Using Customer data to improve business Tesco & … the heart of Tesco’s communications to customers is the Clubcard statement

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© Copyright, dunnhumby 2004 Commercial in Confidence© Copyright, dunnhumby 2006

Giles Pavey – Group Insight Director

Using Customer data to improve businessTesco & Kroger case study

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Agenda

1. Overview of dunnhumby2. What it means to be custom data driven3. Tesco case study4. Kroger Case study5. Conclusions

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Clive Humby andEdwina Dunn

found dunnhumby 19892 2001

dunnhumby starts toCommercialise ClubCard insight

140 2003

dunnhumbyUSA opensto work with Kroger

250500 2006

Operating in 7 leading markets

199530

Tesco and dunnhumbylaunch Clubcard

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dunnhumby capabilities

1. Operationalizing customer insights across the entire organization and supply chain - business decisions, marketing, operational efficiencies

2. Individual customer data management, insight, segmentation and action plans

3. Tailored software, processes, tools and visualizations

4. Retail media and new media – integrated with “Traditional” marketing and brand information

5. “Agnostically” build constructive vendor / retailer relationships – with consumer insight as the core

6. Aligning the organization around the customer

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customer centric change

Charles Darwin

It is not the strongest of thespecies that survive, nor the most intelligent, but the one most responsive to change

Only two sources of competitive advantage:- the ability to learn more about our customersfaster than the competition and- the ability to turn that learning into actionfaster than the competition

Jack Welch

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Making a difference with customer insight requires thought, belief and action

Winning with a customer insight led approach is not a purely academic process

It requires the will and belief to put the customer into every business decision to represent the customer in every business case

It requires the ability to collect, manipulate and mine customer data

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What they want from your market place?For example what is important to them when they go shopping for groceries

How do they interact with your business?Could they spend more with you?Could they buy bigger baskets?Could they make more visits?Could they use more formats or channels?Could they use more services?

At the most basic level you need to know 2 things about each of your customers

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The Tesco story

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• Formed in 1924• The UK’s largest food retailer• Operating stores in all formats – convenience, high street, super markets

and hyper markets.• Operating in 13 countries around the world• The world’s leading internet grocery retailer

About Tesco…

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The customer is at the heart of the Tesco business

“Our mission is to earn and grow the lifetime loyalty of our customers”

Sir Terry LeahyChief Executive

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The Clubcard scheme is a “Thank You” to loyal customers and a mechanism for understandingcustomer behaviour

Launched in February 1995

For every £1 spent, 1 point is earned = £0.01

Customers statement mailed 4 times/ year with their vouchers

80% of transactions are made using a Clubcard

In total, customers have received rewards of well over £1 billion

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Clubcard registration data• Name, Surname, Address• Telephone and email• Dietary requirements

(Vegetarian, etc)• Family composition• Data protection opt ins and outs

Other sources• Clubs information• Customer complaints• Customer Market research• Contact history• Geodems, 3rd party

suppressions

data generated by Clubcard

Clubcard transactional data (100%)• EPOS feed – item level sales

information for all transactions• Coupon and voucher redemption• Store, date, time

Reference data• Store reference details• Product details• Store turnover• Coupon reference data• Promotions data

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data?

Miss Jones

The challenge is to translate raw data in to a clear picture of a customer

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This is a friend I know…

Tesco know 12m people in the UK as well as I know Miss Jones They know what she wants and they know how valuble she is

… she is a busy young lady... she looks after her health and loves fresh produce… she drives to the supermarket on a Saturday morning… she reads Hello Magazine… she has a cat … she doesn’t pay particular attention to prices… she does look out for promotions

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Mainstream X %Family type mealsPopular brandsKids products

Finer Foods X %“Foodies who are time poor, money rich and choose everyday luxury items”

Price Sensitive X %Cost conscious customers who tend to buy cheapest on display

Traditional X %“Traditional households with time to buy and prepare ingredients”

UpmarketX %

marketX %

Cost consciousX %

Convenience X %“People on the go who haven’t time or inclination for scratch cooking”

Healthy X %“Organic shoppers, fruit and vegetablesweight watchers etc”

Lifestyles –buy looking at what people buy we can understand what is important to them in grocery shopping

“You are what you eat”. This gives us an indication of what motivates customers when they shop.

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Shopping Habits – combines visit patterns and spend levels to understand each customers contribution and potential

Daily Twice Weekly Weekly Stop Start Now & Then Hardly Ever Lapsing Gone Away

High Spend

Medium Spend Lapsing Gone Away

Low Spend UncommittedPotential

Tes

co W

eekl

y Sp

end

Tesco Visit Patterns

Premium

Standard

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Customers receive communication and offers based on their Lifestyle and Shopping Habits

Communications to high spending customers based on their lifestyle or their interests and needs e.g. Pets, Organic

dunnhumby provide the targeting, produce the creative and source the offers

c.40% of customers targeted participate in these mailings by redeeming at least one coupon

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At the heart of Tesco’s communications to customers is the Clubcard statement

• 12 million customers mailed every quarter

• Delivers in excess of £45m ‘Reward’ to customers

• 7 million variations of product coupon offers

• Targeted using Lifestyles, Shopping Habits and behaviour

• Significant impact on revenue 4 x per year

• A valuable tool for suppliers – helps off set costs

• dunnhumby provide targeting and coupon sourcing

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All retail decision making considers the customer

The impact of customer insight upon retail decision support is 5-10 times more significant to the Tesco than 1-1 communication.

