Loyalty scheme operator Dunnhumby continues to innovate to provide Tesco and suppliers with the customer insight they need to make business-critical decisions, finds Joanna Perry

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Able to track the shopping habits of 16 million families through Tesco’s Clubcard, loyalty scheme operator Dunnhumby is still one of the best examples of how data mining and analysis can be used to drive a retail business forward.

While some retailers crudely use data to try to increase sales, Tesco is able to deploy the insights generated within Dunnhumby to meet customer demands at every level.

Top-level lifestyle segmentation into one of six groups informs decisions on the grocer’s strategy, such as the launch of new ranges at different price points. But the information is also used to decide the offers customers will receive down to an almost individual level, with 9 million variants of the quarterly Clubcard mailing distributed.

Dunnhumby director of strategy and futures Martin Hayward says: “The focus has always been on satisfying customers. Tesco’s mission is to earn the lifetime loyalty of its customers.”

Minimal effort

Dunnhumby - a heavy user of analytics software from SAS - very much focuses on what is in shoppers’ baskets when it comes to generating customer insight. It doesn’t collect upfront demographic data, and asks only for a cardholder’s name and address to send the quarterly mailing, as well as for optional information on their dietary requirements.

But with 6 million transactions to process a day, the volume of data is still substantial. Tesco, and Dunnhumby’s FMCG clients, need to generate insight from it quickly if they are to use it to make business decisions.

“We have an online product called The Shop, which suppliers can buy access to,” explains Hayward. It is a tool that enables them to look at anonymised aggregate data to show trends on issues such as how customers are switching between brands, or how much they are paying; there are many reports that can be called up. Dunnhumby also does bespoke analytical work for customers.
Hayward says that it won’t be long before aggregated data is presented almost instantaneously. He points out that 20 years ago it would have taken three months for market data to be collected and analysed and then presented to retailers and FMCGs.

But what are Tesco and its suppliers actually using the data for?

“A big issue on both sides of the fence is promotions. The recession led to a huge increase in activity. The number of promotions has doubled and the impact on margin, positioning, etc, is starting to be thought about.”

Hayward says customer insight allows a retailer to consider other ways to get the right message and offer out. For instance, it might be better to send an offer to a targeted group via a mailing than to run it in stores, where all customers can benefit.

To ensure that it can sense check the results it gets from raw transactional data, Dunnhumby has also built an attitudinal panel of 65,000 Clubcard holders called Shopper Thoughts. They receive online questionnaires asking for their views on issues such as the economy, green products and what new products they would like to see in-store. Hayward says: “We can compare what they do with wha they say. And it is important to have this forward-looking attitudinal data.”

Hayward doesn’t think customer insight will ever lead to completely automated decision making, but it does put the customer at the heart of a retail business. “A lot of customer measures are becoming part of life so the customer is at the heart of most decision making.”

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