Tesco uses customer data to stride ahead of competition

Fresh insights from customer data allowed Tesco to meet consumers' needs faster and more accurately, growing Tesco's market capitalisation 10-fold in eight years while its chief competitors' market value fell, the retailer's former CEO Sir Terry Leahy said on Tuesday.

Leahy told delegates at Teradata's user conference in Barcelona that on 20 November 1992, Marks & Spencer and Sainsbury's led the market in non-food and food items with market capitalisations of around £7.5bn each. Tesco was a poor third with a market cap half that. By 4 October 2010 Tesco's market cap was £34bn while M&S was around £5.5bn and Sainsbury's was about £6.5bn.

Many businesses were set up to screen out the truth, and some operated in their own version of reality, he said. "The hardest thing to know is where you stand relative to your customers, your suppliers and your competitors," he said.

Collecting, analysing and acting on the insights revealed by customer behaviour, both at the till and online, allowed Tesco to find the truth, Leahy said.

Customers were the best guide, Leahy said. "They have no axe to grind," he said. "You have to follow the customers, but learn from the competition, preferably before they do."

Leahy said businesses change slowly, but customers change quickly. So firstly survival and then success came from following customers' behaviour as closely as possible to gather and respond to what they reveal.

"As they change, you change. If you are faster at solving their problems you're useful and relevant to them. That's the only way to long-term survival," he said.

Leahy said customer data was priceless. The 1995 launch of the Clubcard loyalty scheme had allowed Tesco to capture huge amounts of data about customers, but it was only because the cost of the technology had dropped enough to make it economic.

Tesco gave customers incentive to join by giving them a penny discount in a pound spent. "But that was 25% of our profit at the time," he said.

Critics thought this was a zero-sum game, but people liked to belong and their loyalty had played a big part in Tesco's success, he said.

Leahy said a better understanding of customer data helped Tesco to improve the productivity of its promotional budget 10-fold, and its budget for retaining wavering customers three-fold.

Leahy said it was more profitable to invest in loyal customers than "promiscuous" ones, arguing it was cheaper and more profitable to hold onto existing customers than to lure those of competitors.

Leahy said Tesco tried to get relevant data into the hands of decision makers at all points in the organisation. He said staff had mobile devices so they could make decisions anywhere from the shelf edge to the boardroom. Retailing needed up to the minute information, he said.

He said the more data was shared among staff and suppliers and customers, the more trust there was. Trust was the most productive commodity in business, he said.

People needed good data and good processes, as well as for the company to be transparent and consistent about its motives and values. "If you do that they will stay with you for a lifetime, and that's where you get your return on investment," he said.