Steven Giovanny Nectar : Making Loyalty Pay In March 2004 Justin King had ust taken over as !hie" e#ecutive at Sains$ury%s& the second largest su'er(arket chain in )K $ehind *esco& and +e i((ediately noticed the signi"icant a(ount o" (oney ,as $eing s'ent on Nectar& a loyalty 'rogra( designed to $oost $oost Sains$ Sains$ury ury%s %s sales sales a(idst a(idst co('et co('etiti itionon- *esco *esco Led the ,ay in )K grocery grocery indust industry ry ,ith ,ith 2./ o" share& share& ,hile ,hile S1 and Sains$ury Sains$ury each $oasted $oasted 3/ o" the do(estic do(estic (arket& slightly slightly $ehind the( ,as Morrison%s Morrison%s ,ith its Safeway $rand- *esco and S1 occu'ied lo, cost 'ositions and co('ete on 'rice& aitrose and Marks 5 S'encer (et the de(and "or 're(iu(67uality "ood- Sains$ury $elieved its 'roduct ,as o" $etter 7uality in co('arison to *esco and S1 and $elieved that its slightly higher 'rice 'oint ,as usti"iedNectar is a "re7uent sho''er 'rogra( designed $y LM)K that ,as "or(ed $y Mills& Gierkink and others- Si(ilar to (ost its kinds& Loyalty 'rogra( are co((only designed to retain custo(ers and increase the a(ount o" individual custo(er s'ending in the designated "ranchise& e7ui''ed ,ith the a$ility to allo, custo(er to redee( selected 'ri8e $ased on 'oints accrued over ti(e- hat distinguished Nectar card "ro( other )K "re7uent sho''er 'rogra( in 2000 ,as that they allo,ed custo(ers to earn 'oints not only at Sains$ury $ut they also engaged several hand6'icked 9s'onsors such as the gasoline retailer ;P& the credit card issuer ;arclaycard and 1e$enha(s& a de'art(ent store retailer as the "our "ounding s'onsors- *hey ,ere soon oined $y several nota$le (erchants such as *hresher& da(s& nergy >nergy&& creatin creating g a sta$le sta$le o" in"lue in"luenti ntial al (arket (arket 'layers 'layers in di""e di""erin ring g indust industry ry-- Nectar Nectar created a single single all6enco('as all6enco('assing sing loyalty card "or these "ir(s& allo, custo(ers& custo(ers& ,hich they re"erred to as 9collectors to earn 'oints and also redee( 'ri8es "ro( and at any o" the s'onsorsWhat should Justin King do with the program? Give Given n its its $ackgr $ackgroun ound& d& it ,as ,as unders understa tand nda$ a$le le that that Just Justin in King King had had so(e so(e reservation a$out the a(ount o" (arketing $udget s'ent on Nectar& Sains$ury s'ent eye6,atering 20 (illion 'ound on a loyalty 'rogra(& so(ething that King certainly did not accusto(ed to- +e ,as 'art o" senior (anage(ent tea( in S1 that (anaged to turn the co('any around $e"ore $eing ac7uired $y al(art& the changes (ade then ,ere a$out cost cutting and value "or (oney 'rinci'les- S1 did not have a loyalty 'rogra('rogra(- +is reservation reservation ,as su''orted $y S1 and and Morrison Morrison reluctance reluctance to continue continue their res'ective res'ective loyalty card- S1 discontinu discontinued ed its loyalty card $ecause they $elieved $elieved 'rice cutting ,as the ,ay to o'erate& ,hile Sa"e,ay $elieved that loyalty cards do not give any value to custo(ers& $ut great deal does-
*esco& the do(inant (arket 'layer did concede that loyalty card $ring a lot o" value& ho,ever its *esco !lu$ card took a very di""erent a''roach "ro( Nectar to coalitions& citing its indi""erent o'inion to ho, a coalition loyalty card 'rogra( could generate loyalty to issuer- *he issue in 7uestion is not only ,hether loyalty 'rogra(s $ring value to "ir(s& $ut also ho, a "ir(& in this case& Sains$ury ,ould go a$out esta$lishing the 9right loyalty card structure& ,ould a coalition a''roach such as Nectar ,ould ,ork $etter than *esco traditional single6"ir( loyalty card ,ould ll "actors considered& King should continue the 'rogra(- year a"ter it ,as launched& Nectar%s collector ,as already larger than *esco- Nectar ,as also rated $etter $y ?