Dumb or Dumber

I don’t know about you but as I get older I am becoming ever more cynical and grumpy! This is especially the case when I look at how many companies and organisations behave in relation to their customers.

I became especially cynical at the beginning of this week (January 15th, 2018) when I read of the activities of Tesco with respect to its Club Card. What did they do to annoy me? I am not even sure I should have become annoyed because I do not hold a Club Card and never have.

On Monday January 15th Tesco announced that it was making changes to the way in which card-holders could redeem the various rewards. It was captured in the following statement that appeared online.

“We’re simplifying the Club card rewards you can collect through the majority of our Reward Partners. Previously, you could either get 2x, 3x or 4x the value of your Club card vouchers – but starting from 15 January 2018, we’re making everything 3x the value. “So you won’t have to keep checking whether you’re getting 2x, 3x or 4x the value depending on which reward you’re claiming; everything will be 3x.”

(Read more at: https://inews.co.uk/inews-lifestyle/money/tesco-devalues-clubcard-vouchers-in-rewards-scheme-revamp).

The main argument used by Tesco for this change was that it had listened to its customers who were arguing for a more straightforward and simple system. Ostensibly it was practising sound marketing: listening and responding to customers. Closer reading of this message did not convince me.

Let me explain firstly how the Club Card system works.

Card-holders earn one point for every £1 spent in a Tesco store or online. Each point is worth 1p. Once £1.50 is earned by the card-holder it can be converted to shopping vouchers which can be either spent in the store or online. Alternatively the customer can save up the vouchers and use them as part of the Tesco Reward scheme. Under this option over one hundred reward partners have signed up with Tesco and allow voucher-holders to spend the vouchers with them. A few partners allowed up to twice the value, others three times and some more four times the value of the vouchers. Hence the argument that Tesco used to simplify the system.

The reward partners are quite diverse: including London Zoo, Halfords Condor Ferries, HMS Belfast, Virgin Balloon Flights and Pickford’s Removals. Popular restaurants such as Prezi, Pizza Express and Zizzi also featured in the rewards programme. Card-holders who saved the vouchers for this scheme typically were able to use them for days out, weekend breaks or simply eating out in some of their favourite restaurants.

The changes announced on January 15th were to be introduced with immediate effect. This caused outrage among the card-holder base. Those who have been collecting the vouchers for the current quarter (which ended on January 25th) immediately saw the value of their vouchers decrease. One such customer compared it to being the victim of a pickpocket. “I had vouchers worth £400. Now they are only worth £300.

To further compound the problem and heighten the outrage, Tesco announced that around fifty-seven of the partners had pulled out of the reward programme or were about to do so in the coming weeks.

As a cynic – particularly of many marketing initiatives introduced by companies, I immediately “smelt a rat”. Mind you, you do not need to be any form of retailing or marketing expert to arrive at that conclusion! To my forensic eye this appears to be a clear (and none too subtle) move to engage in a cost-cutting exercise. It seems particularly offensive as it targets the loyal Tesco customers.

It also follows a pattern adopted by many companies – particularly in the services and retail sector, who follow a policy of using loyalty cards as a form of reward. At some point in the process senior management recognise that such an initiative is becoming more expensive to operate. It may also be the case that so many people have signed up for loyalty cards or air miles, that it quickly loses the veneer or exclusivity. This is particularly so with airlines, who constantly review their rewards policy and also introduce changes that are apparently detrimental to the customer.

I discovered this recently when a ferry company that I have used for many years sent me an email outlining that more points would be required than before, to enable me to retain my gold card. Of course the content of that email was “dressed up” in such a way as to make me feel that I was going to benefit from such changes. In reality it meant that I would have to make more ferry bookings in order to retain my card.

Of course such views captured in the earlier paragraphs represent only the perspective of the customer (albeit this should certainly count in terms of making decisions). Companies such as Tesco have to balance a number of decisions, given that they operate in a cut-throat retail sector which is driven by low margins and constant pressure to reduce costs.

