Disruptive influences - Tesco and Technology

Tesco: Other Technology Articles

2006-11-25T05:12:00.000-08:00

In this series of short articles we will hopefully shed some light on the technological areas which Tesco’s are involved in currently as it strives to deliver growth and profits.

Tesco’s Club Card and CRM
Customer Relationship Management is a key area for Tesco as it strives to develop the bond between themselves and the consumer.

The Club Card which was introduced in the mid 1990’s and has grown in its popularity over the years, and has developed into a vital tool in the companies drive to create a loyalty culture with its customers. Tesco’s Club card program boasts 10 million active households and captures 85% of weekly sales. (Devon Wylie).

The simple proposing when developing the idea of the Club Card by dunnhumby USA, was:

· Know and understand their customers on an individual basis
· Communicate with them in a relevant way; and
· Manage offerings so that the customer’s shopping experience is enhanced compared to what they have ever had before--- with the client or with anyone else.
(Source: Devon Wylie)

Through the data captured in the use of the Club Card, Tesco’s has been able to personalise the reward coupons precisely, to an extent that redemptions are in the 20-40% range. Thus customers are realising the benefits of using the Club Cards and further developing the customer relationship.

· Pricing: a two billion dollar investment in the past five years has gone into reducing prices on items that are significant to different lifestyle groups.
· Promotion: Tesco uses customer insight to evaluate the effectiveness of, and reduce overall cost of, their promotions. Armed with this information, they can find out
o Which shoppers use them
o Which shoppers like them
o If there is a way to focus promotions on best customers

· How they can take investment from promotions and return it back to the business..
…which resulted in over 60% fewer promotions, reduced management cost, the redirecting of money back into the business (further contributing to price reduction), and more tailored, effective promotions.
· Shared Insight: Tesco’s major consumer packaged good suppliers, media companies, researchers, space planners, and more, are given access to the customer information that is gained from the Club Card program.

Tesco’s and the Internet
Over the last few years Tesco’s has developed its internet site to a significant degree. Not only does it provide the ability to buy the goods from a normal store, but also a full suite of products and services including Car Insurance and Furniture.

This is a compliment to the strategy to expand into the non-food sector.

In the online space, tesco.com boasts 500,000 transactions weekly, totalling nearly two billion pounds in sales each year. The profitability, plus the size of the tesco.com business and the number of transactions it completes, makes tesco.com a truly unique online grocery store.

Tesco: Other market areas
In the area of telecommunications, Tesco have recently launched their own version of the internet phone (VoIP). Again further helping to promote its own brand further into the customer home.

Finally, it is with interest that Tesco have launched a suite of “Office” style applications in a number of stores on a trial basis. These products are being launched at £20 each, substantially undercutting Microsoft’s own product. They will be Tesco branded, but suplied by a company called FormJet, which distributes the Ability and Panda's software in the UK. This will serve two purposes, firstly to compete in a new market area, but secondly and more importantly to promote itself as the champion of fair trade in the eyes of the consumer advocating a better deal for its customers.

Tesco develop RFID - The "Bad" News

2006-11-25T05:10:00.000-08:00

As discussed in the previous article, RFID is a major technology breakthrough for retailers such as Tesco’s which is seen as a major tool for the delivery of the companies underlying strategy.
Tesco’s Chairman Sir Terry Leahy placed this mission statement in the centre of one of the company’s annual reports: “Continually increasing value for customers to earn their lifetime loyalty.” With this in mind RFID will certainly deliver against this statement.
However, the question here is what are the negative aspects of this technology and its implementation? Will customers buy into this for the future or will they resist?

Spy technology?
A significant campaign has been headed by CASPIAN (Consumers Against Supermarket Privacy Invasion and Numbering), in which the “Spy” potential of this technology is explored.

In essence the argument is that if items are tagged, the item can be tracked after purchase and can be used to “spy” on the consumer.

Worse still is that with individual numbering of RFID tags, is that individual consumers can be tracked and profiled without the persons consent or knowledge.

The possibility beyond this is very Hollywood like, in that through personal profiling that an RFID chip inside a persons clothing could be read by appropriately set up advertising board, to flash up adverts especially tailored for that individual. Further the individual can effectively be tracked everywhere they go.

Sounds far fetched but this is entirely possible. Thus the personal intrusion and infringement on privacy is a significant risk associated with this technology.

In fact Benetton has allegedly pulled its RFID programme that was in development, due to immense public pressure. So the likelihood of RFID chips and several of them for that matter, being carried around by an individual is actually high, should companies continue to develop the technology,

Other issues…
There is a lack of cryptography, which means that the technology is open to significant abuse, such as changing the prices for a product, by altering the RFID chip.

