Introduction and Overview
The Importance of CRM
Retailers have struggled for loyal customers using a variety of tools. The focus on prices has been one of the most widespread strategies to achieve this goal (Ray 2010). Nonetheless, in the era of social networks and universal connectedness, the development of proper relationships with customers has become vital. Customer relationship management (CRM) has become a common tool used by organisations to develop effective relationships with customers (as well as partners).
CRM can be referred to as “an integrated information system in which the fundamental unit of data collection is the customer” (Dunne, Lusch & Carver 2013, p. 488). It is necessary to note that successful retailers tend to have effective CRM systems. Tesco can be regarded as an illustration of an organisation that utilises this type of information system effectively.
Overview of the Organisation’s Position in the Business Sector
Porter’s five forces: new entry
To evaluate the efficiency of CRM system used in Tesco, it is first important to evaluate the organisation’s position in the business sector, which will provide the necessary background for the analysis. The external factors affecting the company’s development can be considered with the help of Porter’s five forces. Varley and Rafiq (2014, p. 46) note that the threat of new entrants in the “major force driving competition” in the retailing industry.
Tesco is one of the largest retailers in the UK, which means they provide a wide range of products and, hence, operate within several retail sectors. The level of profit varies from sector to sector, but it is clear that the industry is attractive for new entrants. Capital requirements are not very high, and economies of scale can be achieved by addressing suppliers from India or China. Many large retail chains (especially those operating globally) often try to use the prices offered to customers as their major competitive advantage.
For example, when entering the UK market, Aldi used a “new type of retail format… the hard discount format” (Varley & Rafiq 2014, p. 48). Although new entrants are likely to fail to find the most appropriate sites as they are occupied, there are still many options. Access to suppliers can also be rather limited in some sectors as they can lack the necessary capacity to satisfy the needs of existing partners and new ones. Finally, customer loyalty is another barrier to a new entrance as retailers have adopted various CRM strategies that are instrumental in developing proper relationships with customers who are eager to buy from them.
Thus, retailers utilise such CRM tools as loyalty cards (including discount and reward cards), loyalty programs, magazines, call centres, email contacts, and so on (Varley & Rafiq 2014). Smaller retailers also use various strategies to develop relationships with customers. Therefore, the threat of new entrance is rather high, which means that Tesco should try to keep prices at an appropriate level, make sure the suppliers can satisfy the retailer’s needs and develop proper relationships with its customers using various means including effective CRM tools.
Bargaining power of suppliers
The power of suppliers has acquired quite specific traits in the modern retailing industry. On the one hand, retailers do not have such power they had in the middle of the 20th century when they almost dictated pricing policy to retailers (Varley & Rafiq 2014). At present, retailers have their brands and can have relations with various producers worldwide. The competition is very intense in some areas, which makes producers lower down prices to get the contract with such large retailers as Tesco. Small local producers are specifically vulnerable and have to lower down their prices to enter the retail chains.
Nonetheless, such huge producers as Pedigree or Procter & Gamble with their well-established brands have significant power as customers often prefer their products and alternatives are scarce (Varley & Rafiq 2014). This peculiarity makes such producers rather influential, and retailers have to negotiate with them to obtain products at certain prices. At that, irrespective of some brands’ positioning, the supplier power is still quite low.
Bargaining power of customers
The bargaining power of customers is not high due to several reasons. First, shoppers often prefer buying from retailers as this purchasing experience is positive since they can buy everything they need in one place. More so, shoppers are often unaware of other (smaller retailers) who may have lower prices but are located in distant areas (Varley & Rafiq 2014). Again, the use of CRM tools enables retailers to retain customers. It is necessary to note that the development of technology (and online shopping in particular) has had a certain impact on retailers as people have started buying online more.
At that, in many segments (for instance, grocery) online buying is not very common. The development of such resources as PriceRunner, a website that compares prices for products provided by different retailers, still does not change the situation as shoppers are comparatively inflexible. At the same time, Varley and Rafiq (2014) add that customer power is not high, but retailers have to comply with a variety of regulations that focus on their pricing and quality policies. It is possible to conclude that buyer power is low.
