Most retailers from your supermarket to your local coffee shop now run some sort of loyalty scheme whereby they collect data on you and your shopping habits in return for a small discount. The practice is so widespread now that it's amazing to think that as late as the mid-1990s the idea was seen as revolutionary. The couple most responsible for bringing the concept into the mainstream are husband-and-wife team Edwina Dunn, 57, and Clive Humby, 60.
The two met while working for US software consultancy CACI, mining census data to help retailers pick the best location for their stores. However, they were frustrated by the company's decision to maximise profits at the expense of research and development. So in 1990 they quit to found their own consultancy, Dunnhumby, helped by a major infusion of cash from an angel investor. They began advising clients, such as food wholesaler Booker, on how to use customer data to improve their business.
The company was profitable almost from the beginning. But the major breakthrough came when Humby met a senior Tesco executive in 1994, who revealed that the supermarket giant wanted to develop a customer loyalty card, but was unwilling to pay the £50m it estimated such a card would cost. Dunn and Humby reckoned the card could be put in place for a fraction of the £50m. Despite some scepticism on the part of the supermarket, a small trial in a handful of its stores showed that the cards could provide a "geyser of data", which Dunn and Humby showed could be used to boost sales. The board was so impressed by the results and by Dunn and Humby's subsequent presentation that Tesco rolled out the concept across all of its branches.
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The trial was a success the cards provided a "geyser of data", which the firm realised it could use to boost sales. The board was so impressed by the results and a subsequent presentation that Tesco rolled out the concept across all of its branches.
This decision helped to ensure that Tesco enjoyed a long period of unprecedented growth and dominance over its rivals. And the success of the Clubcard ensured that Dunnhumby would go on to do several other projects with Tesco, including the launch of its banking service. It also drew the attention of other retailers, most notably US chain Kroger. A joint venture between the two helped Kroger fight back against Walmart, delivering 45 consecutive quarters of revenue growth. By 2011, Dunnhumby was making an adjusted turnover of £248m, with profits of £46m. That year, the couple sold their remaining stake for £93m.
They have since become involved with start-up Starcount, both as investors and executives Dunn is chief executive, while Humby is chief data scientist. Starcount uses social media to analyse consumer behaviour, by focusing on a small subset of 600,000 "stars" who are the most influential in determining consumer behaviour. Although it has only been running for four years, it is already breaking even, and has recently raised £5m in a fundraising round.
As far as their tips to entrepreneurs go they have to be able to "put themselves in their customer's shoes", say the couple. Setting up on your own is "really hard work" so you "have to believe in your idea" and be "relentlessly optimistic and passionate". Of course, working for yourself can be fun too but don't kid yourself it will be easy.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
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