Nectar... details of the UK coalition loyalty programme (The Wise Marketer)
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Feature article...
 

Nectar... details of the UK coalition loyalty programme


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By Peter Clark (co-author, The Loyalty Guide)
 
Published by The Wise Marketer in September 2002.

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Originally published by The Wise Marketer in September 2002, this case study of Nectar and its operator has been continually updated in The Loyalty Guide reports (see www.theloyaltyguide.com)

Editor's note: This article has been developed into a complete and up-to-date case study in The Loyalty Guide report. The report also carries in-depth studies and breakdowns of the world's major coalition loyalty programmes and standalone loyalty schemes, including:

Coalitions
 · Nectar (UK)
 · Nectar Business (UK)
 · Nectar Italia (Italy)
 · Air Miles (UK)
 · Air Miles (Canada)
 · Air Miles Spain (aka 'Travel Club')
 · Air Miles Netherlands
 · Air Miles Middle East
 · Payback (Germany)
 · BonusLink (Malaysia)
 · eBucks (South Africa)
 · FlyBuys (Australia)
 · Fly Buys (New Zealand)

Fuel retailers
 · Global forecourt loyalty schemes
 · Fuel Rewards
 · Esso Extra
 · Shell Driver's Club
 · Coles Myer, and more

       Supermarkets & Grocery
 · Tesco Clubcard (UK)
 · Asda (UK)
 · Sainsbury's (UK)
 · Co-op Dividends (UK)
 · Big Y (USA)
 · Various supermarket fuel retailers

Other retailers & sectors
 · Neiman Marcus InCircle Rewards (USA)
 · Boots Advantage Card (UK)
 · Canadian Tire Money (Canada)
 · Jet Club (South Africa)
 · Foodtown/Woolworths (New Zealand)
 · B2B: Nortel (India)

In the beginning...
The Nectar programme was launched in September 2002. The four initial points-issuing partners (the "founding partners") were Sainsbury's, Debenhams, BP and Barclaycard. (Barclaycard has since left the scheme, being replaced by American Express). The card is a standard magnetic stripe card, carrying the branding of all four launch partners. The same card is issued regardless of which partner is responsible for the member's registration. The founder-partners transferred their existing in-company loyalty schemes into Nectar, with the exception of BP's Premier Points which were not transferable (but were redeemable through Argos until September 2004). Debenhams did not have a loyalty programme of its own.

Originally founded by a privately owned and managed firm, Loyalty Management UK (LMUK), which was chaired by Air Miles co-founder Keith Mills (now Sir Keith Mills), the programme was developed over a period of eighteen months using extensive consumer research to make sure that it addressed most of the concerns that UK consumers had with loyalty card programmes. At the time, consumers felt that there were too many loyalty programmes in the market and that they wanted to earn bigger rewards more quickly.

Key features of the programme are:

  • Choice: Consumers can use their Nectar points for flights, and also for rewards that include offers on groceries and merchandise, holidays, restaurant meals, family days out and cinema tickets from some of the UK's best known companies.
  • Speed: Points can be earned quickly by shopping at over 6,000 partner outlets, and wherever an American Express card is used. If consumers pay for goods in a partnered store using American Express, they earn Nectar points twice over.
  • Simplicity: Being a coalition loyalty programme, only one standard card is issued, regardless of which retail partner initiates the membership. There is also just one points currency. Consumers use a single card at any of the participating outlets, decreasing 'plastic fatigue' in their wallets.
  • Ease: The redemption procedure for accumulated points has been kept as simple as possible. Depending on what the consumer wants to use points for, they can exchange points for Nectar vouchers, call Nectar direct to redeem them, or redeem them automatically at the point-of-sale. Members receive quarterly points updates and points balances, which can also be checked online at the Nectar web site at any time.

At the time of Nectar's launch, redemption partners other than the four founders (i.e. those through which point and voucher redemptions could be made) included: Argos, Direct Wines (Laithwaites), McDonalds, Planet Hollywood, Whitbread (Brewsters, Brewers Fayre, TGI Fridays), Blockbuster video, Odeon Cinemas, Historic Royal Palaces (Tower of London, Hampton Court, Kensington Palace), Jorvik Viking Centre (York Archaeological Trust), Legoland Windsor, Tussauds Group (Madame Tussauds, Alton Towers, Chessington World of Adventure, Thorpe Park, Warwick Castle, London Planetarium), Cadbury World, Dynamic Earth, English Heritage, Kew Gardens (Royal Botanic Gardens), Living Well Health Clubs, Sealife, Whipsnade Animal Park, Executive Golf Club, MegaBowl, AquaXcite, Exhilaration and Orient Express, Avro, bmi, TAP Air Portugal, KLM, Eurostar, Eurotunnel, Lunn Poly, Virgin Atlantic Airways, Air Europa, Best Western Hotels, British European (Flybe), DFDS Seaways, Gatwick Express, Heathrow Express, Singapore Airlines, Stansted Express, NSPCC, Red Cross, Tommy's and Free Kicks. At the same time, LMUK anticipated that flight and travel redemptions were likely to form a very small part in the overall redemption figures, so did not regard Air Miles as a competitor in that sense. However, in anticipation, Air Miles initiated its own 'Great Air Miles Giveaway' short-term programme (just before Nectar launched) in which the number of miles needed to book flights was greatly reduced for many popular international routes.

