Tesco: great example of the perils of data driven marketing & neglect of the customer experience?

Tesco continues to do ‘badly’ in the UK

The other day I was reading the business press and the following piece on the poster child loyalty schemes/analytical CRM/data driven business management caught my eyes:  Tesco UK sales fall for more than a year.

If you don’t know then let me remind you that for many years the loyalty/CRM folks were holding up Tesco as the shining example of how to run a business intelligently/smartly and out compete your competitors by harnessing data and using this insight to drive/run the business.  And about a year ago the wheels came of the bus.

What got Tesco here?

Looking at it from the customer perspective, I say that the difficult economic environment forced customers to take a closer look at Tesco.  Some of these customers noticed that the ‘great deals’ from Tesco were actually more marketing gimmicks than genuine value.  And they noticed the poverty of the overall shopping experience – stores, products, service….. Here is a comment that speaks of the marketing gimmicks:

“..   It is consistently more expensive than Asda, Morrisons, even Sainsburys. It’s offers are phoney.  Strawberries “half price” at £2. Never seen them at £4 at Tescos or any other supermarkets. Asda had them at £1 so Tesco offered 2 for £2.50 next day, but smaller punnets. Their price drops are a joke, they drop from inflated price (Sometime BOGOF price) and are still expensive. They must think the public are fools and I suppose some are – they don’t even look at prices.”

As a strategist and business consultant, I say that like many successful businesses that end upon hard times Tesco’s strength became its weakness.  Put differently, Tesco placed pretty much all of its emphasis on data driven marketing and business management.  And in the process it gradually sucked the life out of brand and the customer experience. Rather like a television whose picture quality degrades gradually such that you don’t even notice these small changes until one day you happen to view a television that works properly. The recession was the wake up call for customers.

The data driven marketing allowed Tesco to maximise response and sales by personalizing the offers and coupons to the needs/interests of shoppers.  One the business management side, the Clubcard based analytics allowed Tesco to stock the right products in the right stores.  It also allowed the business to penny pinch on various areas including the stores, the products and the staff in the stores.  This is the classic example of the ‘extraction’ mentality powered by data driven analytics – in my view they power each other.  If you have worked  with database marketers you might have learned that their focus is on optimising return on the campaign as opposed to maximizing the long-term value of the customer. Often what optimises the ROI on the campaign does the opposite for longer term customer lifetime value and loyalty.  The opposite also applies.

What do retail experts say?

According to the Guardian piece (bolding is my work):

“At its annual results in April, Tesco’s chief executive, Philip Clarke, announced a £1bn makeover of the UK chain designed to “put the heart and soul back into Tesco” after domestic profits fell for the first time in more than 20 years. With more than 2,700 stores, Tesco’s domestic chain pumps out two-thirds of the group’s profits and Clarke admitted it had taken “a little bit too much away from the shopper” during years of penny-pinching to boost the bottom line.

And according to the Telegrah piece Phil Dorrell, a director at retail consultants Retail Remedy, says the following ( the bolding is my work):

“Tesco is treading water but the paucity of its long-term marketing strategy could still drag it under. Tesco… continues to offer a bland and soulless shopping experience and will be hard pushed to maintain its market share over this financial year. The leadership still seems to be focused on the quick fixes, more appropriate to running a store than a business”

And finally 5 questions for you to ponder

1.  If Tesco was genuinely customer-centric, all those years that it was touted as being the poster child of customer-centricity, then why is it in the state that it is in today?

2.  Is it possible that customer-data/insight centricity (which is what often passes of as customer-centricity) is not actually authentic customer-centricity?

3.  If intuition is such a poor guide to decision making and salvation lies in data driven insights that drive rational decision making then how is it that by pursuing this path Tesco has ended up here?

4.  Is it possible that what is rational over the short-term is not rational over the longer term?

5.  Is it possible that what occurs as rational to data scientists and data driven marketers and business managers is actually irrational because customers are human beings and as such irrational factors such as the brand, the customer experience, authentic customer care matters and weaknesses show up over the longer term?

