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INTERVIEW Sir Terry Leahy: retailers must use their data to give customers what they want

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In a world where the customer demands that brands are “ubiquitous but under their control,” retailers must learn to use the data in their businesses to give customers what they want if they are to prosper. That was the message of former Tesco chief executive Terry Leahy, speaking to Internet Retailing this week.

Retailers, he said, must engage individual customers in order to find out how they can be useful to them. And the way to achieve that, he said, was through data.

“For the consumer, online and offline becomes invisible,” he said. “They’re interested in the needs and interests that they have and whether you as a brand can help or not. Often they won’t notice how you do that, whether it’s on a mobile phone, on the computer at home or computer in store or virtual display or real store, they basically want you to be ubiquitous but under their control so that if they want you they can use you.”

Data-driven retail ultimately has the potential to transform the high street,” he said. “There will be a high street but it will change,” said Leahy. “The high street will need to be attractive because people will only spend time on things that are engaging and attractive. Human beings are social and will want to gather together in nice places, there’ll probably be more residential, a good thing anyway. There will be care homes, GP practices, health and beauty services, opticians, nail bars, physios. There’ll be a lot of stores of different types. There’ll be virtual display stores [such as those Tesco launched in South Korea] that you can transact with, click and collect for online, eating places. There’ll be a different mix of things. Food will be there – it’s hard to see all of food moving online.” He conceded that there might have been fewer stores in categories such as books, entertainment, and electronic goods if retailers had used data to map customer demand in years gone by.

Leahy was speaking to Internet Retailing after earlier addressing an audience of 2,000 at the IBM Smarter Commerce Global Summit 2013 in Monaco. He told the audience how he used data to put Tesco ahead of its competition, growing the business from a market value of £4.7bn in 1992, when he first joined the board, to £29.9bn in 2011 when he stepped down as chief executive. He said data had helped him to overtake competitors Marks & Spencer and Sainsbury’s, both worth about £8.7bn in 1992 and £5.4bn in 2011.

“We had done about 10 times better than two very good companies,” he said. “That was done because of data and because of transforming the customer experience.” He said that data helped Tesco to find the truth about the business, and to learn from “the authentic voice of the customer” how they perceived the supermarket. “From that day forward,” said Leahy, “I never had to look for growth. Tesco grew by 10% a year in an industry growing at 2% because the voice of the customer gave the direction.”

Tesco and Leahy gained that data in part by asking both customers and employees what they thought of the company, and in part through the Tesco Clubcard, in partnership with Dunnhumby, which it later acquired. When it launched in 1995, the Clubcard was, said Leahy, “the first example of big data, managing the customer relationship through data,” and one that “transformed the company” because it mean that it knew who its customers were and could target them in a relevant way, as well as by asking both customers and employees what they thought of the supermarket and what they thought it stood for.

Data led the company to move into convenience stores, and it also took it online, and led it to change its business. Through heat mapping, for example, it monitored how customers using stores and took steps to reduce queues, while a responsive supply chain meant that each beep in the supermarket had a direct effect on the orders to the factory or farm. A lettuce sold in store meant that the order was relayed to the rig picking lettuces in the field.

“The customer really drives the supply chain – that’s the important thing, to transform the customer experience,” he said. That changed the decision making structure of the company. In so many companies there’s no shortage of data but it’s in the wrong place, at the perimeter of the business. The key decisions are taken at the heart of the business. Often the most powerful in the organisation are the least informed. That’s the reality. So we had to push that data right into the parts of the organisation where it needed to be.” Now is the time, he said, to invest in data which, unlike other retail business costs, is falling in price.

He said: “The key is to use data to get a better management of supply chain and operating systems, also to understand their customers better. In that way they can create more relevant benefit for the customers and in that way create loyalty, from that comes more spend and more profitable spend. That’s basically the economics of data.” That all means work for retailers. “The challenge is that the theory is known but not being practically applied. There are relatively few example of genuinely multichannel engagement with the customer. There are practical problems of getting old systems to work on new platforms. That’s a lot of the work that companies have to get through. If you keep focused on how that will benefit customer and therefore benefit you at lest that provides a lot of motivation and momentum of getting through difficult systems development.”

But data on its own is not enough, said Leahy. “Values, culture, purpose – these actually matter as much to success as the technology and data. Even today when there is limitless data, limitless potential, actually the values matter even more. They speak to the heart in the way that data and technology speak to the head.”

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