@/ than others loyalty 'rogra(s $y collectors% survey- =ro( the survey it ,as a''arent that s'ending at Sains$ury%s ,as greater a(ong collectors earning 'oints "ro( (ulti'le sources than "ro( Sains$ury%s on its o,n- *he ,eekly s'ending at Sains$ury%s ,as 40/ greater a(ong custo(er collecting "ro( Sains$ury%s and t,o other s'onsors than i" they earned 'oints solely "ro( Sains$ury& and ,ith each ne, s'onsor& the a(ount s'ent at Sains$ury had also increased& so that "or so(eone ,ho earned 'oints "ro( ? s'onsors& their Sains$ury%s ,eekly s'ending ,as ty'ically 00/ greater- It ,as also a''arent that collectors ,ho earned 'oints "ro( (ulti'le s'onsors ,ere less likely to de"ect- In addition to that LM)K covers the cost o" the 'rogra( ad(inistration and (anages the day to day details& ,hile Nectar 'rogra(s ,ould also (ean an increase in catch(ent areaAcoverage and ,ould ena$le Sains$ury to cross6(arketing to others s'onsors coverageA(arket& i('ortant 'erks o" coalition 'rogra( that o"ten overlooked*hese considerations usti"ied the a''roach o" coalition loyalty card 'rogra( and the value it $rings as o''osed to stand6alone loyalty 'rogra( or no loyalty 'rogra(What should Rob Gierkink do with the program to keep Sainsbury’s happy? *he initial reservation "ro( Justin King and Sains$ury ,as regarding the signi"icant invest(ent it undertook to take Nectar on ;oard- +al" o" the Sains$ury (arketing $udget ,as co((itted to Nectar& ,hile o'eration6,ise& Sains$ury co((it(ent to Nectar (eant that it took / o" its revenue and returned it to the custo(ers& (eaning that at 2?/ gross (argin& custo(ers have to s'end 4/ (ore to $reak even or the loyalty 'rogra( ,ould have $een a "ailure- *o kee' Sains$ury co((it(ent in the 'rogra(& Nectar needs to ensure that it $rings enough additional revenue not only to $reak evenB4/ increase in revenueC& $ut also enough to cover the additional (arketing e#'enses associated ,ith NectarWhat should he do to keep the other sponsors happy? Nectar ,as ada(ant that the s'onsors $ene"itted in "our ,ays "ro( 'artici'ating in the 'rogra(- Li"t& ,here Nectar collectors ,ould s'end (ore 'er transaction and (ore "re7uently- c7uisition& the "eatures that allo, s'onsors to identi"y those ,ho ,ere
not custo(ers and o""er incentives to convert the( into custo(ers- Detention& !usto(ers o" the s'onsor ,ho ,ere Nectar collectors ,ould churn at lo,er rates than non collectors- )' Sell& Nectar collectors could $e o""ered incentives to 'urchase higher (argin 'roducts and services- More than ?0/ o" 'oints are earned in Sains$ury& indicating a signi"icant concentration risk& LM)K should seek to encourage collection and there"ore s'ending "ro( (ulti'le s'onsors& not only $ecause it 'leased the(& $ut $ecause data sho,ed that the likelihood o" a collector $eco(ing dor(ant declined as the nu($er o" s'onsors 'atroni8ed increased- Nectar ena$led ;P to gain / o" gro,th in (arket share& ,hile it ,as also res'onsi$le "or @/ increase in ;arclaycard turnoverShould Nectar contri$ute as it has $een& there is no reason "or the s'onsors to not $e ha''y a$outWhat should he do to keep the collectors collect? Sending regular u'date via e(ail or other (ethod o" co((unication to re(ind collectors a$out ho, (uch 'oints they have accrued and the 'otential re,ards they (ight $e a$le to redee(ed- >ncourage rede('tion o" the 'ri8e& ,hen collectors are ai(ing to redee( a 'articular re,ard& they ,ould likely to increase consu('tion and s'ending to o$tain the selected re,ards i((ediately- Nectar should also 'rovide incentives in the "or( o" 'oints "or ne, (e($ers to sign u' and to inactive custo(ers to return-