There are other even more frightening possibilities… How about the “smart mugger”, who will know what items you have on you and whether you are worth mugging or not! Plus Euros are (it has been alleged) fitted with RFID tags, so a mugger will know how much cash you are carrying!

How about you walk into a car dealership, and the various RFID chip on you give away your name, address, financial history etc, the garage will immediately know how to treat you, e.g. the guy/gal can afford to be here or no they can’t!!

Also corporate espionage is a possibility, with companies tracking other company’s activities and transactions. The implications are huge!

Solutions?
The most obvious is to effectively “kill” the tag after the goods have been purchased, thus rendering the chip dead. There is a distinct possibility but to ensure the privacy issue is overcome, the technology would need to be fool proof.

There are other possibilities, such as “blocker tags” which can provide privacy from intrusion outside of designated areas, for example.

However, the possibilities associated with RFID tagged products are enormous. For example stolen goods can be tracked. There are even further possibilities for Tesco’s in that kitchens fitted with RFID technology and “smart shelving” can actually generate shopping lists, which could then communicate with the local store, and arrange delivery. Or if you “lost” an item in the house you could locate it.

So it is highly likely that when the full potential of these chips is fully explored that people may well by pass the privacy infringement associated, as long as there are tangible (or believable) benefits.

At the end of the day the UK has the highest concentration of CCTV camera in the world, and accepts this as it is perceived to be for the public good and safety, so will they be as forgiving of spy chip technology…. time will tell.

Conclusion
At the end of the day there has been a lot of exaggerated publicity and consequences of this technology. However, it must also be appreciated, that is used correctly the benefits could be vast.

For Tesco’s in particular the technology is a threat to their very strong relationship with its customers, and they will need to be seen to be involved and driving the process to alleviate public concern on these chips. Otherwise they may not see the technology implemented as quickly as it otherwise may have been.

Tesco Develop RFID - The "Good"

2006-11-25T04:53:00.000-08:00

Over the past five years, Tesco has been developing ideas for the new technology that is RFID, with a view to aligning it to its underlying business strategy. The question is what is it all about and how does it all work? Plus will it be successful? In this article the aim is to look at the benefits of RFID and the positive implications for Tesco’s.

Tesco’s Strategy
Currently Tesco’s are the number 1 retailer in the UK, recording record profits, of over £1billion in Tesco’s previous six month reporting period (http://news.bbc.co.uk/1/hi/business/5401494.stm).

A key success in this development of profits and market share has been the company’s ability to deliver their products and services that customer’s want at a very competitive price, which results in customer loyalty. Their strategy, per there own literature is as follows:

“We have continued to make strong progress with all four parts of our strategy - a strong UK core business, non-food, retailing services and international - by keeping our focus on trying to improve what we do for customers:
· making their shopping trip as easy as possible
· constantly seeking to reduce our prices to help them spend less
· offering the convenience of either large or small stores
· bringing simplicity and value to complicated markets"
Source: Tesco Preliminary Results 2004/5
So how does RFID fit into this strategy?

RFID
RFID stands for “Radio Frequency Identification”. In its simplest form this technology provides a company the ability to tag and track items. However, the implications of this are vast. For example, stock movements can be tracked; items in transit can be monitored. Thus full visibility of all products in the companies inventory can be viewed at any time.

The implications for Tesco’s are:

Improved customer availability: Through tracking stock level live in store, and the ability to automatically reorder when stock levels are low. Plus being able to track items en-route to store.
Reduced product pricing: This is made possible though a reduction in wastage in store. This is through a better understanding of stocks and the logistical supply chain. In essence products can be ordered in a more controlled manner, JIT delivery prior to stock outs, with a minimum of in store waste.
Improved service: This will be as a result of improved availability of products. Not just what is in store, but also where items are within a store, i.e. misplaced items can be tracked and placed where the customer expects to find them. Stock outs will also be reduced as reordering of products can be automated, based on stock levels hitting reorder trigger points.

Implementation
Testing of this technology by Tesco has been underway for over a decade. With such a huge prize to be won, it is a key long term objective. The reality is that this process is likely to take another few years of testing. With an expected role out in circa 2010, there is still much left to do.

Key issues centre around the huge cost of implementation and role out, as well as a full understanding of a cost/benefit analysis. Another major issues raised by Civil Rights campaigners is the “spy” potential of such technology.

There are also issues with RFID data being manipulated by customers, and the possibility of hand held PDA devices editing the tag on a CD to read the price of milk.

Conclusion
At the end of the day it is only a matter of time before this technology is used widespread by Tesco and many other retailers. The benefits of such technology are vast, with the ability to deliver less waste and maximise availability, but at the same time reducing waste and keeping stock levels under control. The only fly in the ointment will be the cost and the time taken to make it work, and the real challenge will be the campaigners who are that this technology will be used to manipulate the customer……