So I read this article on HBR today morning which talks about how Tesco focus on customer loyalty and data analytics have lead to their downfall. Although some points in the article are correct, most of the article focuses on the wrong points.
The problem with most retail firms and brands is their concept of customer loyalty and the application of data analytics. Customer Loyalty is not about flooding customers with offers and benefits and data analytics is not about using big data to find out post purchase trends and try to apply those to predict the future. The key should be personalization of the retail experience and improving the retail experience such that customers choose to return to the store, not just because of offers/ loyalty points but because they want a repeat of the excellent retail experience they had.
In recent times, customers are flooded with offers, point schemes and cashback offers. The value oriented customer may switch retailers or choose to go with another chain for a while for limited monetary gains. However the lifetime value of a customer is not limited to temporary switches, its dependent more on the overall experience and perception of the brand. Since retailers look at increasing ticket size and profits over time, the concept is to get not only the person to visit on a regular basis but to also change their purchase behaviour.
Increasing profits happens in three ways:
a) Applying customer analytics to understand the standard bundle of the customer and provide attractive benefits for standard purchases along with additional benefits for impulse purchase products to increase ticket size.
b) Personalizing the shopping/ retail experience for the individual customer by providing retail personnel and shop assistants with a certain level of information about the customer and his/her purchase habits
c) Slowly moving customer to private label brands where margins are stronger and customer loyalty can be strengthened
The problem with many retail units and chains is that while they do try to apply data analytics and customer loyalty programs to achieve these targets, their implementation is fragmented and poorly understood by the retail personnel. Few retail chains try to personalize the retail experience or provide a customized experience which will make the shopper consider returning to the chain/ outlet. Also customer experiences vary across outlets of a chain, which creates further dissonance and which necessities strong training and customer service practices in the core identity of the retail organization.
So the problem for Tesco is not about their choices of data analytics or customer loyalty programs. its about how they were implemented and executed. Until these issues are resolved, its not possible for Tesco to reap the true benefits of their investment and increase the lifetime value of their shoppers.