Cardholders earned one point per litre of BP fuel bought (BP also added point bonuses to each customer's Nectar account at 100 litre intervals, with the first two bonuses being 100 points each, and subsequent bonuses being 50 points each), two points per 1 spent at Debenhams (until 15th February 2008), and two points per 1 spent at Sainsbury's. Until Barclaycard left the programme, members could earn one point for every 2 spent using any Barclaycard credit card. The American Express partnership (replacing Barclaycard) provides consumers with 1 point per 1 spent using the co-branded card in most places.

Backed by a launch marketing campaign costing more than 40 million, Nectar predicted that it would sign up over half of UK households within its first year. The programme targeted over 12 million consumers who were already members of programmes operated by the four retail partners. Over 10 million registration packs (each containing a 'primary' and a 'secondary' card) were issued within its first week. Heavyweight television advertising on all major UK channels, accompanied by an extensive press and outdoor print advertising campaign created an instant demand which was in fact greater than anticipated, resulting in some much-publicised problems with the Nectar web site.

The Nectar programme is operated on behalf its various partners. The company's then-chairman, Sir Keith Mills, was one of the founders of Loyalty Management International which, in the past, had established very similar coalition loyalty programmes under the Air Miles banner in Holland, Spain, the Middle East (UAE), and Canada.

The administrative costs associated with the running of an in-house loyalty programme are often between 5% and 20% of the total cost of a that programme. Instead, Nectar's points-issuing partners pay somewhat lower administration fees to LMUK for its business, marketing and operational expertise.

In September 2003, Nectar revealed that some 13 million UK households had collected a total of 74 billion Nectar points since the programme's launch in September 2002. Of that points total, 42 billion points were issued for qualifying transactions, while 32 billion points were transferred into the programme from points-issuing partners' previous reward programmes. Of the 13 million activated Nectar accounts (i.e. accounts to which points have been assigned), some 10 million were active at the time (defined as having earned points on the card during the previous 13 weeks). This represented a household penetration rate of 50%, and an Active:Inactive Member ratio of 10:3 (that is, 76.9% of activated members were collecting points on a regular basis).

In terms of redemptions, LMUK's figures at the time showed that 5 million individual redemption claims had been made during the first year, across the full range of available rewards. Effectively, this revealed an average of 0.5 redemptions per active member, per year.

According to technology partner Infosys, Nectar has successfully created the desired cross-selling between its retail points-issuing partners, with 75% of collectors now using at least two sponsors, and 62% of collectors saying they are actively spending more with the sponsors because of the Nectar programme.

Nectar's database and IT systems...
LMUK (the operator) is independently owned and managed. Sponsors, or 'partners' as they are more usually known, contractually sign up to LMUK's Data Management Rules. Each partner's own data is owned by that partner - which includes the purchase total, the points earned, the customer's Nectar ID number, the offer code, the date and location. Partners are expected to maintain their own transactional and customer databases. Any item-level basket analysis is carried out by the partner on its own database. The combined data that makes up the Nectar programme is owned by Nectar's operator rather than the partners. This data includes the necessary customer registration details, and information about the number of points earned for each transaction (but not about the specific purchases).

Only the information that is needed by Nectar is stored by its central database. Any data analysis on the total Nectar database is undertaken by Nectar. Joint sponsor marketing is undertaken by Nectar. Nectar data will never be sold, or used by a third party. Some marketing activities can also be carried out by the retail partners themselves, using permission-based information in strict accordance with:

  1. The terms of the Data Protection Act;
  2. Each customer's individual information preferences;
  3. LMUK's own strict internal database principles.

Magnetic stripe cards were chosen because smart (chip) cards were considered unnecessary for the purpose the cards serve. An obvious benefit of selecting magnetic stripe technology is that most point-of-sale equipment can remain unchanged (presenting a significant infrastructure cost saving) when new partners join the programme.

In March 2008, Kognitio, a provider of business intelligence and data warehousing systems, was contracted to supply LMG with its WX2 analytical relational database management system (RDBMS) to underpin the group's recently launched Insight & Communications division. Responsible for customer loyalty programmes such as Nectar in the UK and Air Miles in the Middle East, LMG's data analytics operations team decided to implement the WX2 system after comparing its capabilities with a number of other databases.

