMG methods of loyalty programs
1. “Pure” loyalty
2. “Pull” loyalty
3. “Push” loyalty
Strengthening of existing bonds between the customer
and the retailer.
Example: having goods packed in bags
Attracting the customer by augmenting a retail offer.
Example: buy one and get one more free
Creating a scheme that encourages us to use a way of
shopping that we would not have done before.
Example: we may be offered a combined use of credit
card and loyalty card , or to buy cheaper from the
website.

9. Loyalty program: “pro” arguments
1. More purchases done more often.
2. Loyalty programs provide the ability to “mass-customize” marketing
communications.
3. Assets value of data
4. Loyalty programs let companies track general trends.
5. Loyalty programs allow making the best use of resources.
6. Loyalty programs help promote trust.

10. Loyalty program: “contra” arguments
1. The customer does not care about the place of purchase.
2. It’s nothing but lower prices that the customer wants.
3. On the whole the retailer shall benefit from nowhere.
4. Too much data to make any use of it.
5. Loyalty program is a totalitarian surveillance. We appreciate our privacy while
loyalty cards deprive us of it.
6. Where is the gain in sales that is to recompense the cost of loyalty
programs?
Most of loyalty programs have not driven to success but on the contrary – they
failed!

11. MANAGING DIGITAL
2. Making loyalty pay

12. The economics of loyalty marketing
$30 M $5-$10 M
further annual costs of loyalty
program maintenance
the cost of loyalty
program first year
introduction
For big retail companies*
* From McKinsey Loyalty Program Report (2000)

13. Challenge
Tesco had to show ca. 2% gain in sails in order to recompense the costs of
“Clubcard” implementation.

14. • What kind of customers would you treat with specific liabilities? All of them, or
just the most valued ones?
• What type of reward would you offer to your customers in order to affect their
behavior in the most efficient way?
• What ‘currency’ do you have?
• Which of loyalty models you consider to be the most appropriate – universal
or hierarchic one?
• Will you treat all customers equally or would you divide them into categories?
• On what condition will your customer and you undertake mutual obligations?
When it suits the customer? Or when it suits you? Or when it suits both
parties?

15. 4 loyalty “currencies”
Points-led scheme
Discounts-led scheme
Information-led scheme
Privilege-led scheme
Members benefit from access to
certain services or facilities
Loyal customers value help and
advice as much as cash
The more you shop, the less you
pay
Points, miles, stars, blocks, units
or cents

16. MANAGING DIGITAL
3. “Clubcard” on trial

17. Trial
“The company… introduced electronic cards with magnetic strip in 3
supermarkets. Though Tesco referred to “Clubcard” adoption as a “trial”, today
more than 50% of customers in each of the 3 supermarkets have become
program members. According to sources, Tesco plans program national rollout for
the next year”
From Campaign weekly paper (November 1993.)

18. The team
Grant Harrison
headed up the development of what was then
beginning to be known as “Clubcard”.
He was researching retail loyalty marketing around the
world. He knew the programs that had succeeded and
that had failed.
One of the first steps taken in charge of the program was turning on May 1993
to Evans Hunt Scott (EHS), a direct marketing agency, with the request to help
him to turn Tesco loyalty plans into reality.
For the first 6 months after launch of “Clubcard” trial Harrison was alone
administering the day-to-day working of the program until he obtained an
assistant.

19. The mechanism
2. You collect points
1. You buy from Tesco
3. Every three months you
are sent a mailing with
vouchers
4. You afford the excess

20. The DNA of loyalty
Brand values
Business dynamic
Customer behavior
The key component of loyalty program genetic code.
The brand spends most of funds and efforts to bait the
customer
All opportunities and constraints of the business should
be taken into consideration.
“Reward the customer ‘s behavior that you are straining
after”. The key performance indicator (KPI) of the
program.

21. Looking for regularities
• A small part of the company customers was bringing most of the profit (the
80/20 rule).
• It was a shock for Tesco to learn that an average buyer looks in several
departments only, so the company started offering its customers to take a
“store tour”.
• The analysis of “Clubcard” holders’ post codes secured a clear picture for
each particular supermarket and its “effective area” and made it possible to
define the maximum distance that the most valued customers are ready to
travel for shopping.

