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The Tesco Loyalty Card Scheme

Paper Type: Free Essay Subject: Marketing
Wordcount: 5401 words Published: 2nd May 2017

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Today the businesses have become customer centric and the marketing mix of 4 P’s is now being replaced by 30 R’s (Gummeson2008). Companies are more focused on delivering the value demanded by the customers, they are creating exit barriers for the customers by maintaining good relationships with them to retain them and earn lifetime loyalty. Today in highly competitive markets getting new customers is costlier and more difficult than maintaining the existing ones. So, companies are putting more emphasis on Zero Defection Strategy and maintaining their customer relationship as best as possible. In this essay we will critically evaluate the loyalty scheme run by Tesco to manage its customer relationship and the RM techniques followed by the company with different target segments that whether they are successful or need some improvement in future.

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TESCO PROFILE: Tesco, a European based company is the biggest and the most profitable supermarket chain in UK. It is considered to be the fastest growing company and a successful supermarket in the world selling almost everything, from food to clothing and operating through both geographic locations and internet. (Retail loyalty scheme2003, Corporate profile Tesco2004). Tesco’s success so far is based on its marketing relationship strategies which it has maintained through the launch of Club cards in 1995(Mitchell, Peck2007). It has effectively used the scheme targeting different customers segments, for attracting and retaining them. Tesco’s main approach is to create value for the customers and earn lifetime loyalty and they try harder for customers than anyone else. (Corporate profile Tesco2004). They have taken advantage of major changes in the lifestyle and it is the key for their continuous success.

Relationship Marketing:

Gronroos has defined relationship marketing as, “An approach to establish, maintain and enhance relationship with the customers and other partners at a profit, so that objectives of the partners involved are met and this can be achieved by mutual exchange and fulfilment of promise.” Thus, relationship marketing is an approach to establish and maintain good relationships with the customers in such a way that, no party is in loss and there is a room for profit for both the parties. Keeping customers in the first line of defence and winning their loyalty is the main theme of RM.

Loyalty ladder Model: The model was suggested by Kotler 1997 for categorising customers on the basis of relations formed with them or repetition of purchases.





Repeat customers

First time customers


Tesco Company uses loyalty ladder and commitment based segmentation to retain its existing customers and it has categorised them in 6 different stages. These are:

logged on





logged off (needs win back the confidence)

Tesco works with them in the sequence upside down as believe that newest customers can make an impression or lose it. Tesco uses automated event messaging for encouraging them for regular purchase. Whenever customers register themselves, they are prospect and needs motivation to buy. After 2 days, receives a registration e-mail along with £5 discount on first purchase and the journey begins. Now they are first time customers or cautionary buying for the first time at discount and receive an e-mail asking about their experience and then another discount on next purchase. They keep on receiving bi- weekly alerts and e-newsletter on exclusive and personalised offers. On the top of mailing procedures the company offers Clubcard loyalty schemes to the dedicated customers with variety of incentives such as shop with the partners of Tesco, doubling the points on regular purchase and memberships with the clubs offered by Tesco. Now they are the established ones word of mouth will increase company’s reputation and brand equity. By joining the clubs they become members of the company. If company comes to know that a customer is not buying for a long period then a reactive e-mail is sent to survey if he is having some problem with incentive of £ 5. These are the logged off needs winning back the confidence with further incentives. Thus Tesco manages its customers and try not to lose them.

RM techniques of Tesco, the loyalty card scheme:

Customer’s loyalty plays an important role in RM, as their loyalty through repeat purchase and word of mouth with other customers can not only bring higher revenue for the company but new customers also. Tesco has managed all this through its Clubcard scheme; this is a membership card which allows the customers to save their money on shopping at any store of Tesco group of the companies or its partner companies and getting price off vouchers or Club card vouchers after collecting 150 points. As they win points on every pound they spend on shopping and after a limit these points get doubled, so such a scheme motivate the customers to buy more and earn points. On the other hand generate good revenue for Tesco groups. Such a loyalty scheme has enabled Tesco to increase its market share in grocery (squid2009) and overtake Sainsbury as a number one retailer. Following Tesco, many other companies like ASDA, Safeway and Sainsbury tried to run the loyalty card scheme but were unable to manage and match the success of Clubcard and failed.

