Meet the Clubcard pioneers who sold their company to Tesco for £93m
Getting fired was the best thing to have happened to Edwina Dunn and Clive Humby, founders of data-mining company Dunnhumby.
As soon as Humby quit his position as CEO of market analysts CACI, Dunn was fired from her post of vice-president of marketing. It was this combination of anger and fear of mortgages drove the couple to set up the company that would later go on to be the driving force behind Tesco’s Clubcard scheme.
Founded in 1989, the company uses customer data from retailers’ check-outs to understand customer behaviour. Tesco became a majority shareholder in 2001 and bought the company for approximately £93m in stages over the next nine years. In 2010, the retailer forked out £48m on the last 10%.
Dubbed Mr and Mrs Clubcard, the duo are worth £90m, according to theSunday Times Rich List 2013.
After taking a hiatus, the pair has now invested more than £1m to buy a majority stake in Purple Seven, the UK’s leading theatre analytics company. The company boasts a database of the UK’s 19 million theatre aficionados and helps managers and directors to understand their audiences better.
Can Purple Seven be as big as Dunnhumby, we speak to Edwina Dunn:
Q. Hi Edwina! So you were fired the day your husband quit his job. How did you think of setting up a business?
I think fear is a great motivator. We had this big mortgage to pay off and we had no intention of being so brave. We were both out of jobs but knew we didn’t want to get into other jobs. So we knew we had to write a business plan and find investors.
We thought the business would be more about education and training than about analytical services. But with the financial targets we set for ourselves, analytics became the favoured option.
The business plan is the most important thing we’ve ever done because it gave us an urgency that we might not have otherwise had.
There were a lot of people interested in backing us but they all wanted 51%, either from day one or three years down the line. But we thought, ‘if we get past three years, why would we not like to own the whole business?’
Fortunately we found Geoff Squires, who used to run Oracle in the UK. He was brilliant and gave us £250,000 which is a lot of money on a handshake and took a minority stake in the business.
Q. You were running a data analytics company in the early nineties when people weren’t talking about customer data. How did you know the concept would work?
Back then, people had no interest in customer data and were actually throwing pools of information away.
Our starting point was looking at previous 10 years’ census data. We looked at patterns of population and described consumer spending according to different neighbourhoods. So we looked at choices of people living in high-end pads in the City, versus those living in low-income high rises. It was kind of obvious but until we built the software tools to analyse that data, people couldn’t see the pattern. It was radical then.
So we thought - why don’t we take people’s customer data and see what separates them from each other.
We then set up an office at our home in Turnham Green and were there for 18 months because we were trying to save costs. Once things got going, we moved into a small office in Chiswick.
Q. How did you convince clients?
The first clients tended to be high-growth and high margin businesses and a classic sector was telecommunications. Mercury Communications, which were later bought by Cable & Wireless, was one of our first clients. The reason they used us was because we had developed clever matching tools which helped them work out which of their systems customers used most. They had 10 different systems and couldn’t tell whether their customers used their systems five times or 10 times.
It’s only when we told them how much their customers were worth that the lights went on. Then along the way we got more clients like BMW and a PC operating system Lotus 123.
Q. How did Tesco get interested?
Tesco’s marketing manager heard about us at a conference and said that the retailer was struggling with something and that we might be able to help them with it. They started this test with nine stores and got a lot of customer data but didn’t know what to do with it. That’s when we came onboard and helped them launch the Tesco Clubcard scheme.
Q. How did you make Clubcard happen?
We didn’t come up with the idea but we made it happen when no one could. The main thing about the Clubcard scheme was that it was a reward for people shopping with Tesco. It wasn’t so much about the money and the reward, but about the information and the strategy it revealed. This was the first time data had become a strategic tool for them.
With that data, we could make out that one customer likes fresh, and one likes frozen. Once you have that information you can redesign the product, stores and the whole range according to the customer. Everyone thinks Clubcard was about communicating offers but that was about one-tenth of the value of getting the right products in the right shelves in stores.
Q. Why did you agree to Tesco buying a stake in your company?
Around 1999 -2000, a South-African media company called Primedia bought out our angel investor and for the first time in nearly 10 years, they actually gave us some money. We had made no money till that point so it was quite tough few years. This investor changed our life.
But Primedia wanted us to float and do this really big dotcom floatation. That was really the key idea of them coming on board.
We got very nervous because we thought the projection of revenues and the business plan wouldn’t work. We thought we would’ve had to change shares in our business to shares in the new floated group. In the end, we didn’t buy into it.
At that point our relationship with Primedia was difficult and we said to Tesco that we needed to go and find another shareholder. They said, “No don’t do that, we’d like to buy it.”
At the time, because they wanted more of our equity, we said that we’ll only give away more equity, if you let us own the license to your customer data.
We then set up a joint venture with American food chain Kroger to form DunnhumbyUSA with a client list including PepsiCo, Kellogg, P&G and Kraft. From there, with every retailer we worked with all over the world, we entered a joint venture.
Q. How was it to have Tesco as a shareholder?
We found them completely professional. They left us to run the business but that was because we always delivered the numbers. They were very thoughtful and would introduce us to their international clients. Having said that, we never got to work with anyone else in the UK because Tesco was so strongly positioned.
Q. How did you decide to sell the business and was it difficult to let go?
The plan was always to sell it and we never thought we’d pass it on through the generations and make it a family business. Love it as much as we did, towards the end of it, it felt that the success of our ventures meant doing the same thing again. It’s incredibly hard to innovate within a very successful business because people want the same thing.
So we felt that for us personally, it had gone full circle. We did extraordinarily well out of the sale, Tesco was totally honourable. We had no arguments or conflicts whatsoever; it was a sweet deal for both parties.
Today, the company is going from strength to strength and we’re proud of it.
Q. The one thing about data-mining is the privacy issue for customer data. What are your thoughts on it?
Throughout all the years with our work with Tesco, there was always that worry of privacy and getting too close to the customer. But Tesco was very good at explaining to customers what it was doing and that’s why the Clubcard scheme was a success. I think people forget that customers don’t mind you knowing them, as long as they get good stuff from you like rewards, better service or freebies.
If Facebook is getting into trouble, it’s because it hasn’t explained to users what it’s doing well enough. I think it’s about the promise and transparency and it’s an art form and not science. There’s no crystal clear method so businesses need to keep asking themselves whether they’re doing the right thing for customers.
Q. How did Purple Seven happen?
We took a big break travelling and relaxing but were on a look out to invest in businesses. People approached us and we started to look at firms to see what’s interesting in the world of data. What began to interest us was the idea of audiences.
We also looked at things that people are passionate about and, in truth, you are passionate about your shopping, but you’re not excited about your groceries. You’re not emotionally engaged in a supermarket.
But if you love football or theatre or music, you are passionate about it. That’s why we started looking at things that get a passionate audience. We thought that theatre in particular had a passionate audience but a lot of companies were not good at understanding their audience, so we found an opportunity there.
Q. You’re a husband wife partnership for over 24 years, how does it work?
Clive is a very creative, great with numbers and very business-savvy. If he was in an advertising agency, he would be the creative director and if he was in a tech business, he would be the R&D director.
My role is more commercial because I enjoy building the right relationships with partners and clients.
Q. Finally, have you ever met your old boss who fired you?
Yes, I’ve bumped into my old boss. I let things go and could almost thank him because he changed our lives. I hope he doesn’t get agonised about it in some way, but it’s the best things that could’ve happened. Sometimes getting mad is the best motivator of all. I was mad and I wanted to show that I was good at my job and didn’t deserve to be fired.
Thanks for you time Edwina!