Tesco says Halo

In a previous post I took a look a whether the so-called "multi-channel halo effect" is real or not. The proposition of the halo effect is rather simple:

Argument A: Angels with Halos
1. your multi-channel customers can be proven to spend more - in total across all channels - than single channel customers
2. therefore being multi-channel increases overall sales, because your customers will spend more

The trouble with this logic is that it assumes that correlation implies causality. The whole argument can be turned around:

Argument B: Cannibals
1. your best customers spend more with you
2. these same best customers are more likely to want to reach you via multiple channels
3. if you don't offer these additional channels, they'll go somewhere else

In this logic, it's still a good idea to be multi-channel, but it isn't really increasing sales, just preventing falling sales. Or put more succinctly, cannibalising yourself is preferable to being cannibalised by someone else.

In fact in some countries and/or verticals - probably most - the argument can be taken one step further:

Argument C: Cannibals with Halos
1. richer customers spend more
2. richer customers are more likely to have access to the internet, and/or to own multiple devices for accessing the internet - smart-phone, tablet, laptop, home PC, office PC etc
3. therefore customers who spend more are more likely to be multi-channel customers
4. if you don't offer these additional channels, they'll go somewhere else

Now, buried in Tesco's February strategy presentation to analysts ("Winning in the New Era of Retail" - I'd post the link to the PDF if I could find it again on the website. Fortunately I downloaded it at the time), they present the following interesting data:

The black figures are mine, and are obtained by the not terribly scientific approach of counting the height in pixels of the bars, so you should be wary of treating them as exact data measurements: the point is in the general trend, not the precision. (Tesco says it measured 2M clubcard customers, so the sample size is pretty impressive!).

So which Argument does this actually support? There's a confusing bubble attached to the right-most column on the original slide that says: "similar growth across all affluences", but the way this is presented implies not that richer and poorer customers behave the same way when it comes to the halo effect, but that Tesco is seeing growth in the number of multichannel customers across the spectrum of affluence i.e. that a higher percentage of its customers now sit in that right-hand bar in every demographic. Nevertheless it could just about be possible to stretch this to imply that 'Argument C: Cannibals with Halos' is not supported by Tesco's data.

Digressing for a moment, the problem for Tesco is that their figures say that only 4% of its customers do actually sit in the right-hand bar, and that this has grown by 17% YoY: so following the logic through, 17% of 4% of customers have increased spending from an index of 2.04 to 2.98 (=46%). When you do the maths, that represents around a 0.3% increase in overall sales - not bad if you are as big as Tesco, but not exactly an overwhelming endorsement of the Halo Effect.

It's much more difficult to dismiss 'Argument B: Cannibals' or sustain 'Argument A: Angels with Halos' on the basis of this data. Online Grocery by definition is skewed towards more affluent customers. There's a delivery charge, which OK if you are careful and accept your delivery at inconvenient times, you can minimise. (Currently click-and-collect is on promo so is free, but the standard charge is £2). And you need a front-door so if you live on the top floor of a tower-block it's less likely you'll be using the delivery service. Moreover grocery shopping, of course, is unlike other shopping. Many online grocery shoppers will order their bulky/heavy regular staples online, and then go buy fresh or top-up in a store.

What the data probably most effectively shows is the value of Clubcard, in two ways. Firstly someone who shops online at Tesco is more likely to choose Tesco for their offline shopping too, and vice versa. You can't help feeling all those loyalty points have something to do with that. Secondly and far more importantly, Clubcard lets them measure and present this kind of data to analyse, tracking their customers effectively across all their channels, something that is otherwise notoriously difficult to do.

Unfortunately the graphs also show one more thing: a very small bar in the top RH corner for their non-food online...