Case 2.3 Does Tesco hold all the cards?
This case was prepared by Helen Mitchell and Helen Peck, Cranfield School of
Management, as a basis for class discussion, rather than to illustrate effective or
ineffective handling of an administrative situation.
© Copyright Cranfield School of Management, December 1997. All rights
reserved.
Introduction
On 13 February 1995, grocery multiple Tesco launched Clubcard, the UK’s
first national supermarket loyalty card scheme. A spokesman for Tesco
explained that the principal objective of the scheme was not to lure shop-
pers away from competitors’ stores. Clubcard was, he claimed, ‘a way of
saying thank you to existing customers’. He went on to add that Tesco was
aiming to recreate the kind of relationship that had existed between local
shops and their customers 50 years ago.
In the weeks following the Clubcard launch Tesco’s leading competitors
were dismissive of the whole idea of loyalty cards. None more so than
David Sainsbury, who regarded the Clubcard as ‘the Green Shield Stamp
way of offering value’. In his opinion the scheme would ‘cost at least £10
million just to administer. That’s wasted money which brings no benefits
at all to customers. We have no plans at all to go down that route.’ The 1
per cent discount offered by Clubcard was, he believed, of insignificant
value to the customer. Observers in the City were equally sceptical and the
anticipated additional marketing overheads were cited by financial ana-
lysts as being partially responsible for the two pence mark-down in Tesco’s
share price following Clubcard’s launch.
Nevertheless, speculation was rife that within a matter of weeks other
leading supermarket chains would be forced to follow with their own
national loyalty schemes. Market leader J. Sainsbury already had its own
Saver Card scheme in place in a limited number of stores, as did third-
placed rival, Safeway, with its Added Bonus Card (ABC). Both schemes
were devised as promotional devices, offering small percentage discounts
to shoppers in a bid to boost sales at poorly performing stores.
Industry background
Tesco’s initiative had served to heighten the competition in the already
fiercely competitive supermarket sector. The total value of the UK grocery
sector in 1994 was £54.9 billion^1 and was dominated by larger businesses
(defined as those with 1990 turnover of £4.5 million or more) who gener-
The customer market domain: Managing relationships with buyers 79