22. “What scares me about this is that you know more about my customers
after three months than I know after 30 years”.
The response of Tesco management
to a 30-minutes’ report on results of “Clubcard” experiment

23. MANAGING DIGITAL
4. Because we can

24. Program launch: factors of success
Momentum
In the beginning the program implementation deadline set by the company management was
considered infeasible by the group of “Clubcard” developers.
Simplicity
Right choice of slogan: “Save on your bill today”
Control
“Managers trusted us, we could do whatever we wanted, having the response from the customers in
mind and becoming more and more aware of the fact that customer’s considerations can do a power of
good to the company”
Involvement
The staff working “on the frontline” always was in the picture of the situation and was to the fullest
extent involved in every milestone.

25. Program launch: factors of success
Preparation
The experiment lesson was learnt well. In the course of annual trial 250 000 cases were used to work
out proper strategy.
Ambition
The obtained results turned out to be convincing for the business community of London and persuaded
the company management into complete and total support of the program during the first year.
Commitment
No time to rest on one’s laurels, the company in a rapid pace headed forward to national rollout, having
commissioned the task to a young team that had more energy than experience, and having entrusted it
with the “Clubcard”.

26. MANAGING DIGITAL
5. Every little helped

27. Running ahead of Sainsbury’s
1995 Jan Feb Mar Apr May
Sainsbury’s 19,4 19,0 19,1 18,7 18,8
Tesco 18,1 18,5 19,3 19,9 19,4
UK supermarkets share of market in %
(the source: Taylor Nelson Sofres)
It was for the first time that Tesco’ share of market superseded the
one of Sainsbury’s, so that Tesco secured its leading marketing
position

28. Mailing
• The first quarterly mailings included “Clubcard” coupons – the dividends for
club partnership; the company also introduced targeted coupons, i.e. the
discounts for customers on featured goods or brands.
• The buyers who were spending the sums insufficient for passing the “qualifying
round” received a somewhat simpler letter offering them to make better use of
the club card and receive coupons next time.
• The first mailing allowed drawing of 12 different types of letters and offers for
every buyer category. 18 months later the number of segments increase up to
1 800. Today the number of letter wordings accounts for more than 8 million
making full allowance for customer’s individuality.

29. Exclusive events for exclusive members
“The “Clubcard” first trial evening was held during the Lakeside, Thurrock
experiment with 100 best buyers invited to a wine and cheese party with a
supermarket manager present. The most active buyers were running a chain of
old people’s homes and spent 147 000 pounds per annum! The response rate
was 70%. Many customers came, and it was incredible!”
The reminiscences of Grant Harris

30. Christmas present
Every buyer earning more than 40 points with his club card during the period
from October 16 to November 12 received a fee turkey coupon .
80% of club cards owners who had earned the required number of points during
the said period made use of their coupons and got their “birds” – there were
altogether 1 million of turkeys at 3,55 pounds each given away.

31. Beware of fraud!
• On the 9th of December Archie Norman, the President of Asda, announced a
promo-campaign that could frustrate not only Tesco’s “Christmas gratitude”
prospects but the loyalty program in general.
• “For several weeks before Christmas Asda shall be accepting “Clubcard”
coupons in 16 out of its 200 supermarkets”.
• Asda’s been brilliant in having stolen the marketing program of its
competitor and having announced to the customers: “Use your “Clubcard”
coupon to buy in Asda more than you can buy in Tesco” (Marketing journal)

32. MANAGING DIGITAL
6. Data, lovely data

33. What Tesco learned about data
• Pragmatism
Instead of relying upon the things it would like to do, Tesco was
proceeding from methods of actual revenue boosting. Company came
to conclusion that any new piece of information was an achievement.
• Progression
Every new discovery is an engine for progress.
• Approximation
Analysts operated the approximate values and concluded them to be
sufficient for determination of whether the object under study shall stay
afloat or go to the bottom

