Sir Terry Leahy: My lessons on building and measuring loyalty

MyCustomer.com
Neil Davey
Managing editor
MyCustomer.com
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MyCustomer.com will once again be partnering with the annual Loyalty Wold conference in London, and as such are pleased to be able to bring you this interview with the opening keynote speaker, Sir Terry Leahy, former CEO of Tesco.

Knighted for services to retailing, and renowned for transforming the supermarket industry in Britain by growing Tesco to the largest chain in the country through innovative customer loyalty incentives such as the Clubcard, few are better qualified to talk about loyalty and customer-focused initiatives than Sir Terry Leahy.
During Leahy's 14 years as CEO, Tesco more than quadrupled sales from £13.9 billion to £62.5 billion, due in no small part to a variety of innovations that he spearheaded. During his tenure, Tesco introduced new products, store formats and lines of business, while he also pioneered new ways to engage customers, including the development of the Tesco Clubcard - the customer loyalty scheme that today provides insights into shopping habits of approximately half of all UK households.
So what does loyalty mean to Leahy?
“The true source of loyalty is to create benefits for people,” he explains. “That’s really what builds loyalty. Sometimes people concentrate too much on devices like a loyalty card, such as the Clubcard. These really are just methods by which you create loyalty. They don’t create loyalty in themselves. The only way you create true loyalty is by your behaviour over time - do you in a transparent, reliable way, create benefits for people?”
Appointed as chief executive of Tesco in 1997 – having initially joined as a marketing executive in 1979 – Leahy wove this thinking into the fabric of the business, with the primary focus on the customer.
He says: “The core purpose of Tesco was to create benefits for people in order to enter long-term, lifetime loyalty. The whole experience has to be continuously improved in small and important ways, places, the range, the service, the quality, the convenience of the shopping, and we captured that sentiment in our advertising slogan: ‘Every little helps’ and what that meant was, that we were going to understand people’s lives, and we were going to make small, constant improvements to the shopping service and in that way add some benefit and be more useful to customers and that would build loyalty.”
And the establishment of the Tesco Loyalty Card provided unprecedented understanding of people’s lives. Introduced in 1995, the Clubcard became the world’s most successful retail loyalty scheme, enabling the business to be able to analyse shopping habits to devise marketing campaigns and develop personal relationships with customers, tailoring discounts – all of which now seems par for the course, but at the time was ground-breaking stuff.
The digital revolution
But of course, since Leahy was first appointed as Tesco CEO, an entirely new source of customer information and feedback has come to the fore. The internet is increasingly viewed as the most important source of customer data, and while it didn’t factor into his plans back in 1997, Sir Terry believes that it presents a tremendous asset to modern businesses as they seek to drive customer loyalty – although he also believes that the digital revolution also presents its fair share of challenges as well.
“I think it’s an opportunity, provided it’s properly handled,” he says. “The rise of digital media means that you can have much more information about your customers than ever before. And they have much more information about you. That can be the basis of a very rich dialogue between you and your customer, and it can build trust. It can build interest and it can build loyalty and I think that’s a good thing.
“However if it is abused then it can become a problem. So if you get lots of bad reviews of your business, then it’s there for people to see. Or if you misuse information about customers and basically pester them, that’s a problem. However, much more often you can see it’s an opportunity to build loyalty.”
Leahy also strongly recommends that brands don’t exercise loyalty building exercises without attempting to measure loyalty - as the old saying goes: you can’t manage what you don’t measure. But he does concede that due to the intangible nature of ‘loyalty’, it can be a tricky task to conduct measurement.
“It’s important that you do measure the loyalty of your customers towards your brand. Many people don’t, which is interesting,” he says. “Just starting to measure is a good step forward, and typically there are two ways of measuring loyalty. There is emotional loyalty, how people feel emotionally towards your brand, and the other way is functional loyalty, in other words, by their actual behaviour. Are they loyal to your brand? Do they use your brand? Do they spend money on your brand? And both are important. It depends very much what kind of business you are. For Tesco both are very important. I suppose if you have to pick one, emotional loyalty is the most important thing because without a trust, a warmth and a regard for the brand it’s hard to build long-term business.”
Leahy does provide some advice when it comes to measurement. 
“The bigger the panel you get, the more reliable it is. Sometimes samples can be too narrow and can slightly mislead people about the accuracy of the feedback. Going in a completely different direction, I always enjoy focus groups and listening to people talk about a brand and their experiences of it. Although it’s not strictly speaking quantitative market research, it’s terribly illuminating and I think you should always combine close measurement of loyalty with testimonials, where you just listen to people talk about their experience of your brand.”
And this, he concludes, is the most important step in the quest to build customer loyalty: listening to your customers. Indeed, according to Leahy, this should be the foundation of your entire business. And Sir Terry knows what he’s talking about.
“It provides tremendous insight,” he concludes. “Indeed all business models should begin first with the customer, and build back from the customer. That’s most essential.”
As a MyCustomer.com reader we are pleased to be able to offer you the opportunity to SAVE 10% off your place at Loyalty World. Register at the discounted rate here or call Gina on +44 (0)20 7242 2324.

About Neil Davey

About Neil Davey

Neil Davey is the managing editor of MyCustomer. An experienced business journalist and editor, Neil has worked on a variety of newspapers, magazines and websites over the past 15 years, including Internet Works, CXO magazine and Business Management. He joined Sift Media in 2007.

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14th Sep 2011 10:41

Sir Terry Leahy was the most brilliant retailer of his generation and his observations on customer loyalty are excellent advice for other retailers to follow. Why is it so difficult for retailers to listen to their customer? The benefits seem so obvious, the challenge is that it takes investment in the right form of technology and business process to capture the feedback from customers. The second issue is always that this is not a quick fix. Tesco built their expertise working with DunnHumby over a 15 year period and the Board of Tesco supported the program consistently. The results speak for themselves and they set the benchmark.

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15th Sep 2011 16:05

Great article on importance and measurement of Customer Loyalty.  Most important though is making customer service your companies number one priority.  Without that drive and vision the best intentions can go out the window.  Will tweet a link to this site! Thanks for the great info.

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