How club card helped in retaining existing and attracting new customers:

The biggest challenge faced by the companies is to make their loyalty scheme, effective and appealing to the customers. Retailers need to clearly define the target segments, anticipate their needs and fulfil them properly to be successful (McGoldrick2002). Same is done by Tesco, as per the promise made by the company to create value for the customers it has provided club cards to the members and created following clubs where the members can shop and save money. Tesco targets 10 years old buy to 80 years old man as its customer and effectively offers benefits and value to all its targeted segments through these clubs. Members get magazines on different issues and price off vouchers from these clubs creating a creditability and loyalty for the company in the heart of the customers. The clubs for different segments are:

Tesco Kids Club: This club offers products and fun culture for kids of age 5 to 8 years and it is their parent’s choice to join the club for kids and buy gifts for them. They provide them with the tips for safety and health of the kids to the parents to create creditability and soft corner on parent’s heart. (harlequin1,2001)

Tesco Baby and Toddler club: This club offers tips and advice about the child care and pregnancy tips to would be parents or pregnant ladies. Club provides them parking area closer to the store to facilitate the ladies and such a deed builds strong relations and trust for the Tesco Company and customers prefer the club for a long.

Tesco Healthy Living Club: The club offers magazines and booklets for health tips and it is for the middle aged or old people who want healthier living. It also provide price off coupons on organic and dairy foods to promote its Healthy and Organic foods and win creditability as a health conscious retailer.

Tesco World of Wine Club: it provides a good and new range of wine for those to like to drink and promotes it through price offs to attract some new customers too. It also gives information about what kind of food goes with which wine.

Tesco Food club: it provides its members cooking tips and teaches them techniques to cook easy, enjoyable and tasty food. “How To” videos for cooking facilitate the members to watch and learn the making of the meal and even they get mails about ideas for simple weekdays meal and menu.

Like these Tesco have some more benefits too like greener living cards, association with Air miles company etc but its success is more dependent on its partnership with many other companies like Powergen electricity and gas supplier, beefeater restaurants, National Tyres and Avis car hire etc and customers can use the clubcards to deal with these companies also. Besides this, online shopping, Tesco petrol stations, Tesco mobile and credit cards also add points for the customers. Thus integrated approach of Tesco for maintaining relations both with the businesses and the customers helps the company to win trust of the customers.

Clubcard as a CRM Tool

The loyalty card scheme presented by Tesco acts as a CRM tool for the company collecting necessary information about customer’s buying habits and their specific needs. For getting club cards, customers have to get registered through filling a form online, on paper or through telephone. This form seeks the necessary information about the customers helping the company to design their marketing strategies as well as develop new products and offer them to the customers in a cost effective manner. Every year, nearly all the transactions held at Tesco are linked with the customer’s profile and now it has become company’s philosophy to maintain and retain good relations with customers (ICMR, 2003). By getting information about the customers, company is able to understand its customers better and can serve them in the best possible way. Tesco consider the scheme as a learning process through which it can know about the customers, what they want from the retailer and how they shop and provide them the value and benefits asked by the customers and promised by the company. (Humby, 2003) The reward system of discounts and price offs has enabled the company to successfully maintain the relations with the customers.

Critical evaluation: Clubcards loyalty schemes have enabled Tesco to grow as a no.1 retailer in UK market leaving the competitors behind who were not able to run such schemes profitably. The Clubcard customers are also benefited by the schemes as they can shop and earn points with Tesco partners. Company listens and modifies its activities on their recommendations such as Wine club and Kids Club. (Rowley2007). But it was not successful in all the target market such as student segment.(Retail loyalty Scheme2003) and not able to still attract the student’s segment by offering them the benefits like special discounts as many retailers in UK do such as Peacocks, Apple store etc.(aceltham.co.uk2010). Also the redemption process of the vouchers is time consuming as it is through post and not online. Even the redemption value of the clubcard points is also very low. (Tesco2010). Not that loyalty schemes really makes the customer loyal because customers pay for the service they received which contributes to store loyalty and repetitive purchase.(Turner& Wilson2006) So, it is necessary for Tesco to emotionally appeal the customers and manipulate their interest as in the competitive world switching to the competitor costs very low for the customers.

