Dunnhumby and Tesco Partnership
Posted on Wednesday, March 13, 2019 by Phil Hutchinson-May — No comments
When Edwina Dunn and Clive Humby were approached by Tesco about launching a loyalty card in 1994 they were told in no uncertain terms not to get excited. Tesco was adamant this was a one-off – the company didn’t use consultants, it just needed a little help.
However, Tesco would in fact need a lot of help and over the course of the next 16 years the duo would be central to building the UK’s first supermarket loyalty card, Clubcard, which would irreversibly change the marketing landscape for retailers, brands and customers.
But first the couple got to work with their data analysis company of 30 people, Dunnhumby, crunching the numbers. In three months they had a quote: £250,000 over 10 weeks would be all they needed to run the trial – significantly less that Tesco’s own £50m in three years estimate.
They presented their case to Tesco’s Grant Harrison, who was leading on Clubcard, but before they’d finished the meeting it became clear they were going to have to take it to the top.
The day they presented to the board has now become a legendary moment for Dunn and Humby. After they had finished a “deathly hush” descended on the group of executives.
Humby recalls: “Everyone was waiting to break the silence and suddenly Tesco’s chairman, Lord Ian MacLaurin, said, ‘Well, this really worries me because you seem to know more about my business in three months than I’ve learned in 30 years’.”
Terry Hunt, who ran Tesco’s direct marketing agency Evans Hunt Scott, was also trying to curb his enthusiasm: “It was all pioneering stuff and a very exciting project. You could see the potential for massively changing customer behaviour but the tech was very basic.”
They were very stressful but exciting times. Suddenly everyone from the CEO downwards was turning up in the marketing department asking ‘are we going to make it?
Hunt, Dunn and Humby got to work and Tesco started a trial in three stores, then 14, with Clubcard customers earning a point for every pound they spent over £5.
Hunt explains: “We had to work out what was the minimum viable product, so work out what was the least we had to do to prove the point, because it was going to be a massive investment.
“The most important test was on how generous the points were so essentially you are giving about 1% back or 2% back. Because we did it over a reasonable amount of time over these stores, we learned that a 2% cash back didn’t justify itself in extra sales. The base level of 1% was enough and you could add promotions and giveaways.”
Despite the pioneering technology the targeting was “very paper-based”, according to Hunt. Direct mail, leafleting and local media buzz was how they generated sign-ups during the trial.
It soon became clear that Clubcard had the potential for huge success but the retailer still had doubts. Tim Mason, who became Tesco’s board-level marketing director in 1995, the year Clubcard launched, and later deputy CEO, recalls: “The decision became less ‘do you like this successful promotion?’ but more ‘are we committing ourselves to something we’ll regret?’.
“There was a period where the argument was: this is a zero-sum game. Yes, the promotion works but what will happen is everyone will do it and we, the industry, will be less profitable, and we won’t gain a competitive advantage.”
However, Tesco needed to make a decision fast. There were rumours that former rival Safeway was planning to launch a loyalty card. “We thought best get on with it rather than come second.”
Despite the agreement there were still three major challenges facing Clubcard: the sheer size of the data alongside quite basic technology, training staff and printing enough plastic for 20 million cards. Humby says: “I think we used up virtually all the plastic in Europe at that stage.”
Mason adds: “Everyone wanted to make sure it didn’t fall on its arse. They were very stressful but exciting times. Suddenly everyone from the CEO downwards was turning up in the marketing department asking ‘are we going to make it?’”
How Clubcard changed marketing
In February 1995, four months after Dunnhumby’s presentation, Clubcard finally launched and six months later Safeway rolled out its own ABC loyalty card.
Clubcard quickly transformed Tesco’s strategy. Mason explains: “In the early days all we knew was who you were, where you lived, where you shopped, when you shopped, how much you spent and which departments you shopped in.
“We had realised the importance of frequency. Because when you are in a store you can see a mother with two kids struggling with an overflowing trolley and you assume they are your most important customer but what you didn’t realise was the little old lady with the basket was actually coming in five times a week and the mother with the trolley was coming in once every month.”
Now, being asked for a loyalty card is a given but at the time Tesco was a pioneer. Normal promotions were about encouraging people to swap brands but Tesco was rewarding customers on their normal shops.
