Tesco’s main purpose is to earn a customer’s lifetime I oyalty by creating value. To achieve this goal, the company has adopted the values of understanding customers, being the first to meet their needs, and acting responsibly in the communities they serve.
Tesco was founded in 1919 by Jack Kohen, who began to sell surplus groceries from a stall in London’s East End. On his first day, Kohen had sales of roughly $6.40 and a profit of $1.60. In fiscal year 2014, Tesco Group had sales of $111 billion, with a profit before taxes of $4.78 billion and sales growth of around 1 percent. The firm employs more than 597,784 people and occupies 41 million square feet of selling space in 12 countries.
Tesco’s success comes from years of building customer loyalty through merchandising and pricing strategy. Over the years, the company has expanded its range of products and services from simple grocery items to almost everything, including PCs and peripherals, cameras, phones, home electrical appliances, televisions, AV equipment, furniture, kitchen appliances, and home furnishings, so customers can buy everything under one roof. Tesco also offers services that include petrol stations, opticians, and pharmacies.
Tesco started expanding overseas in 1995, starting with Hungary, and now has a presence in China, the Czech Republic, Hungary, India, Japan, Malaysia, Poland, Ireland, Slovakia, Thailand, and Turkey. In the United States, it operates under the name Fresh & Easy Neighborhood Market.
In trying to understand its customers based on their total spending, Tesco found that the top 100 customers were worth the same as the bottom 4,000. The bottom 25 percent of customers represented only 2 percent of sales, whereas the top 5 percent accounted for 20 percent. This showed the firm that all customers are not equal; as a result, it started to measure its more valuable customers by frequency of purchase and value of expenditure.
Tesco began its customer relationship management program in 1995 by introducing Clubcard, which offered loyal shoppers points on purchases and small rebates. Stores captured valuable information with every swipe of the card and built a powerful customer database that could show what products customers were and were not buying, and where they were spending their time in the store (measured by what they spent their money on). Clubcard customers received vouchers for items they specifically liked to buy, rather than general vouchers sent to all customers. Different lifestyle magazines were created for different customers. High-value shoppers received calls from store managers, valet parking when they came to shop, and other privileges so they would feel special and continue to be loyal to Tesco. Tesco now has more than 16 million cardholders and sends about 8 million unique coupon variations with each Clubcard mailing, to ensure that everybody who gets an offer receives an appropriate one. The Clubcard data provides Tesco with detailed information about customers’ purchasing behavior. In addition to this data, the company polls around 12,000 customers in their annual Customer Question Time. They receive more direct feedback on products, price, quality, service, and the company’s role within the community.
Stores are designed based on consumers’ needs. The smallest floor plan, called ‘Express’, is less than 600 square feet and sells only grocery and food items; the largest ‘Home Plus’ stores are more than 50,000 square feet in size and sell only non-food items. In 1999, Tesco opened its online store and online banking initiatives. In 2000, it opened Tesco.com. Tesco Direct, another online initiative, sells over 12,500 nonfood products, guaranteeing next-day delivery for store pickup. It is also experimenting with “drive-thru” supermarket service for customers who order through Tesco Direct and can pick up the items within a two-hour block at designated parking spots without getting out of their cars.
In 2009, Tesco branched out to the iPhone by launching three different applications. The first allowed customers to scan their Clubcards using the iPhone’s camera, so they didn’t have to carry the card on a shopping trip. The second was a Storefinder that allowed customers to find a nearby Tesco outlet. The third, a wine application, allowed customers to take a photograph of a wine they liked, so that they could read product information and place an order using the phone.
In 2010, Tesco created a new mobile Web site to facilitate easy shopping for non-food and household items using smart phones. This followed the launch of a grocery application that allowed barcode scanning by the iPhone. Using the mobile Web site, customers can now conveniently search and buy everything, from televisions to tables to toys. This initiative is part of a commitment to make Tesco available to everyone, anywhere, at any time—whether through the catalog, in-store, online, or by phone.
Tesco also concentrates on providing efficient service. Under its “one-in-front” plan, for instance, if there is more than one customer at a single checkout counter, another counter will be opened. A number of self-service checkouts are also available in all stores. With improved CRM and service, Tesco has become a leading supermarket in the United Kingdom and is now expanding to other parts of the world.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.