34. What Tesco learned about data
• Learning
“Clubcard” was not merely a passive observer of general trends but
worked as a large laboratory mastering the subject of customers’
behavior.
• Defence
Tesco was now able to tell quickly the clients that it has lost and the
buyers who are ignoring some of the supermarkets department , and
develop for them specific incentives
• Segmentation
The possibility of distributing coupons and vouchers among those
really willing to obtain them

35. MANAGING DIGITAL
7. Four Christmases a
year

37. Pantene and “Clubcard”
(EHS Brann agency)
The “Clubcard Magazine” published by
Tesco had one of the largest circulations
among European general-interest
magazines (Forward Publishers)

38. Students’ clubcard: good start, good
concept, but turned out to be bad for
business (EHS Brann Agency)
Tesco’s Visa card: millions of buyers
were earning “Clubcard” points
regardless of the place they were doing
their shopping at (Advantage Agency)

39. Tesco “Kids Club” – a perfect
surprise from the company…
… and something good for mom
and dad (EHS Brann Agency)

40. “Every glass shall do” – the
World of Wine of Tesco’s
“Clubcard”
Tesco “Clubcard”. “Every little
helps” – the slogan in action (EHS
Brann Agency)

41. A virtual soap bubble that has not
bursted – Tesco.com has benefited
from the “Clubcard” (EHS Brann
Agency)
Tesco “Clubcard” is pleased to give
house-warming gifts (EHS Brann
Agency)

42. “Clubcard” addresses each
customer individually, there are
millions of versions for personal
letters (EHS Brann Agency)

43. MANAGING DIGITAL
8. You are what you eat

44. 5 problems for the data to solve
1. Price sensitivity
2. Ranging for customers
3. Goods range creation
How can customers’ data help Tesco set prices at the
rate that shall make them competitive, help boost sales,
create the image of a company with democratic prices
yet without leading to financial performance decline?
In a perfect world, the assortment of goods offered
for sale in every store (and it makes up to 45 000
groups) complies with customers’ request right to a T.
The food department wanted to introduce new goods
for the expanding groups of customers who were
keeping to a diet or those with specific tastes
(gourmets, devotees of natural products, those suffering
from food allergy)

45. 5 problems for the data to solve
4. Promotions
5. Competitive attacks
Suppose that customers buy products of some
particular brand only at the time of promotions or “skim
the cream off” around the entire supermarket choosing
the goods with best prices. In all these cases there may
be buyers who never change their behavior
The “Clubcard” provided Tesco with information about
who the company customers were, and who they were
not. At that time competitors like Sainsbury’s were not
yet armed with this type of data

46. MANAGING DIGITAL
9. Lifestyles become
habits

47. Segments in work
A segment must be identifiable
It applies to every customer. The segmentation shall not work unless it refers every client to one and
only segment.
A segment must be financially viable
A segment has to be large enough to make it economical as a business-generating tool.
A segment must have its distinctive feature
There must be specific features distinguishing one segment from others and playing certain role in
using segments for specific goals
One-to-one marketing
They often consider the ultimate goal of segmentation to be one-to-one marketing, but the experience
of “Clubcard” has shown this not to be the case. We are all personalities but when it comes to buying
habits we happen to have much more of common than fundamentally different. And similar features
are the instruments that turn segmentation into powerful means of company development.

48. MANAGING DIGITAL
10. Launching a bank

49. Club card plus
Club card plus is a prepaid card. Customers were receiving twice as more of additional
points as usual in case they were making purchases with the help of a new card.
The deposited sum was allowed with interest to the extent of ca. 5% per annum.
Club card plus was initially launched among Tesco staff and in 2 weeks it was proposed
to the general public. The personnel was first to learn how the card is to be used and
then teach this to the customers.
In August 1996, the total amount of “Club card plus” deposits made up 10 million
Pounds, or ca. 10 Pounds on every holder’s account – on the average each of them
started spending in Tesco 4 Pounds per week more. In 1997 the number of cards
holders made up 600 000 persons.