Dunn explains: “The science became quite sophisticated because first and foremost it was a thank you and that thank you was money off, so people visited the store one more time, which led to millions and millions of pounds’ increase [in revenue]. They would occasionally put another item in their basket which translated to a huge sales uplift.”
Mason says the transformation was in large part due to the vision of Terry Leahy, Tesco’s marketing director at the time of Clubcard’s development, who would go on to become its hugely successful CEO.
Mason adds: “The reason you were doing this was because you were hoping there was some loyalty effect, but what you wanted to do was open a direct marketing channel to consumers, get more data and run the business better. I don’t think anybody really expected it to go as big as it did… It was like getting Christmas over and over again.”
He adds: “There was inherent demand for something like that which we unleashed.”
Hunt say he knew Clubcard’s significance early on: “It was the first time a mass retailer could talk to individual customers on a personal level.”
Everyone working on Clubcard describes a highly intense, stressful period that was also immense fun.
“Products were flying off the shelves, response rates were almost too high. They were 40%, sometimes 60% – it was crazy. As it grew, retailers would come to us from all over the world asking to replicate Tesco,” says Dunn.
Dunnhumby grew 500% in five years with all the growth accounted for by Tesco, while the retailer doubled its market share in under three years. It wasn’t long before Tesco was using the data collected by Clubcard to plan new product launches and services.
Dunn says: “Clubcard became the keystone for anything innovative.” Soon it was introducing Baby Club, Wine Club and Pet Club, all of which were thanks to Clubcard.
“At the time M&S absolutely owned the premium ready-made meals and [Clubcard] helped Tesco introduce things like Tesco Finest, which very quickly became a bigger brand than Coca-Cola in the UK,” Dunn claims.
We had to work out what was the minimum viable product, so work out what was the least we had to do to prove the point, because it was going to be a massive investment.
She adds: “In a way we did more to change consumer goods than we did changing retailers because it changed every consumer products goods company around the world,” says Dunn.
Market research turnaround on new products was cut from weeks to months as brands could see early on whether new goods should be rolled out nationwide. Hunt cites one promotion with Terry’s Chocolate Orange that summer. The promotion began in the morning and by the afternoon the product was gone – selling 10 times what the brand normally sold in peak Christmas periods.
However, at times the retailer’s supply chain couldn’t keep up. Humby fondly remembers a Christmas promotion which promised discounted turkeys for Tesco’s “most loyal customers”.
“When we worked out how many turkeys Tesco would need there was a mass panic because they hadn’t got enough turkeys in the pipeline. So you had to have a free turkey or a free beef joint or a free piece of ham. It was hilarious but it also suddenly made us realise when you [create] a promotion that drives such massive change it puts a huge amount of stress on your supply chain.”
Mason recalls: “We showed that when you communicated through the right medium like Clubcard, [the response rate was] 10 times what you could get from any other promotion.”
Mason and Leahy went on to lead Tesco for almost 20 years with Dunn and Humby making a rumoured £93m from selling their business to the retailer. Today, 16 million customers use Tesco’s Clubcard and nearly every retailer has a loyalty card, with many heralding those first 20 million plastic cards as one of the most important retail innovations of the 20th century.
What they are up to now?
Clubcard was a springboard for nearly all those involved at the top.
Tim Mason is CEO of marketing technology company Eagle Eye and is releasing a book, ‘Omnichannel Retail: How to build winning stores in a digital world’ on 3 April.
Clive Humby and Edwina Dunn sold their business to Tesco in 2010 and now run data science company Starcount which helps global brands analyse what consumers’ want.
Terry Hunt is co-founder of loyalty strategy and marketing company The Future Customer, which helps brands build long-term business strategies and engender loyalty.
Tesco Clubcard Timeline
October 1994 : Clive Humby and Edwina Dunn present to Tesco’s board about the potential of Clubcard
13 February 1995: Tesco launches Clubcard
January 1996: Tesco overtakes Sainsbury’s as Clubcard holders were spending 28% more at Tesco making it Britain’s biggest food retailer
March 1996: Tesco Finest launches thanks to insights from Clubcard
1997: The man behind the Clubcard vision Terry Leahy takes over as chief executive of Tesco
2001: Tesco becomes majority shareholder in Dunnhumby
2005: Tesco profits top £2bn
2010: Tesco buys the last 10% shares in Dunnhumby for £48m