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17 the dunnhumby journey the trial, Tesco could become the UK's number one supermarket for the first time. The board listened to the results in silence. When the presentation was finished, after what seemed like an interminable pause, Sir Ian MacLaurin spoke from the chair: " What scares me about this is that you know more about my customers in three months, than I know in 30 years." Rolling Ball As the successful trial suggested, Tesco Clubcard was snapped up by shoppers on the day of its launch in February 1995. Two weeks later, 7m cards had been delivered to stores and 70,000 were being sent out daily to replenish stocks. Within days, over 70% of all Tesco sales were being recorded from Clubcard holders, 3.5m weekly transactions. The Clubcard hotline was taking 1,000- 2,000 calls a day from shoppers keen to use their cards to get 1% discount. In the early days, we were able to analyse just 1% of the Clubcard shopping baskets. As Clubcard members mushroomed, dunnhumby's techniques of interpreting the data to make sense of strategy increased in sophistication, while developments in computing enabled us to analyse millions upon millions of transactions. Today, dunnhumby analyses nearly 5bn ( 4.8bn) pieces of information a week from Tesco. Every customer's shopping basket is analysed by scoring each product against 50 different dimensions. Are these products foreign, branded, economy or family, for example? These products and insights are fed into a clustering model, which has identified six segments of people: price- sensitive, health- focused, traditional, convenience, mainstream and upmarket. We use an algorithm, called the Rolling Ball, which draws links and common patterns between different products. For example, Alphabetti Spaghetti would class as a ' family' product. By knowing that it often appears in a basket alongside a breakfast cereal like Coco Pops, dunnhumby would then assign a stronger ' family' rating to Coco Pops. This efficient clustering technique means that dunnhumby doesn't need to individually classify the 65,000 different products a typical supermarket carries. Instead the algorithm focuses on

18 several thousand ' seed' products. As the model is built over billions of associations over time, the clustering gets deeper and more complex as time goes on, in the same way that a rolling snowball gathers momentum as it picks up snow while rolling down a hill. Crucially, this algorithm is living, which means that new products get pulled into the model all the time. It also means that the initial starting points ( the ' seeds') for the analysis cease to become relevant, with some seed positions moving. The Rolling Ball can also track changes in the dimensions of a product, for example as one product becomes more mainstream, its ' exotic' score would drop. Thanks to the Rolling Ball algorithm, a unique DNA profile for each Tesco shopper is created, based on the correlations and classifications of products in their shopping basket. Yet, despite the depth of insights analysed by the algorithm, the original customer information is remarkably unobtrusive - simply the contents of their shopping basket. It's interpreted from no more detail than an observer in the supermarket gazing into their trolley. Hardly Big Brother. The rest of the Tesco story is well known by most in the UK, and predictably there is a happy ending. As we'll show in detail, Tesco's business grew and grew as it learned to listen to its customers and respond to their needs, launching new ranges, changing store formats, sending customers' relevant vouchers and offering new services like banking. Today, there are around 14m active Clubcard members. Across the pond On March 4th 2002, dunnhumby spread its wings across the Atlantic to Cincinnati, Ohio. Our mission? To see if we could replicate the success of running the world's most successful retail loyalty programme at Tesco for Kroger, a US retailing giant. We needed to persuade Kroger that knowing and following your customers could be a winning business strategy for them too. Before we joined forces with Kroger, the retailer's sales were declining. Kroger was the second largest grocery retailer in the US, attempting to compete with Wal- Mart on price, and suffering as a result. In an early meeting Kroger management any colour you like as long as it's any colour you like