Tesco failed to understand the Chinese consumer and how unsuited they are to its so-called secret weapon – the clubcard.
That is according to Professor of Marking and Innovation Qing Wang, who believes Tesco should have looked into the cultural differences in China compared to the UK before investing in the second biggest economy in the world.
The UK retail giant recently announced it is in talks with China Resources Enterprise (CRE) about merging their stores in China. Tesco, who run 131 stores in China, would control 20 per cent of the new chain, while state-run CRE, who own 3,000 stores in the country, would have 80 per cent.
The Warwick Business School Professor said: “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 programme and 63 per cent 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.”
Professor Wang says Chinese consumers shop differently to their UK counterparts and don’t show as much brand loyalty.“Compared to westerners, Asian consumers are variety seekers,” said Professor Wang. “Their frequent store-hopping has presented western supermarkets with a difficult conundrum.
“Tesco believed 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.
“But the participants in our research 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.”