Would Tesco be successful without the ClubCard:

Tesco’s success depends on its targeting different segments and fulfilling their needs by developing strategies and products as per the demand. All this it can manage through its loyalty schemes. Many others companies have also tried such schemes, as Nectar, managed by Loyalty Management UK Ltd also offers the rewards and points on shopping from its members(Rowley2005) but not as successful as Clubcard. Tesco considered as CRM champion after the launch of loyalty scheme because it was able to win trust and loyalty of their customers both in behavioural and attitudinal form. The whole credit goes to the Tesco management who has effectively formulated the strategies for the target segments, derive information about their needs through their profile and delivered the value with the help of its CRM tools (ICMR2003). Even the rewards and benefits gained by the customers from its partners also helps in retaining the customers as they found it costlier to switch to other company. So, we can say without Clubcard, Tesco would have to struggle a lot to become as successful as it is now.


Track the polygamous loyalty customers and provide them with better incentives for their better word of mouth as they deal with many loyalty schemes and make them feel that Tesco is better than others.

Take advantage of modern communication technology and allow online chat rooms.

Regular emotional attachment with the customers will lead to behavioural and attitudinal loyalty.

Attract student segment by offering them additional discounts more than other segments.

It costs five times more to acquire a new customer than to retain the existing one so company needs to apply positive switching barriers for customer retention.(Gee, Coates and Nicholson2008)

Appropriate monitoring is required to evaluate that customer defection is not covered up by customer acquisition. (Gee, Coates and Nicholson2008)

Tesco can provide a combination of currency-points flexibility. (Strategic Direction 2007)

Analyse the LTV or estimated profitability of the customers and then allocate company’s resources to them such as marketing spend. (Day, 2003)


Conclusion: After going through the relationship strategies and loyalty schemes of Tesco, it can be said that with the help of single loyalty scheme, it was able to target and address customer segments of different age groups. Club cards act as a CRM tool for the company and company has adopted the culture to follow the customer’s needs and reward them accordingly. Tesco has effectively managed the loyalty scheme and was able to win the trust and loyalty of the customers in return which helped the company to grow so far. It is advisable that company should maintain its relationship marketing strategy and loyalty scheme and redesign them as needed to provide the differentiated advantage to the customers forever.


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Abstract 12

Introduction 12

Tata Steel Profile 12

Branding Steel 12

Customer Base Brand Equity Model 13-14

The Initiatives act as CRM tools 15

Benefits Reaped with Branding 16

Critical evaluation 16

Recommendations & Conclusion 16

References 17

Abstract: The report is about the B2B relationship of Tata Steel Company that how they manage their relationships with their business customers and the techniques they apply for the same. Critical evaluation will be done of the techniques that whether these are appropriate or any recommendation required will be given to the company.

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Introduction: B2B marketing is the practise of doing business with other organisations or the businesses not the ultimate consumers. This practise is not new and is old as commerce itself but the concept of B2b marketing is quite recent. Companies sell their products to other companies and organisations to resell them or use the components or products for manufacturing the stuff, they are offering to the end users or support their activities. Today the focus is on maintaining relations with the customers as who is the customer today will be tomorrow also if they are being treated well. (Morgan & Hunt1994)The organisation has to manage these relationships for acquisition and retention of the customers. For acquisition they need to create value for them and for retention they need to enhance the value offered or sustain it. (Morris, Pitt, Honeycutt2001). We will evaluate the B2B approach followed by the Tata Steel, the model followed to collect information about their business customers and strategies they followed to make their customer happy.

Tata Steel Profile: Tata steel, a part is Tata Group is the world’s sixth largest steel producer operating in more than 20 countries. In past few years with the investment in Corus, millennium steel and NatSteel Holdings the company is able to create a marketing and manufacturing network in South East Asia, Pacific-rim countries and Europe with the capacity to produce every year 30 million tonnes of crude steel. (docstoc.com2010, Tata steel 2010) In year 2001 and 2005, it was ranked as world’s best steel company. (Kotler2006). The profitability of the steel companies depend on the business cycles, they can make profit in the times of boom in the economy and loose it in the recession. Even the external environmental factors also affects the revenue generation of the companies. So to reduce the dependence on the business cycles and make continuous flow of revenue Tata steel adopted the strategy of branding,(ICMR2004) so that customers would buy the brand and pay the premium for the value added services provided to them with the brands. Tata Steel has also launched various initiatives for promoting its brands such as CVM, RVM, CAMs and ecommerce.