Threat of substitute
One of the major threats of substitute is associated with the use of the Internet. As has been mentioned above, online shopping is not very common in some segments, but it is quite significant in some areas. For instance, clothing is one of the retail sectors that is becoming characterised by high use of online shopping. Many retailers (like Mark & Spencer) already have online platforms that have become quite popular among customers (Varley & Rafiq 2014). The emergence of online-only retailers is also a serious threat since such companies as ASOS provide products at quite low prices, which attracts more and more consumers. These retailers also employ various CRM tools that enable them to collect the data to develop proper relations with customers. Therefore, it is possible to note that the threat of substitution is moderate or even rather low as only certain sectors are involved.
The competitive rivalry is rather high in the retailing industry. The major competitors of Tesco are Asda, Morrison, Sainsbury’s, Lidl, and Waitrose (Butler & Davies 2016). These are well-established brands that have good positioning and have a significant number of loyal customers.
These retailers employ effective CRM tools that include emails, call centres, loyalty cards, magazines, and so on. Importantly, these retail chains also can lower down their prices, which is one of the most potent strategies to attract customers (Varley & Rafiq 2014). Tesco is hardly able to use lower prices and, hence, CRM is key to the retailer’s success. Therefore, it is possible to note that competitive rivalry is another potent external factor that can have a considerable impact on the development of the organisation.
Evaluation of the System
Club cards and vouchers
Tesco is regarded as one of the pioneers in the sphere of CRM as this organisation was one of the retailers that introduced a loyalty card (Mukerjee 2013). This proved to be an effective strategy that made the retailer number one in the UK market. Tesco managed to use the loyalty card program to develop effective communication and, thus, relationships with its customers.
On the one hand, the retailer managed to collect valuable information concerning some features of customers (age, gender, and so on) and their buying preferences and capacity. The collection and analysis of these data, on the other hand, enable Tesco to come up with a customised approach to its customers.
Mollah (2014) notes that segmentation is a key element of the successful implementation of the CRM strategy. Tesco employed this approach as the retailer divided the customers into three major groups: ‘cost-conscious, mid-market and up-market’ (Rainer & Cegielski 2010, p. 327). Tesco could trace the items purchased and the amount of money they spent. This provided the retailer with valuable information that was used to predict shopper’s behaviour as well as facilitate sales.
The increase in sales proved that the system was effective, and the research concerning customers’ satisfaction and loyalty shows that customers appreciate the customised approach (Turner 2012). Mollah (2014) notes that customers believe that the club cards save their time and inform them, which improves their buying experiences.
In the 2000s, further segmentation was utilised, and the company provided cards to customers who had similar interests or buying preferences. For example, Tesco created Toddlers Club and Kids Club, Christmas Savers Club and World Wine Club, Health Living Club and My Time (for females) (Payne & Frow 2013). Importantly, the clubs also had a social outcome that will be discussed later in this paper.
Apart from cards, vouchers are also an effective CRM strategy that is frequently used in the retailing industry. Gorton et al. (2013) claim that vouchers help retailers to develop a favourable image among the customers and facilitate sales. One of the most remarkable examples of the creative approach to CRM is Tesco’s campaign Tesco Computers for Schools. The program is also an example of the way CRM can be linked to charity and the development of the organisation’s positive image and reputation.
Thus, people bought items from the retailer and received vouchers that could be given to UK schools (Papasolomou 2012). Schools could collect vouchers and obtain computers from the retailer. Papasolomou (2012) stresses that the program proved to be successful as it contributed to the development of a positive image of the retailer. It also boosted sales as customers were eager to collect more vouchers. The card system also helped to analyse the ways people obtained vouchers. The company obtained data on the items people bought, money spent, frequency of shopping, and so on.
