By Mark Duell
13:34 Jul 10, 2024, updated 15:25 Jul 10, 2024
- Loyalty Cards: Are They a Scam? airs tonight at 7pm on Channel 5
Supermarkets have built an “ecosystem of data” from customers using loyalty cards as they make millions by “relentlessly mining information”, insiders have revealed.
Data science analysts monitor the daily purchases of Tesco and Sainsbury’s customers who use their Clubcard or Nectar card to take advantage of lower prices.
Teams at a company called Dunnhumby, owned by Tesco, and another company called Nectar 360, owned by Sainsbury’s, use all this information to determine their spending patterns.
Experts combine data such as store, time of day, spend and list of purchases to improve targeted advertising spend.
Tonight Channel 5 airs a new documentary entitled ‘Loyalty Cards: Are They a Rip-Off?’, featuring a former employee of Dunnhumby and Nectar 360.
The employee, referred to only as “Ed” on the program, said: “The way I’ve worked in the industry is purely for the benefit of monetizing it as an asset. So using data to then sell to suppliers.”
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Presenter Alexis Conran then said to him: ‘So what you’re basically telling me, if I understand you correctly, is that Tesco, Sainsbury’s and all the other retailers want you, the customer, to join a loyalty scheme. That’s because by doing that I’m opening up a huge and quite profitable revenue stream for the retailer, because I’m giving them my details and they’re going to make money from it.’
And Ed said, ‘Yes, that’s true and there have been so many things, especially in the last few years, that have forced retailers to change the way they price their products. So if it’s like the crisis in Ukraine, the pandemic. The price of products has to come down.
“They have to find ways to find other revenue streams or profit sources that really help lower that price point barrier for customers. So while I think it’s very easy to say, ‘Oh, it’s a source of profit.’
“But actually that profit contributes to the bigger picture, where hopefully they can provide value back to their customers.”
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Ed then explained what happens when someone has shopped with their customer card: the supermarket knows what was purchased, when and where.
He continued: ‘That one transaction is one point of entry into the ecosystem of data. And I suppose the biggest benefit to a retailer is that they learn from you, depending on how loyal you are.
“So it’s a real way to figure out how much your customer is spending, how loyal they are, and how valuable they are to you as a customer. And so how you can target them with ads or how you can learn from them from an insights standpoint.”
According to its accounts for the financial year ending February 2022, Dunnhumby earned £362m in a year, despite the company also working with retailers other than Tesco.
When asked about this total, Ed said, “I think it’s pretty close. I knew about it when I worked there, but I wouldn’t say that. Yeah, it’s one of those things that I wouldn’t necessarily say is known and in the public domain.”
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Tesco and Sainsbury’s have both insisted that they do not sell data, but ‘share’ anonymised data with participating companies in their programmes, as specified in their terms and conditions.
But Tesco recently praised its Clubcard strategy as a key driver behind a 159 per cent rise in pre-tax profits to almost £2.3 billion.
In addition, 17,000 media retail campaigns were carried out in the past year using Clubcard retail insights.
And consumer expert Harry Wallop told the programme: ‘They can work out what you like, what you don’t like, whether it’s worth launching a new product or not. And they will tirelessly comb through your data.
‘You give companies access to digitally dig through your entire shopping behaviour, where you are, where you’ve shopped, who else you’re shopping with. They take that data and they sell it. Tesco Clubcard and Sainsbury’s Nectar sell that data.
“It may not be your personal name or your personal email address or your phone number. They’re selling information about you and making millions and millions and millions a year off of your shopping habits.”
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Tesco and Sainsbury’s deny they ‘sell’ data, but say they share the information with other brands to improve customer engagement, and their approaches are fully GDPR compliant.
Among the companies the supermarkets work with are the advertising departments of TV channels, including Channel 4.
And Ed said, ‘If I’m a squash brand and I want to show my squash brand on 4OD, that would go to every user on 4OD.
“But by using the data from loyalty cards, you can make sure you’re only showing them to customers who are likely to buy pumpkin. That’s a much more efficient way to spend your brand.”
In January, the UK competition watchdog announced it would investigate whether supermarket loyalty pricing is misleading or detrimental to consumers.
The Competition and Markets Authority (CMA) has said that the increase in discounted prices offered only to customers with a loyalty card by some supermarkets has prompted an investigation into the practice, as part of its work to tackle cost-of-living pressures in the grocery sector.
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It was said that it would look at whether certain aspects of loyalty pricing could mislead buyers – for example whether the loyalty pricing is a genuine promotion or the best possible deal as presented – and whether certain groups of buyers are disadvantaged by the promotions.
Research is also being conducted into whether loyalty pricing influences consumer behaviour and whether this has consequences for the way in which supermarkets compete with each other.
The CMA will publish an update on its work this month and expects to complete the investigation by the end of the year.
And last September, consumer organisation Which? claimed that Tesco and Sainsbury’s were using “potentially shady tactics” in some of their loyalty offers to customers.
It was stated that in some cases supermarkets gave the impression that savings for customer card holders were greater or larger than they actually were.
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However, Sainsbury’s denied the claims, saying Which?’s findings were based on a “flawed methodology”, while Tesco also rejected it, saying “all our Clubcard Price promotions adhere to strict rules”.
In April last year, Sainsbury’s introduced lower prices on hundreds of products in supermarkets and online for members of its Nectar loyalty card.
This makes it similar to the Tesco Clubcard system, which offers lower prices to cardholders who can also collect points that they can exchange for vouchers or rewards.
MailOnline has contacted Sainsbury’s for comment on the Channel 5 documentary.
A Tesco spokesperson told MailOnline: ‘Clubcard offers the best value at Tesco and we have thousands of weekly offers on Clubcard prices, saving customers up to £360 a year.
‘All our Clubcard Prices promotions follow strict rules, including comparing prices in the market, to ensure they represent real value and savings for our Clubcard members. These rules are approved by our Trading Standards Primary Authority.
‘We do not sell Clubcard data. Our customers have complete control over what they share with us and can choose to opt out of marketing entirely, but still get access to all the benefits of a Tesco Clubcard, including Clubcard prizes.
“When customers choose to share data with us, we use it to focus more on the things that really matter to them.”
Loyalty Cards: Are They a Scam? is on Channel 5 and My5 tonight at 7pm