Tesco Clubcard provides an exceptional case study of a company that has continually utilised data and technology to revolutionise their customer engagement strategy and operations, and their recent Clubcard Challenges are no exception. From the Clubcard launch in the mid-1990’s where Tesco redefined supermarket loyalty, they have inspired loyalty program innovation around the world. Loyalty program operators, loyalty consultants, and marketing experts can learn the essentials of data-led strategy by studying Tesco’s loyalty approach.
Tesco Clubcard Challenges, their latest program evolution, is delivering significant results at a one-to-one personalised level. This AI-powered gamification strategy is set to be replicated by many retail companies globally.
The evolution of Tesco’s Clubcard program
Origins of Clubcard
Tesco’s Clubcard, a pioneering loyalty program in the UK retail landscape, has its roots in the early 1990s. In 1993, Terry Leahy, then a key figure at Tesco, tasked the marketing team, including loyalty legend Tim Mason (now CEO of Eagle Eye), to explore the potential of a loyalty program[1]. After extensive research into programs worldwide, the team developed a proposal that was modern and unique. The following year, Grant Harrison, a Tesco executive, attended a conference where he encountered Clive Humby from the marketing firm dunnhumby [1]. This meeting would prove pivotal in shaping the future of Tesco’s customer engagement strategy.
Key milestones
The journey of Clubcard has been marked by several significant milestones. Following successful trials throughout 1994, the Tesco board invited Harrison and Humby to present their findings at the annual Board strategy session [1]. The presentation left a lasting impression, with Lord MacLaurin, Tesco’s chairman at the time, famously remarking, “What scares me about this is that you know more about my customers after three months than I know after 30 years” [1].
Tesco officially launched Clubcard in 1995, marking a revolutionary step in the global supermarket sector [2]. The impact was immediate and substantial. In March 1995, just one month after the launch, Tesco’s market share overtook Sainsbury’s for the first time, putting their main competitor on the defensive [3]. This rapid success demonstrated the effectiveness of Clubcard in attracting and retaining customers, while growing share of wallet and stimulating incremental spend.
Transition to digital
As technology advanced, so did Clubcard. The scheme underwent major relaunches in 2005 and 2008, with members receiving personalised cards and key fobs that could be scanned at checkout [1]. A further redesign in 2017 incorporated contactless technology into the cards and key fobs, aligning with the growing trend of digital payments [1].
Revenue benefits generated
Clubcard had a significant impact on Tesco’s revenue and customer engagement. The scheme increased the frequency of shopping visits to Tesco stores by 16% [3]. Moreover, it encouraged customers to spend more during each visit. Tesco saw a notable increase in its number of primary shoppers – those who spend at least half their total grocery budget at Tesco – from 16.3% to 18.8% over the course of a year [3].
Competitive advantage over other supermarkets
Clubcard has played a crucial role in maintaining Tesco’s competitive edge. In 2020, Tesco evolved its Clubcard offer by adding exclusive member discounts, a move that many rivals have since tried to emulate [4].
Despite increased competition, Tesco’s chief customer officer, Alessandra Bellini, argues that Clubcard still stands out due to its “unrivaled” customer data and the way it enables the supermarket to better connect with its customers [4].
The success of Clubcard has prompted Tesco to continue innovating. The company has introduced features like quicker voucher generation, personalised offers, and additional partners [4]. These enhancements have led to increased engagement, with Clubcard membership growing to more than 23 million UK households today. 82% of all transactions are made by Clubcard members [12].
How Tesco’s AI-Powered Clubcard Challenges work
Tesco Clubcard Challenges is their latest loyalty program innovation. This AI-powered initiative aims to enhance customer engagement and boost sales through personalised, gamified experiences. Tesco utilises Eagle Eye to run Challenges, with Tim Mason completing his circle of engagement with Tesco by now delivering their cutting-edge AI solutions engine.
Personalised offers
At the heart of Clubcard Challenges lies the concept of hyper-personalisation. The system analyses each customer’s shopping history, preferences, and behaviour to create unique challenges for each member. These challenges are designed to encourage customers to try new products, increase their spending in specific categories, or simply to spend more. For example, a specific member may receive an invitation to participate in the following Challenges to unlock a bonus points reward:
- “spend £20 on our Summer BBQ range over the next 6 weeks”
- “spend £10 on plant-based meals”
- “spend £37 this week” [5].
The AI algorithms powering these challenges are sophisticated and multifaceted. One such algorithm, dubbed “the People Pleaser,” identifies products, brands, or categories that are particularly relevant to each customer. Another algorithm, called “the Diviner,” suggests products that a customer isn’t currently buying but might be interested in based on the purchasing patterns of similar customers [6].
Challenge structure
Tesco’s Clubcard Challenges are structured to maximise engagement while providing significant rewards:
- Clubcard holders are invited to participate in campaigns [5].
- Each participant is presented with 20 personalised challenges [5].
- Customers can choose which 10 of these challenges they want to complete [5].
- The challenges run for a duration of six weeks [7].
This structure allows customers to have control over their participation, choosing challenges that align with their shopping habits and preferences. From a consumer psychology perspective, this interactive approach increases the likelihood that members will continue engagement with the Challenges they have selected.