The card system Tesco employed is managed by Dunnhumby. Dunnhumby is a data mining company that was bought by Tesco in the 2000s and developed the loyalty card system for the retailer (Xie & Allen 2013). The company considers data concerning customer’s features, preferences, frequency of purchases, money spent, seasonal purchases and so on.
The club system is provided through the ‘Oracle’s suite of cloud solutions’ (as cited in Nguyen 2014, para. 3). Initially, the system was based on on-premise Oracle software. However, the cloud systems that emerged enabled companies to optimise their IT solutions. Tesco is now adopting Oracle Fusion cloud systems (Nguyen 2014). Dunnhumby professionals note that they focus on automatisation and efficiency of data analysis.
It is necessary to note that these systems include the analysis of data received from call centres of the retailer. Call centres are also an effective CRM tool as they provide a platform for communication and feedback from the customers (Rainer & Cegielski 2010). This platform is especially instrumental in dealing with various issues concerning the quality of products and services provided. At the same time, this is also a sign of care, and customers appreciate the attention paid to their needs and interests.
It is possible to note that the CRM systems associated with Club cards and vouchers are efficient as they facilitate sales, provide valuable information concerning customers and their buying capacity and preference, as well as help to develop proper relationships with customers and build a favourable image. Dixon (2013) emphasises that loyalty card systems’ major advantage is their being informative as they enable organisations to adapt to the changing environment. Thus, Tesco can shape its pricing policies as well as the range of products sold based on the analysis of customers’ buying preferences and buying capacity.
The use of segmentation is also beneficial for the company as it enables the retailer to customise its communication with customers who often pertain to different groups (divided by income, educational backgrounds, ethnicity, gender, age and so on). It is also necessary to note that the company manages to store and process data effectively through the use of Oracle clouding systems. Labusch, Winter and Uhl (2014) claim that cloud provides various opportunities to organisations that can optimise the processes associated with data storage, collection and analysis. Clouding systems make the data available and accessible, which is essential in the modern digitalised world.
It is possible to note that the Clubcard system was not the only strategy used. At that, it was the basis and the background for the development of other CRM tools. Magazines can be regarded as some of the most effective and controversial ones. Gargalas and Teall (2010, p. 468) note that many retailers have used magazines as a means of communication with customers, but Tesco was the first one to ‘mass-customise’ these resources. Customers receive magazines that are customised following the interests of a particular club within Tesco’s loyalty system.
On the one hand, magazines provide the feeling of specific care (Gargalas & Teall 2010). On the other hand, shoppers are informed about available products, novelties and special offers. The magazines also contained coupons and other offers that could be interesting to particular groups of customers (as decided based on the data analysis). Gargalas and Teall (2010) state that this CRM strategy has proved to be effective, but it also received certain criticism. Some people accused Tesco of being environmentally irresponsible as they used too much paper to send magazines to their customers.
It is necessary to note that this CRM strategy is rather effective as it informs customers and reveals the retailer’s attention to their needs and wants. As has been mentioned above, segmentation is an important and favourable strategy retailers can utilise (Mollah 2014). First, the organisation can provide the information the customers (and the retailer) are likely to benefit from. For instance, each type of magazine includes information on items that are likely to be bought by this or that group of customers.
This segmentation facilitates sales since people receive information on products they are likely to be interested in. Of course, the customised approach is beneficial for the development of proper relationships with customers. At that, the positive image of the retailer is somewhat damaged due to environmental concerns. The provision of magazines is associated with quite a considerable adverse impact on the environment. The retailer should address this issue to make sure that the company has a positive image and standing in the retailing industry.
The 2010s can be regarded as an era of social connectedness. Social networks have become digital platforms for sharing ideas and developing (as well as maintaining) social connections. It is but natural that retailers are also using social networks as their CRM tools. Tesco utilises Facebook as the communication panel and a platform for sharing ideas, attitudes and information (Peeroo, Samy & Jones 2015).
Customers give their feedback on their purchasing experiences and provide helpful tips on various products and services the retailer provides. Tesco does not only provide information on various products, services, loyalty programs through Facebook, but the retailer also uses the data obtained. The data become a part of the pool used to develop various loyalty programs to improve quality, and so on.
