Compared to westerners, Asian consumers are variety seekers. Their frequent store-hopping has presented western supermarkets with a difficult conundrum. Follow the same strategy that worked well with loyal customers in their home country, or adapt to the behaviour of the local shoppers?
Tesco largely chose the former option, believing its clubcard would give it an advantage over local rivals. However the news that Tesco is now set to merge its Chinese operations with a local supermarket chain shows that perhaps they could have focused more on the cultural differences between Chinese consumers and those in the West.
Tesco turned up late to the party in China, only opening its first store in 2004. Rivals like Walmart, which entered China in 1996, were able to gain an early advantage. As the first mover, Walmart enjoyed many advantages including the choice of store location, relatively low cost of land, premium market positioning in large cities, and the availability of high-performing local stores for acquisition purposes.
Though it entered the country eight years later than Walmart, Tesco believed it could catch up thanks to its successful clubcard system pioneered back home. In 2009, the head of Tesco’s Chinese operations described the card as its “secret weapon” in its bid to conquer the country.
It was hoped the card would give the store management and marketing staff invaluable information about the elusive Chinese shoppers. The card would reveal their tastes, preferences, shopping habit and much more; it would hold the key to understanding the most demanding, price-conscious but quality-obsessed consumers in the world.
However, the value of the clubcard or indeed any loyalty programme in the Asian market may have been grossly overestimated. Research my colleagues and I have carried out (publication forthcoming) in an Asian market with similar demographics and purchasing power to that of China’s large cities reveal consumers to be ill-suited to the clubcard approach.
We found that almost all consumers participated in at least one loyalty program and 63% of those who participated in loyalty programmes had loyalty cards from four or more retailers. They believed larger choices gave them more power of control, more motivation to make decisions, more chances to have programmes which suit their needs and a more satisfying shopping experience. This means that any customer information held on one store card is incomplete at best and misleading at worst, and is thus not fit for the purpose as Tesco intended.
The participants also believed that these loyalty programmes offered many similar attributes, such as the type of product information and promotions provided and the criteria for collecting rewards. Therefore they did not have strong preference for any particular stores but considered them as offering more opportunities to find “a good deal” or more varieties. These findings indicate that competition among the stores are intense and are primarily based on price and location rather than product and service differentiation. Meanwhile, the store loyalty is low as customers tend to switch stores to look for bargains.
Understanding Chinese consumers is going to be a long and sometimes painful process. But if firms like Tesco are ever going to avoid being stuck in between the more established western retailers and the Chinese retailers who have the intimate knowledge of the local consumers, this understanding is crucial, and is something that the Clubcard alone cannot deliver.