50. MANAGING DIGITAL
11. Babies, beauty and
wine

51. Kids’ Club: the principles of “Clubcard”
Relationships based upon free choice
The clients were offered receiving rewards instead of getting from Tesco proposals
based upon current data. The customers were offered to enroll by means of leaflets and
inserts and envelops with mailing materials.
All club members were referred to one category
All moms-to-be were equal regardless the sums they had spent in Tesco by the moment
of joining the club.
The “Kids’ club” based itself upon Tesco supermarket
Its goal was to establish relationships with Tesco brand.
The “Kids’ club” could not have turned into an independent brand.
Clients were proposed additional advantages first of all by means of Tesco’s favorite
means of personal communication with its customers: direct mail

52. Kids’ Club: the differences
No minimum threshold
At that time holders of club cards were to spend in the supermarket at least 5 Pounds on
shopping in order to have their points earned.
An expectant mother could receive the first postal mailing from the “Kids’ club” without
paying a single visit to Tesco
It was rather assistance than monetary consideration that came as the advantage of club
membership.
The membership in “Kids’ club” was of temporary character
The proposal was valid only for the period of pregnancy and the first two years of baby’s
life.
The process of “Kids’ club” distribution was independent from basic mailing
The “Kids’ club” mailings were to be dispatched not once in three months but
successively and in compliance with estimated date of child’s birth.

53. MANAGING DIGITAL
12. A bigger deal

54. Individual schemes vs collective ones
Individual schemes Collective schemes
Advantages
The simplest one
Unlimited power
More possibilities for increase in the number of active
customers, that’s why the scheme has the potential of
reaching “a critical mass”.
Disadvantages
Cost
Non-proportional distribution of brand-members’
commitments
Every retailer has a limited access to the clients’
database used
Lack of sufficient control over promotional campaigns
There can be disputes occurring between brands
Example
Initial model of the “Clubcard”
“Premium points” proposed by British Petroleum and
Argos chain of supermarkets

55. Outsourcing schemes
Advantages
• Partners can share costs of customers’ attraction, communication with customers, database
management, rewards, data processing and join analysis of database with further conclusions made.
• A good way of attracting clients
• Can enroll a wide variety of buyer categories
Disadvantages
There is a risk of “common market dilemma” (the occurrence of donor-brands and brands benefiting from
this)
Example
Air Miles – the scheme that involves independent brands; for many years numerous companies have been
actively using “currency” while running campaigns aimed at customers attraction and retaining.

56. MANAGING DIGITAL
13. From mouse to
house

57. Tesco.com
On November 5, 1996, Tesco
officially presented a possibility
for its clients to order goods
over the Internet using a CD as
a goods catalogue.
This was the world first full-
scale cyber-market.

58. MANAGING DIGITAL
14. Five tasks for the
future

59. 5 tasks for the future
1. Shall “Clubcard” manage to become a global project?
2. Shall “Clubcard” manage to remain the most popular loyalty program in the
UK?
3. Shall “Clubcard” succeed in facilitating sales growth?
4. Shall “Clubcard” manage to give instant gratifications?
5. Shall “Clubcard» be able to help Tesco suppliers?

60. MANAGING DIGITAL
How can
New Strategies Group help?

61. New Strategies Group a digital agency with headquarters based in Kyiv. A
member of Ukrainian Association of TOP digital agencies Ukrainian Digital
Agencies Committee (UDAC) and official digital partner of All-Ukrainian
Advertising Coalition (UAC).
Mission: to create unique Internet value for global companies, brands and
startups by using technologies and other opportunities of digital environment.
Philosophy: digital environment is not only a communication channel but also
a space for establishment of long-term and close relationships with consumer
through creation of digital products that convey the role/mission of the brand,
loyalty programs, use of CRM and other technologies.
What we are

62. We provide an integrated digital marketing solution – from design of strategy
and development of digital products up to entire digital marketing complex
management. We specialize in long-term projects, loyalty programs, CRM
projects and selection of technologies for marketing problems solution.
We have more than 100 projects for 20 customers in 7 countries of the world
completed over 6 years of work. We know the way of bringing 800 000 visitors
to a promo-site over a period of 5 weeks and we can secure a long-term
project with 350 000 unique visitors per month without media-budget.
What we do

63. COME
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