You might also query whether or not loyalty cards still have the same relevance and resonance for shoppers. Although the initial response from social media reflecting the views of Club Card holders (which total over 16 million) would support its popularity.

It can also be argued that developments in location-based marketing and social media mean that retailers can now offer more personalised and customised offerings to shoppers. They may not focus on the word “loyalty” but they can still offer rewards and incentives via the new technology and the “big data” which they have available to them.

Also it can be argued that shoppers may be “worn out” with the myriad loyalty cards on offer from retailers and other companies operating in the services sector.

That said I would argue that the way in which Tesco has handled this change to its existing arrangements was a public relations disaster.

Firstly they introduced it without any prior warning and with immediate effect. This is guaranteed to irritate shoppers who hold the Club Card. Could it have been done more compassionately and staggered over a period of time. For instance allow the voucher holders to redeem their rewards up to the end of September. This would avoid the “sudden sharp shock to the system”. Many comments on social media focused on the instant devaluation of the vouchers.

Also no attempt was made to sign up new partners to the rewards programme by Tesco. Instead it quickly became clear that partners were pulling out of the arrangement. This in my view signalled a level of dissatisfaction with the arrangements and an unwillingness to commit to any further changes.

Is it an example of duplicity and shoddiness on the part of Tesco? Part of me wants to believe that it was a necessary measure to remain competitive in the face of heavy competition. The other part of me suggests that it was at best a patronising and insulting way in which to convey a message that ultimately reduces the benefits to the card-holder.

Short-term gain (in terms of reduced costs) may be at the expense of losing loyal Tesco shoppers. There is evidence to suggest that in grocery shopping, people are now visiting two or three food retailers in order to benefit from special deals and offers. The days of shopping only with one retailer may be over. Anything that threatens the loyalty of shoppers may drive them elsewhere. Let’s see!



No series of blogs on retailing would be complete without some focus on McDonalds: that doyen of the food retail sector. I recently read an article on this venerable operator in the Financial Times*. The author made an assessment of its re-designed strategy that it has rolled out across the US food retail sector. It raised a number of observations that I thought could be useful in helping us to see the challenges and opportunities involved in repositioning a retail brand.

If we carried out a snap street survey asking people the most-recognisable brands in the world: I would bet a pound to a penny that McDonalds would feature in the top five iconic global brands.

Since it opened its first outlet back in 1955 arguably McDonalds has attracted massive publicity world-wide. Much of the media coverage has tended to polarise opinions. Some people argue that the concept of convenience food at relatively low prices revolutionised the way we eat. The global growth and expansion of McDonalds is arguably a testament to this viewpoint. It is estimated that McDonalds feeds over seventy million people per day.

On the other hand many people feel that McDonalds has spawned the growing levels of obesity – leading to unhealthy eating, overweight individuals and ultimately the precursor to health problems.

In response to these criticisms McDonalds in the early noughties revamped its food menu – focusing on healthier elements of food such as salads and chicken. While this partially addressed its overall image, its reputation undoubtedly took a hit. More importantly from a revenue perspective it began to lose out to its competitors. This was graphically demonstrated by the loss of over half a billion customer orders between 2012 and 2015. This rammed home to senior management that an overhaul was required to reverse the decline in its home market: the USA.

Let’s look briefly at the structure of the retail food sector in this market.

The US restaurant industry has remained stagnant over the past three or four years (in terms of visits to restaurants). This has been caused mainly by grocery price deflation, which has made a stronger argument for people to cook and eat at home.

McDonalds had fallen into the problem of a lack of focus and relevance for many US consumers.