The strategy they follow to create relationships with the business customers is branding, CRM initiatives and e commerce.

Branding steel:

A successful business marketer knows the customer needs and offers them the same. Tata has also recognised its customers in two segments the end users and businesses& organisations using steel for the manufacturing of their products mainly automotive industries such as Maruti, Ford, Telco, Honda etc and realised that 80% of the sales is being covered by these business sectors, so it formulated different strategies for B2B and B2C segments. The company’s B2B customers are more knowledgeable and brands help to create good finance and public awareness for the company. (Kotler,2006). So, Tata steel branded its products under following brands:

Tata Steelium for cold rolled steel

Tata Shaktee for galvanized sheets

Tata Tiscon for re-bar

Tata Wiron for wires

Tata Agrico for hand tools and implements

Tata Pipes etc.

Customer Based Brand Equity Model: The model was suggested by Keller(1993,2001,2003) and constitutes of four stages through which brand is created and built its equity and strong relations with the customers. The model can be used in both B2C and B2B context. The model is in form of ladder going upward and it is subdivided in form of blocks in pyramid. (Kuhn &Alpert, Keller2001) Let’s see how Tata Steel branding policy fits in the CBBE model.


The model has four phases for creating, enhancing and maintaining relationship with the customers through brands.

Creating identity for the company or the product: First of all the company needs to create awareness among the business customers about the product. Variety of steel is available in the Indian steel market and it becomes really difficult for the customers to differentiate that which one will be suitable for their use. Keeping that in mind, Tata Steel focused on customers need and then branded the steel to facilitate its business customers. Now they can order the variety or brand needed.

Delivering value: The company realised that its B2B customers are more knowledgeable than ultimate customers, they don’t buy the brand rather are keener about the quality, specificity and performance of the steel. So, for better performance of the product and satisfying customer’s psychological needs the company has promoted the brands in accordance with its usage as Tata Tiscon for constructional bars and Tata Shaktee for roofing and NatSteel for cold rolls etc. For making the scheme successful, brand management department has been created in 2002 to evaluate and train the staff and sales personnel accordingly. They focused on making more and more interactions with the customers to understand their needs and offer them the needful in a better and improved way. They made their branded products highly value added to beat the industry and take the company to new heights of success. (Kotler2006). Following the excellence model of Tata (TBEM), the company kept on making improvements in its offerings and undertaken many initiatives such as Retail Value Management, Customer Value Management and Customer Accounts Managers to help their business customers in brand promotion, building brand equity and solving their grievances.(Improvement initiatives,2009)

Customer’s positive responses: It is related with the responses given by the customers on the basis of the judgement and feelings associated with the brand that how far the products were successful in satisfying their needs.(Keller2001) With the continuous improvement in the offerings and CRM initiatives the company was able to place itself as the World’s Best Steel Company in 2001 and 2005,(Kotler 2006) by the studies done by World Steel Dynamics, USA. Its bearing division became the preferable supplier for Hero Honda and Toyota motors and they recognised the company as “Zero ppm Supplier” and “Direct Online Supplier”. (docstoc2010)

Maintaining strong relationships: Tata steel was successful in making strong relationships with its business customers and 60% of its products are sold through contracts and company spend 1.3% of its turnover in maintaining its brands.(Kotler2006). Branding of steel is providing the business customer’s a stable price of the commodity which creates a good impact on the business customer’s mind. Aligning with the Tata Group’s internationalisation initiatives, the company was able to acquire NatSteel Asia and Corus UK as both the companies were seeking to establish long strategic alliances with the reputed steel companies of the world and Tata was able to do so with its deep social commitment towards society, trusted and reputed relations with the stakeholders.(Noronha2006,2007)

The initiatives for maintaining successful relationships:

Along with the branding, some more customer centric initiatives has been undertaken by the company for better understanding of the customers and direct and continuous interaction with them to maintain strong relationships with their customers. (improvement initiatives2010)