Reward system
The reward system for Clubcard Challenges has a direct financial appeal to members. They can earn up to £50 in Clubcard points by completing their chosen challenges [5]. This value can be doubled to £100 when spent with Tesco’s reward partners, which include popular brands like PizzaExpress, Disney+, and Hotels.com [8].
This generous reward structure not only incentivises participation but also encourages customers to engage with Tesco’s partner brands, creating a win-win-win dynamic.
Eagle Eye platform solution
As mentioned, Eagle Eye’s AI-powered personalised challenges solution forms the backbone of Tesco’s Clubcard Challenges [9].
The EagleAI platform allows for the creation and delivery of millions of personalised marketing messages, tailoring promotions to suit individual consumers [9].
The effectiveness of this system was demonstrated in a successful trial, which saw higher than anticipated participation rates. This success led Tesco to roll out Clubcard Challenges to a broader audience [9].
Lizzie Reynolds, Group Membership and Loyalty Director at Tesco, emphasised the company’s commitment to making Clubcard work harder for members. She stated, “Personalisation is about using what we know about customers to make their experience better and our rewards more helpful” [9].
Measuring the success of Tesco Clubcard Challenges
By leveraging AI and personalisation, Tesco’s Clubcard Challenges not only enhances member engagement but is also believed to be driving significant incremental sales.
Customer engagement metrics
One of the primary indicators of success for the Clubcard Challenges is the level of customer engagement. Tesco has seen a remarkable response to this program – it has revealed that 4.9 million customers have already received challenges and there has been a huge amount of coverage in the press [12]. This large-scale participation provides Tesco with a wealth of data to analyse and refine their strategies.
The engagement metrics also include how customers interact with the challenges themselves. With each participant being offered the opportunity to choose which Challenges they wish to engage with, Tesco can track which are most popular and adjust future offerings accordingly. This level of customisation not only enhances the member experience but also provides valuable insights into customer preferences.
Incremental revenue generated by Clubcard Challenges
Although Tesco has not publicly released the results for Clubcard Challenges, the experience of other retailers is that the challenges proposition leads to 5 – 10 times more participation than traditional digital coupons. Challenges also consistently deliver a 700% sales return at other retailers who have shared their results. This means for every £1m Tesco provides in bonus points to members, they could be generating as much as £7m of incremental spend.
One commercial challenge for most loyalty programs is that the business is providing benefits to members who would have shopped anyway, meaning the investment in value provided is not generating incremental revenue. This leads to a negative return on investment (ROI) for the program and potentially also for any suppliers who are funding promotions offered to program members.
The genius of the Clubcard Challenges design is that challenge offer algorithms are designed to only reward incremental behaviour. If a member does not spend more or shop in a new category, they will not complete the Challenge, and therefore Tesco and its FMCG partners do not wear any cost for bonus points. This enables them to invest value elsewhere, meaning engaged customers can access even more incentivising value.
With millions of members now being offered the opportunity to participate in Clubcard Challenges, Tesco is enjoying a healthy boost in revenue that confirms once again Sir Terry Leahy’s vision and commitment was the right one.
Conclusion
Tesco’s Clubcard Challenges cement their position as one of the truly great loyalty program innovators of our time. The program’s evolution from a simple points system to a sophisticated, personalised experience shows how technology can transform retail strategies. Tesco’s use of data and AI to create tailored Challenges is already delivering significant incremental revenue, proving that loyalty programs can be more than just a way to collect points.
Looking ahead, Tesco’s approach offers valuable lessons to other retailers and loyalty consultants aiming to boost customer engagement. As technology continues to advance, we can expect to see more retailers following Tesco’s lead, using data and AI to create more meaningful and rewarding experiences for their members. This trend is likely to shape the future of retail, making shopping more interactive and personalised than ever before.
Do Loyalty Programs Work? Explore other examples of winning loyalty programs here.
References
[1] – https://en.wikipedia.org/wiki/Tesco_Clubcard
[2] – https://www.eeph.org.uk/key-milestones.php
[3] – https://www.marketingweek.com/tesco-plays-its-clubcard-right/
[4] – https://www.marketingweek.com/tesco-clubcard-stand-out/
[5] – https://www.worcesternews.co.uk/news/national/uk-today/24287382.tesco-launches-clubcard-ai-powered-challenges-shoppers/
[6] – https://econsultancy.com/tesco-clubcard-challenges-loyalty-personalisation/
[7] – https://altaviawatch.com/en/retail-today/retail-updates/tesco-introduces-ai-powered-clubcard-challenges-to-personalize-shopping-rewards/
[8] – https://www.dailyecho.co.uk/news/24334005.new-tesco-clubcard-rules-millions-shoppers-introduced/
[9] – https://eagleeye.com/newsroom/tesco-selects-eagle-eye-to-power-clubcard-challenges
[10] – https://www.thegrocer.co.uk/news/tesco-offers-up-to-50-in-loyalty-points-in-clubcard-challenges-campaign/690794.article
[11] – https://www.emerald.com/insight/content/doi/10.1108/ijrdm.2004.08932gab.001/full/html
[12] – https://www.tescoplc.com/interim-results-trading-statement-202425/