As of 2014 in the USA the structure of the food sector was changing. Established food retailers such as McDonalds and Burger King were being threatened by new competitors such as Chipotle Mexican Grill, Chilli’s and Applebee’s. Such entrants were typical of a new sub-sector of the food retail sector – referred to as “fast casual”. Their main value proposition emerged from the financial crisis of the early part of this decade. They positioned themselves at a few dollars per meal higher than McDonalds and Burger King. In so doing they appeared to “catch a wave” which resonated with consumers who had a little more in their pockets and were attracted to this slightly more premium offering. A focus on healthier options on the menu also appealed to a more health-conscious individual.

Zero growth across McDonald’s outlets across the US, Europe and Asia also set alarm bells ringing among senior management.

In 2015 it recruited Steve Easterbrook, an English accountant to oversee a revamped strategy to arrest the decline in sales and reputation and re-establish McDonalds in the US market.

Faced with such apparent major threats and a shift in eating habits, one might assume that McDonalds would opt for a radical approach to change. Did this happen?

Not really. Easterbrook adopted the mantra that his mission was to re-invent McDonalds as “a modern, progressive burger company”. In assessing one of its main Chicago stores (which was seen as a pioneer for the revamped approach”, the author of the Financial Times article made the following observation.

A glass case displays freshly baked apple pies and croissants. Smiling employees, dressed all in black, carry trays of burgers and fries to minimalist tables.”

This represents a change in approach to store and menu design. However it does not represent a radical change. Its overall value proposition still revolves around low prices and convenience.

Easterbrook availed of the services of the BCG Group (Management Consultancy Firm) to assess the eating habits of the US consumer. Interestingly the study indicated that the missing McDonalds customers had shifted to other burger chains such as Burger King and Wendy. This was critical because it suggested that consumers were not deserting the fast food segment in favour of the fast casual sector: rather they had deserted McDonalds.

While this might suggest a long-term problem, Easterbrook took the view that these customers could be enticed back to McDonalds, provided it came up with a relevant value proposition.

The strategy focused on the need to adopt a less aspirational focus and address the “day-to-day basics” of fast food.

It came up with the following adjustments.

  • Cutting prices for coffee and sodas
  • Serving breakfast all day
  • Offering mobile ordering and delivery
  • Improving the quality, if not necessarily the nutritional value of its food options on the menu.

The FT article describes this as an approach which is based on “fixing the familiar”. This advocates the need to avoid tampering too dramatically with the menu. It is a case of “sticking to the tried and trusted” with minor amendments where appropriate (in terms of menu design, outlet design and service delivery).

Lower prices was essential as well. In response to rising commodity costs and wages, many franchisees raised prices and the concept of the dollar value menu quietly disappeared in 2013. The combined impact of this move damaged McDonald’s value reputation. By contrast Wendy’s and Burger King consistently focused on deals for its customers.

Easterbrook adopted an interesting approach to pricing. He focused on discounts as a core component of the menu, typically offering $1 and $2 for coffee and soda. It also offers more variety at the high-end of the menu spectrum.

Making a genuflection to its health-conscious segment, he has promised to take out antibiotics from its chicken meat and corn syrup from its bread buns. It is also beginning to introduce fresh beef to its quarter pounders and replacing butter with margarine.

In summary this new approach has attempted to capture a balance between low price and higher quality. In 2018 the new approach to pricing will feature items on the menu at $1, $2 and $3 dollar price-points.

At the higher end the focus is not necessarily on healthier options. In other words it does not result in lower calories. It is more about using wholefoods across the menu. I suspect this will still antagonise critics of McDonalds. However arguably its does not lose its authenticity as a brand. In the USA at any rate, people still like fast food.

The results of this change in strategy have been impressive. In the USA many restaurants ensure that supply always exceeds demand. However in 2017 McDonalds has experienced a rise in customer visits in the second and third quarters of 2017 with comparable sales increasing between 4to 7 per cent in each quarter.

The article focuses on the US market. What is happening in your country? How is McDonalds performing relative to its competitors? As an exercise I challenge you to check out the situation in your part of the world.