Archive for the ‘Differentiation’ Category

 Tesco, the British retail giant, has successfully leveraged its frequent shopping program, the ClubCard – which rewards customers with points every time they shop at Tesco stores and allow them to redeem points for products and airline mileage – as a tool to better understand customer behaviors and preferences.

The ClubCard captures customer buying information and helps Tesco to better tailor its store assortments and promotion efforts. For instance, while only 1-2% of coupons are redeemed on average in the industry, Tesco reports a rate of 15-20% as a result of better targeting its promotion efforts. This process has also helped to uncover interesting findings and develop actions accordingly: shoppers who buy diapers for the first time will receive coupons for other baby-related products but also for beer, as consumption increases as fathers can not go to pubs to drink. 

Dunnhumby Ltd. – a company owned by Tesco – is responsible for analyzing the data from the loyalty cards and creating statistical models to understand customer behaviors and offer recommendations for Tesco. They link buying information with individual customer data such as address, size of household and age of children provided in the application form.

In the US, Kroger has worked with Dunnhumby and implemented several retail actions as a result of the data mining exercise. However, most US grocery stores do not leverage all the potentiality of their loyalty cards and use it only as a way to provide discounts to customers. This is a result of the costs involved to implement the process and a disbelief from some of those retailers that the investment can actually pay off, and / or lack of internal analytical capabilities to capture and process customer buying information.

With increasingly competitive challenges, retailers have to find ways to stay relevant to their customers. A first step is to understand their shopping behaviors and preferences – then tailor their offerings accordingly to differentiate themselves from competitors.


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