The customer loyalty riddle (part I)

Customer loyalty: a riddle without a solution?

As far as I can tell guru’s have been promising nirvana – revenue growth, profit growth, higher profit margins, sustainable competitive advantage – through customer loyalty.  I remember that this was the holy grail when I started working with Siebel and later moved to The Peppers & Rogers Group back in 1999/2000.

That was 10+ years ago and it would appear that little progress has been made by the majority of companies in doing better at cultivating genuine customer loyalty and improving customer retention. Yet over that time all kind of ‘solutions’ have been attempted and billions have been spent on these ‘solutions’.

Which company has cultivated that much desired loyalty through CRM?  For a little while Tesco appeared to be the poster child for analytically driven CRM through its ClubCard loyalty scheme.  Now it looks like we may have been too hasty: Tesco market share is now the lowest it has been since 2005 and the company, in January, issued its first profit warning in decades. Put differently, if the success of Tesco was attributed to the analytically driven CRM then consistency suggests we should also attribute Tesco’s current failure (profit warning, market share drop..) to analytically driven CRM.

It would appear that customer loyalty is a riddle, if that is so then what is the key to this riddle?  Before I share my point of view with you, allow me to tell you a story that is also a puzzle.  Dive into it, you will enjoy it and you will get value out of it even – paradox makes you think, go beyond the obvious, and opens you mind.

How to divide the camels?

Do you know anything about Sufism? No, that is OK, you only need to know that a Sufi is a special sort of human being – a being that has penetrated into existence and tends to talk ‘indirectly and paradoxically’ so as to by pass the mind which is thrives on logic – think of him as a zen master.  Here is the story:

There was once a Sufi who wanted to make sure that is disciples would, after his death, find the right teacher of the Way for them.

He therefore, after the obligatory bequests laid down by law, left his disciples 17 camels with this order:

‘You will divide the camels among the three of you in the following proportions: the oldest shall have half, the middle in age one third, and the youngest shall have one ninth.’

As soon as he was dead and the will was read, the disciples were at first amazed at such an inefficient disposition of their Master’s assets.  Some said, ‘Let us own the camels communally’, other sought advice and then said, ‘We have been told to make the nearest possible division’, others were told by a judge to sell the camels and divide the money; and yet others held that the will was null and void because its provisions could not be executed. 

Then they fell to thinking that there might be some hidden wisdom in the Master’s bequest, so they made inquiries as to who could solve insoluble problems. 

Everyone they tried failed….”

What is your answer, your solution to this riddle?  Have a go at solving this riddle – you will get value out of it if you allow yourself to get value out of it.

Let’s continue with the story – dividing camels – and get to the solution

“Everyone they tried failed until they arrived at the door of man called Ali.  He said:

‘This is your solution.  I will add one camel (of mine) to the number thus making 18 camels.  Out of the 18 camels you will give half – 9 camels – to the oldest disciple.  The second of you will get one third of the total, which is 6 camels.  The youngest of you will get one ninth, which is 2 camels.  That makes 17 camels which your master left you to divide amongst yourselves.  One camel – my camel – will be left over and you will return that camel to me.’

This is how the disciples found the teacher for them.”

My thoughts on this story, this riddle

– The conventional approaches to solving the riddle did not work, none of them solved the riddle, because the riddle was designed to go beyond the conventional;

– Because the conventional approaches did not work then the ‘conventional gurus’ stated that riddle was absurd and should be ignored or that conventional approaches be used e.g. sell the camels and divide the money in the allotted portions that is always the case, the conventional cannot look beyond convention as they neither have the heart nor the mind for the looking beyond;

– Notice the characteristic of the solution, it has a unique quality:  It has to be put into the game, it is used in the game and at the end of the day it can be taken out of the game whole and complete – it does not lose anything of itself by giving itself.

Final question or two for you

What does this story provoke in you when it comes to customer loyalty?  What avenues does it open up for you that were not present before?  What do you think is the solution to the customer loyalty riddle?  Do you even think there is a solution?

I will share one perspective with you in my next post.  I wish you well and my thanks (to you) for listening to my speaking.