Tesco leverages artificial intelligence for loyalty

Sebastian Rennack
retail insight for Germany,
Poland & CEE
Aletos Retail Advisory

Tesco is stepping up its loyalty game to get closer to its customers. Offers personalised with the help of artificial intelligence are designed to make the UK grocery leader’s Clubcard rewards programme more attractive. The retailer has invited around 3 million Clubcard users to receive 20 personalised challenges, up to 10 of which can be activated over the next six weeks. As a reward, shoppers can win the equivalent of £50 and redeem up to £100 worth of Clubcard points. Tesco is using artificial intelligence to make the challenges different for each shopper. Options include spending £20 on the retailer’s summer barbecue range or spending £10 on plant-based meals. For each completed challenge, shoppers receive extra points.

Tesco needs to build on its highly successful loyalty programme and strengthen customer loyalty. For years, the retail giant has been the undisputed leader in the UK grocery market, not only in terms of sales, but also in terms of its Clubcard scheme. However, it is discounter Lidl, with its Lidl Plus scheme, that is increasingly posing a threat to the established loyalty leader. According to Kantar Worldpanel, Lidl has been the fastest growing retailer for eight months in a row. This stellar performance – even against discount rival Aldi – is largely due to its Lidl Plus rewards programme.

Back in 2020, Tesco added exclusive member discounts to its Clubcard initiative at the same time as Lidl launched its digital Lidl Plus programme. At the time of writing, the Lidl Plus app has become the fifth most popular app in the UK Apple Store. Meanwhile, Tesco’s Grocery and Clubcard app ranks 4th on the platform with a similar number of downloads – admittedly after consolidating several apps in one.

Tesco’s hyper-personalisation pilot comes at a time when rival Lidl is also turbocharging its customer engagement efforts. Lidl recently introduced exclusive discounts for Lidl Plus users in the UK, as it has in most of its other European markets. Previously, the German discounter only offered coupons in the UK, which had to be activated within the app in order to be redeemed.

Lidl has worked hard to increase the penetration of its rewards initiative. According to Nielsen Homescan data, by the end of last year Lidl Plus had reached a penetration of almost 40% among shoppers. According to company insiders, the discounter had long debated whether to introduce exclusive discounts. There’s a risk of driving away customers who don’t use the app. The Lidl Plus loyalty scheme is said to have transaction penetration of over 60%. Also in Germany and Switzerland, Lidl recently introduced automatic activation of Lidl Plus coupons to make its loyalty programme more attractive.

Tesco and Lidl are taking further steps to monetise the customer data generated by their loyalty programmes. In addition to encouraging customers to spend more of their grocery budget at the discount retailer, Lidl is using the customer data generated to send personalised offers or advertisements. Lidl’s parent company, Schwarz Group, has just announced in Germany that it has introduced new advertising options for its digital retail media division. These include the ability to programmatically control ads on 900 welcome screens on the Kaufland supermarket banner in 580 stores in Germany.