Peeroo, Samy and Jones (2015) stress that social networks (Facebook, in particular) have twofold implications for the development of a retailer. Of course, customers give their feedback and share their positive experiences, which facilitates the quality of products and services provided and motivates customers to buy from the retailer.
At the same time, customers tend to focus on negative experiences and even give information concerning prices and products provided by Tesco’s competitors. This harms the development of the retailer as it can avert even loyal customers from the retail chain. Therefore, it is clear that this strategy needs particular attention and certain changes. It is vital to make sure that customers’ feedback and information posted is addressed. There should be an ongoing dialogue between the retailer and the customer.
Tablets, mobile applications and cloud system
One of the newest CRM tools Tesco uses is Hudl that is a tablet computer people can use to shop online as well as watch ‘Tesco-branded digital content’ (Foley 2013, para. 4). As has been mentioned above, the company aims at improving shoppers’ experiences and making them more effective and enjoyable. The new device enables the user to shop at any time and in any location. It is necessary to note that the tablet unifies the actual shopping spaces and the digital world as customers can buy any goods sold in Tesco supermarkets and Tesco-branded digital products including films and various applications.
Importantly, the retailer’s top management still focuses on personalisation as one of the most important CRM aspects. Of course, the users receive customised information on various special offers, prices, news products and services as well as locations of new Tesco supermarkets. It is necessary to note that the company still uses Oracle systems to store and process the data available. Tesco mobile applications developed are also aimed at making customers’ purchasing experiences enjoyable (Foley 2013).
Customers can check on items available and particular supermarkets where they are located. They can also buy through their mobile applications and then fetch the items in the closest supermarket in the most convenient time. Such technological advances as tablets and the use of mobile applications can be beneficial for the retailer as these technologies have become an indispensable part of people’s lives and they are ready to use their device in various settings. Gummesson (2012) emphasises that mobile applications are likely to become central to retailers’ CRM practices as these technological advances provide the necessary flexibility and connectedness.
The experience of Tesco shows that the use of technology is essential for the development of proper relationships with customers. At that, it is also essential to make sure that winning strategies that have proved to be successful should also be employed. Segmentation is one of these strategies as it enables organisations to facilitate sales, customise their communication with customers, predict shoppers’ behaviour, adjust various policies, develop a favourable image (Mollah 2014). Therefore, the technologies used should be consistent with this approach.
The development of Tesco tablets provides various opportunities for the improvement of CRM practices. Due to intense competition in the market of tablets, Tesco announced its decision to stop producing this highly popular item (Brown 2015). Brown (2015) notes that the tablets were very popular due to their low prices and various functions that were available to users. The product can also be used as an efficient CRM tool. Thus, digital magazines can be sent through these tablets. The company will reduce its expenditure on magazines production and delivery.
The use of digital magazines will also address the criticism concerning the negative environmental impact. The segmentation can be manifested in the use of sets of applications available for different clubs. Thus, people pertaining to the wellness club can have Wellness Hudl where a variety of applications related to the topic of wellness will be provided. Kids Hudl can have a set of children’s eBooks as well as games for certain ages. The colour of the tablet can also be customised as there can be Tesco style Hudl (silver or black) and My Time Hudl (pink or flowery).
It is also important to make sure that the tablet can be aligned with various mobile applications Tesco customers may have. Of course, the retailer should continue investing in the development of its digital content to provide more options to its customers. Mobile applications, as well as tablets, can also be presented to customers through voucher-related programs. Finally, there should be a proper use of social networks (Facebook, Twitter, Instagram and so on). These social networks should be available through Hudl.
Besides, it is important to make sure that positive information prevails. It does not mean the use of censorship, of course. However, each negative feedback or data that can negatively affect Tesco (information about lower prices of competitors) should be addressed immediately. The customers should focus on the benefits of buying from Tesco rather than options available to shoppers. Of course, it is essential to start various discussions concerning the company and its products.
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