Thursday, December 16, 2010

Tesco Metrics: Every Little Bit of Data Helps

Liam linked to an article in the Guardian earlier this week, which was all about Nudge. One comment in the article was that "while shopping, working, or even deciding on who to share their lives with, individuals are less thoughtful and less calculating than modern-day economists... typically assume." This blog-post zones in on shopping, in particular the data-analysis of consumer purchasing behaviour at Tesco. The Guardian article linked above also suggests that "any critic who points out that that's hardly news to the women...(and) the men at Tesco... is spot on." Indeed, Tesco have been conducting interesting micro-level analysis on individual behaviour for many years now.

An informative article on this topic was written by Jenny Davies in the Sunday Times last year. According to Davies, Tesco gets its data from its loyalty clubcard scheme; this was launched 15 years ago with much fanfare - the advert below may jog memories for some readers. Davies also informs us that around this time last year, Tesco was tracking "the shopping habits of 16 million families across Britain, delivering an extraordinary insight into their lives — not only for itself but for companies such as Coca-Cola, NestlĂ© and Unilever, which buy the rights to the data." Readers in the Republic of Ireland might also remember that the Tesco Clubcard was launched there on the 13th. Oct 1997. To date almost 800,000 members have joined in the Republic.

Jenny Davies also tells us that: "Each bill detailing every item in a customer’s shopping basket is logged in a data centre in London Docklands and decoded by Dunnhumby, the marketing firm that is in charge of the scheme. It has to process 100 baskets a second — six million transactions a day. This helps Tesco to decide which products should go on to the shelves at what times, and in early trials it increased sales by as much as 12% in some of the supermarkets." According to the Guardian (in this article), the power of the clubcard was demonstrated in 2009, "when Tesco harnessed the card's database to halt the exodus of shoppers to cheaper retailers because (of) the recession, by doubling the points available to shoppers."

In a blog-post on Tesco data from two years ago, Tony Hirst desribes the early analysis conducted by Dunnhumby, and how this has changed over the last 15 years. A couple of months ago, Dunnhumby (and its recently departed co-founders) were profiled in the Guardian. The article says:
According to company lore, there was a 30-second silence after Humby presented the initial trial's results to the Tesco board, until the then chairman, Lord MacLaurin, declared: "What scares me is that you know more about my customers after three months than I know after 30 years."
One question that readers might have is: what's in it for club-card holders? According to Tony Hirst, a good place to get an answer to this question is the book: Scoring Points: How Tesco Continues to Win Customer Loyalty. Hirst describes the "Clubcard customer contract: more data means better segmentation, means more targeted/personalised services, means better profiling. In short, the more you shop with us, the more benefit you will accrue." According to the Marketing Week magazine, "from the day of its launch in February 1995 the Tesco Clubcard was immediately embraced by customers attracted to the 1% discount off their shopping bills. But its long term success has not been built on discounts alone, rather on the personalisation of the shopping experience."

However, perhaps the last word should go to UCD social psychologist Ken McKenzie, writing on his A Head in Business Blog: "I don’t have a loyalty card, and every time I’m in Boots, Tesco or Dunnes, and they ask if I have one, I feel a slight sense that I should justify why I don’t, as it it’s odd to not have one. And according to rational actor theory in Economics, it is odd to not have a loyalty card and avail of discounts. However, there’s a small but growing body of work in the overlapping area between Psychology and Economics that might explain why (some) people might behave like me."

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