If the marketing is to be believed, shoppers across the nation will be lapping up Nectar when the multi-retailer loyalty scheme launches in store on Monday. And, perhaps more than any of the other participants, Sainsbury will be praying it is a sweet success.
Sainsbury, only just clinging to its number two spot, has much to lose if its investment in Nectar fails to bring in more customers and sustained sales uplifts. But the scheme, also including Debenhams, Barclaycard and BP, has already been greeted with scepticism by some in the City and media, not to mention retailers with a vested interest in pouring scorn on anything Sainsbury does.
After all,the argument goes, Morrisons, Asda and Waitrose are doing very nicely without loyalty schemes, Sainsbury's problems are too deeply entrenched for Nectar to make a significant difference and customers are bored with such programmes. Indeed Asda kindly provided us all with the latest NOP research showing 93% of shoppers prefer lower prices to loyalty cards.
But Nectar is not your typical loyalty card and the UK's number one food retailer Tesco continues to enjoy benefits from its loyalty scheme Clubcard.
It would be a very foolish Sainsbury if it thought it could stave off all its problems with one swoop of a card. But the point, it says, is Nectar satisfies the three main loyalty card issues. Customers want to earn points faster, want bigger rewards and simpler mechanics in order to get these rewards.
Under Nectar, customers should be able to get a reward twice as fast as using their Reward card. The base offer is the same as the existing scheme: two points for every £1 spent. There are also bonus points on top brands and promotions. "We are significantly upweighting the number of extra Nectar points," says customer marketing director Stephen Vowles. "Even if you don't go looking for products with extra points they will end up in your basket."
With the majority of Reward card holders expected to transfer across, many shoppers would, in theory, be able to claim their first treat within a couple of weeks (see right).
The treat' factor and goodwill it generates should not be under-estimated. According to Vowles, customers who redeemed Reward points for leisure activities increased basket spend by up to 10% immediately after their treat'. Positive experiences equal more shopping as shoppers seek another treat quickly. "The key is that the points currency is more valuable than elsewhere," says Vowles.
Put another way, a customer spending £250 will get 500 points which translates into a £2.50 money-off voucher, a 1% refund for the customer. But the equivalent treat is worth 1.5% (£50 of Nectar vouchers gives you £75 worth of DVD rentals, for example).
As Mike Dennis, analyst at CAI Cheuvreux, says: "This compared to other loyalty schemes is generous and, given the broad scope of gifts, leisure ideas and family orientated products, should be very appealing to family shoppers." It also means fewer points should be redeemed at Sainsbury's than under the existing scheme.
Sainsbury says the scheme is cost neutral. Dennis estimates it needs 1.7% sales growth to cover the monthly redemption and fee expenses paid to scheme operator Loyalty Management UK. If Sainsbury manages to generate net sales growth of £600m in 2003/2004 thanks to Nectar, it should recover its initial costs in the second half and add 4% to profits in 2003/2004, as well as taking market share from Tesco and other retailers.
"If management can execute their innovations and differentiation, then the family shoppers will follow," says Dennis.
And for those who think loyalty schemes don't matter? Just remember it was only four months ago Sir Peter Davis said severing the deal with Air Miles shaved 1% off the like-for-like sales figure.
{{ANALYSIS }}
Sainsbury, only just clinging to its number two spot, has much to lose if its investment in Nectar fails to bring in more customers and sustained sales uplifts. But the scheme, also including Debenhams, Barclaycard and BP, has already been greeted with scepticism by some in the City and media, not to mention retailers with a vested interest in pouring scorn on anything Sainsbury does.
After all,the argument goes, Morrisons, Asda and Waitrose are doing very nicely without loyalty schemes, Sainsbury's problems are too deeply entrenched for Nectar to make a significant difference and customers are bored with such programmes. Indeed Asda kindly provided us all with the latest NOP research showing 93% of shoppers prefer lower prices to loyalty cards.
But Nectar is not your typical loyalty card and the UK's number one food retailer Tesco continues to enjoy benefits from its loyalty scheme Clubcard.
It would be a very foolish Sainsbury if it thought it could stave off all its problems with one swoop of a card. But the point, it says, is Nectar satisfies the three main loyalty card issues. Customers want to earn points faster, want bigger rewards and simpler mechanics in order to get these rewards.
Under Nectar, customers should be able to get a reward twice as fast as using their Reward card. The base offer is the same as the existing scheme: two points for every £1 spent. There are also bonus points on top brands and promotions. "We are significantly upweighting the number of extra Nectar points," says customer marketing director Stephen Vowles. "Even if you don't go looking for products with extra points they will end up in your basket."
With the majority of Reward card holders expected to transfer across, many shoppers would, in theory, be able to claim their first treat within a couple of weeks (see right).
The treat' factor and goodwill it generates should not be under-estimated. According to Vowles, customers who redeemed Reward points for leisure activities increased basket spend by up to 10% immediately after their treat'. Positive experiences equal more shopping as shoppers seek another treat quickly. "The key is that the points currency is more valuable than elsewhere," says Vowles.
Put another way, a customer spending £250 will get 500 points which translates into a £2.50 money-off voucher, a 1% refund for the customer. But the equivalent treat is worth 1.5% (£50 of Nectar vouchers gives you £75 worth of DVD rentals, for example).
As Mike Dennis, analyst at CAI Cheuvreux, says: "This compared to other loyalty schemes is generous and, given the broad scope of gifts, leisure ideas and family orientated products, should be very appealing to family shoppers." It also means fewer points should be redeemed at Sainsbury's than under the existing scheme.
Sainsbury says the scheme is cost neutral. Dennis estimates it needs 1.7% sales growth to cover the monthly redemption and fee expenses paid to scheme operator Loyalty Management UK. If Sainsbury manages to generate net sales growth of £600m in 2003/2004 thanks to Nectar, it should recover its initial costs in the second half and add 4% to profits in 2003/2004, as well as taking market share from Tesco and other retailers.
"If management can execute their innovations and differentiation, then the family shoppers will follow," says Dennis.
And for those who think loyalty schemes don't matter? Just remember it was only four months ago Sir Peter Davis said severing the deal with Air Miles shaved 1% off the like-for-like sales figure.
{{ANALYSIS }}
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