Range & AvailabilityRange & AvailabilityChoiceChoice

Price & PromotionsPrice & PromotionsValueValue

Channel/ Site/ FormatChannel/ Site/ FormatConvenienceConvenience

Promotions/ NPDInstore Theatre

Promotions/ NPDInstore TheatreExcitementExcitement

Trust and expertise (especially in health)Trust and expertise (especially in health)ServiceService

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Developing new ranges based on specific customer needs

Customer Insight led Tesco to develop several new house brands – Finest, value, kids, Organics, Healthy Choice

Today Tesco Finest is a £1bn+ brand, with over 700 SKUs

We have met the needs of a segment of customers who did not shop key categories in our stores but went to upmarket competition, like Waitrose & Marks and Spencer

Growth is 450% in 5 years

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The Finest brand has continued to grow, driven by customer insight

Tesco Finest

0

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15000000

20000000

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2000

01

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2000

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45

2001

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15

2001

26

2001

37

2001

48

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2002

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2002

40

2002

51

2003

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2003

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2003

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2003

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SKU's available

Sales

Smoothed

Products

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Repeat Purchasing Report - Track new launches in the category and understand how trial and repeat are driving top-line sales

70% of the people who trialled Vanilla Coke have bought it more than once – although trial is dropping off

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Vanilla Coke appears to have driven incremental growth in the category – 31.6% of buyers have not bought Coke or Pepsi in

the last 12 weeks

And steal from Pepsi is minimal – only 11.2% of Pepsi buyers have tried the new Vanilla or

Lemon varieties – although 44% have bought other Coke products

Use the Shop to evaluate the impact on the category

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Customer loyalty translates to business success

The number of loyal shoppers has tripled since 1996

Loyal customer average weekly spending has almost doubled

Achieved by improving the shopping experience for high potential shoppers

0

5,000

10,000

15,000

20,000

25,000

30,000

1994

1995

1996

1997

1998

1999

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2001

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Uk Gro

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Tur

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Tesco Sainsbury Asda Safeway Morrisons

Market share from 16% to 31%

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Tesco continues to achieve LFL sales growth of 4+% every year

3%4%

9%

8%

6%4%

4%5%

6%4%

7%

9%

2%

1993

1994

1995

1996

1997

1998

1999

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2005

Clubcard launched

Tesco LFL growth directly attributed to ClubcardSource: Tesco annual reports from 1996 onwards

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The Kroger story

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• Formed in 1883 by Barney Kroger• The USA’s largest traditional grocery retailer• Operating across 12 banners Including Kroger, Ralphs, Fred Meyer, King Sooper• Operating in 35 States• 42 million loyalty card holders• Started work with dunnhumby in 2003

About

http://www.kroger.com/index.htm

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Customer 1st…. We have helped Kroger develop a customer-centric business strategy to drive their future growth

“I shop Kroger because …• the prices are good• I get the products I want, plus a little• the people are great!• the shopping experience makes me want to return”

Customer data is crucial to this entire process

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Consumer centricity at Kroger

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Convenience at Home

Shoppers on aBudget Traditional Homes

Grab and Go Shopper

Family FocusedFinest

Watching theWaistline

(Least) Price Sensitivity (Most)

Segm

ent S

ize

Kroger have customised versions of Lifestyle and Shopping Habits

Daily Twice Weekly Weekly One out Monthly Occasional

High Spend

Medium Spend

Low Spend

Visit Pattern

Spe

nd

Premium Loyal

Valuable

Potential

Uncommitted

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010203040506070

VPS PS Mainstream Upscale

% s

ales

05

101520

2530


% sales

Middle

05

10152025303540


% s

ales Low End Broad

Appeal

010203040506070


% s

ales High End

Customer and Product SegmentationsWe have 4 customer-driven product price segments/positions

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How do we win back the Very Price Sensitive customers’business and build their long-term loyalty?

Change Their Price Perceptionby

Lowering the Price They Payon

Items That Matter Most

While ensuring that we most effectively allocate investment dollars

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Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05

© Copyright, dunnhumby 2006 — confidential

Kroger Same Store Sales (excluding pharmacy & fuel)

Kroger – dunnhumbyAgreement Finalized

% change

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Dave DillonChairman and CEO. Kroger Co.

“dunnhumby has actually helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual

facts. And it's those facts that are driving our decision-making”

Kroger Investor Conference Call 21/06/05

CEO’s view ….

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Conclusions

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dunnhumby’s blueprint for business success through customer centricity

Act

ion

AcquisitionDM

Retail strategy

Product development

Pricing Strategy

ATL Advertising

Retention programmes

Dat

a

Transactionhistory

Demo-graphics

Researchresults

Call centredata

DM responses In

sigh

t Customer segmentation

Propensitymodels

Customer KPI's

Prospectingmodels

Customer journey

Driv

es

Driv

es

Cha

nges

inC

usto

mer

beha

viou

r

Capture changes in customer behaviour via data and begin the journey again

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In conclusion

•To deliver the benefits of being a customer insight driven business you need:

• Good quality customer data and analytics

• A conviction that your business decisions should be aligned around the customer

•A customer insight approach will lead you to different decisions

•Tesco shows us that by understanding your customers better than any one and then acting upon it business can maintain a substantial advantage

•Kroger shows us that re aligning your strategy around the customer can deliver remarkable bottom line transformation

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Further information can be found in “Scoring Points”

'… loyalty marketing is a strategy, not a tactic. The reward is no more a bribe than a birthday present from your partner or a dividend to a shareholder is a bribe.'

Scoring Points –How Tesco is winning customer loyaltyBy Clive Humby & Terry Hunt

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Thank you

Contact: [email protected]

Using Customer data to improve business Tesco & … the heart of Tesco’s communications to customers is the Clubcard statement

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