Retail Value Management: The initiative was started in 2002 to redefine the concept of retailing and build stronger relations with the rural retailers by educating them about the selling techniques and customer’s need. The company has planned to target the small retailers operating in the rural areas and enhance the retail chain to near about 4000 retailers and serve the rural market personally by integrating retailers in the program and research done by the company help the retailers in selling the product according to the customer’s specific need. (Media releases Tata,2006, High beam research2006)

Customer Value management: Tata steel has started the initiative to retain and build strong relationships with its customers. These were designed to deeply understand needs of the business customers and deliver improved value added products. They build teams to study the value chain of operations like receiving, storing, deploying of steel by the customers and even rejection. The company was able to understand the problems related with the value chain and provide deep insights to solve them at an effective and less cost. Thus company was able to win loyalty of the customers by making the supply chain (sales team, dealers and retailers) more customer focused and customer sensitive (Pullanikkat 2010, Economic times 2007)

Customer account manager: Company has maintained separate accounts for the customers for improvement and focus on business customers. The accounts were categorised as under:

Enterprise accounts: potentially large and long term accounts.

Commercial accounts: the key accounts

Distribution: for the customers accessed through distributors. (docstoc2010)

Such an initiative helped the company to classify their customers on the basis of their transactions and now they can deal with these customers accordingly. This also helped in solving their problems and grievances and increase interaction with them for better understanding. (Kotler2006, scribd.com2009)

E business: Tata steel has started the initiative for e business looking forward to tap the opportunities of information technology. These are E-procurement and E-sales, the e- procurement allows the business customers to get multi dimensional information, such as online and offline quotations logging for auction, inbound supply chain, order placement, material receipt and delivery compliance monitoring. Some new and value added features like negotiation chat rooms for reverse auction, e-mail notifications and acknowledgement and FAQ’s are also offered. (E-procurement system, Tata steel 2010)

Benefits Reaped: The Company is able to succeed so far due to the its relationship marketing through branding, strategic alliances as well as other initiatives focused on customers need and building long term relationships with them. Through its strategic alliances especially with Corus, the company has moved on from fifty sixth position to the sixth largest steel maker in the world.(Norohna2007). Mr Muthuraman, managing director, Tata Steel says “Branding helped the company in gaining both the tangible benefits in form of pricing and intangible benefits in form of loyal customers.” The successful RM startegy so far has made Tata Steel World’s Best Steel company and has started co branding initiative in 2003 with the automobile companies such as Ashok Leyland and Telco (ICMR2004) and has decided to move on with co-branding in consumer durable sector.

Critical evaluation:

B2B customers focused more on functionality or performance rather than taste or aesthetics as customers on consumer market do. (Anderson & Narus,1999). Tata steel has taken the initiative of branding steel to protect itself from fluctuations in business cycles and set a premium price on steel through brands. Through its regular upgrading and customer focus was able to become the most preferable brands in steel. But there are price sensitive customers in industry that seems steel as a commodity not a brand and are not ready to pay premium prices for that. The company needs to educate and create awareness among these customers.(Norohna2003). Tata steel is selling steel under different brand so it should be careful that customers may not be intense and actively loyal with all the brands, they may experience resonance with a particular brand.(Keller2001). Branding is related with making a promise to the customer and delivering it so far but if in any case company fails to deliver the brand meaning it can lose its market position and customer may move on to the competitors. Online branding technique is now getting popular in western countries and as Tata steel operates in six continents why hasn’t taken the initiative yet? The company also finds challenging, the management of the channel to sell the branded products in near future, says Mr Muthuraman.

Conclusion and Recommendations: The above report shows the Tata steel strategy followed for B2B relationship marketing. The company has managed it with branding the steel and remained customer centric by adopting and launching various initiatives like CVM, RVM, CAMs and e-commerce. As, it has been noticed that branding has not only helped the company to generate regular flowing revenue but also helped in maintaining long term relationships with the customers and become the preferable supplier of the customers. Such initiative has also made feel the importance of relationship marketing to the other steel makers. Along with the success, relations with business customers have brought about new challenges for the company which needs some recommendations:

Regular check on the product quality is needed as brands provide quantitative and qualitative satisfaction to the customers.

Brand awareness among the price sensitive customers as among these some can turn to be the loyal customers.

Online branding initiative should


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