According to Kognitio, LMG deployed WX2 for some 8 Terabytes of data using industry-standard HP hardware. By using WX2, LMG aimed to more quickly gain a deeper understanding of customers' purchasing patterns, including cross-purchasing habits. As a result, LMG was able to offer Sainsbury's a series of analytical dashboards giving the supermarket's various FMCG suppliers the ability to analyse a range of data to help them better understand what customers are buying. Armed with this kind of insight, suppliers can develop more detailed and targeted promotions to drive sales among specific groups of customers.

LMG installed WX2 as a virtual data warehouse appliance, removing much of the need for proprietary hardware and ongoing infrastructure maintenance costs. LMG also rolled out several distributed virtual appliances, using 5 Terabytes for analytics, 2 Terabytes for testing, and 1 Terabyte for business continuity and disaster recovery support.

Then, in November 2008, LMG deployed software from Trillium Software to help ensure the accuracy of contact details for Nectar points collectors. When LMG deployed Trillium's technology, data quality was the main goal. The company aimed to provide Nectar's campaign and business managers with greater control over data, and the ability to accurately mail over 10 million new cards to collectors.

To join Nectar, shoppers complete paper-based forms available in stores or received through mailings. They can also apply online or by phoning a call centre. LMG's Nectar membership database today holds details of tens of millions of opted-in households. The Nectar database is one of LMG's most valuable assets. Since the scheme was launched, data quality processes have always been essential to maintaining collector data integrity.

In the early months of Nectar, with huge volumes of applications flowing in, LMG's approach to data quality was simple, yet adequate. It expected its data capture agency to ensure name and address data in application forms or letters was accurately coded. Additionally, LMG had embedded the Trillium Software System, TS Quality component in its own systems, including in real-time for online and call-centre applications. However LMG used just the basic capabilities of the tool such as to ensure that at enrolment, addresses matched to UK Postcode Address File (PAF). At this time, data quality was considered to be a technical issue and processes and procedures were entrusted to internal IT specialists. But by 2004, millions of households were collecting points, and both retail and service partners were making as many as 50 extracts a month from their Nectar databases to gain intelligence to guide campaigns.

One of LMG's early actions was to engage a business-oriented data quality steward to review existing processes and propose new policy. LMG defined a need for a more systematic approach to spotting issues in records, and identifying duplicates. Suppression management needed to become routine rather than an ad-hoc manual activity. Business users, enthusiastic about taking responsibility for data integrity, also sought automated data enhancement, such as adding missing information like initials, forename, gender or salutation.

And, to allow the company to better understand the nature of its data and expose issues within it, LMG also invested in TS Discovery, the data profiling and analysis component of the Trillium Software System. As well as spotting common problems LMG could eliminate through further tuning of TS Quality to its business rules, the company has been able to set up various action routines in TS Discovery. For example, where mandatory information is found to be missing at the point of registration, a process is now in place where an exception letter is sent asking the collector(s) for the missing information. Given the varied quality of source data, LMG is understandably proud that, by late 2007, some 96% of records were considered 'PAF perfect' ('PAF' is the UK's official postal address file, as maintained by the Royal Mail).

Data quality for LMG may now be a standard process as regards Nectar registrations and maintaining ongoing data accuracy. But there are also 'non-standard' projects where good data quality is essential too. For example, LMG uses the same system to help partners match their own customer databases with the Nectar collector database. LMG reports that the benefits of excellent data quality processes are integral to the success of its operations, and that considerable savings have been made through maintaining low rates of returned mail. But, perhaps more significantly, the Nectar programme's effectiveness and popularity would be undermined if collector data lacked integrity, leading to a loss of faith with both collectors and partners.

In October 2008, Nectar began using Interwoven's Optimost software to optimise the efficiency of its web site, with the aim of converting more web browsing sessions into actual transactions. Nectar's web site has many objectives: visitors can register for the programme, check their statements, opt in to bonus point offers and also spend their points through a full e-commerce platform.

In July 2009, following the programme's acquisition by Groupe Aeroplan, a due diligence review of Nectar's IT systems took place to ensure optimal cost and operations efficiencies, and the programme extended its existing contract with outsourcing provider Savvis to manage the IT infrastructure that supports the business-critical applications of the programme.

The early history of Nectar...
The history of Nectar

The launch was not without its problems. Over 100,000 people turned up to enrol online, and the unexpected surges of interest did cause some problems during peak times (lunchtime and early evening) on launch day. A week later, new members hoping to register online faced fresh delays, as the web site's registration and account management facilities were withdrawn while being 'reinforced'. The problems did not, however, affect cardholders' ability to accumulate points, even if they had not yet registered their cards. LMUK announced that registration by post was the best method for the time being, with a telephone call to the Nectar helpline being sufficient to secure the extra 100 points promised to those who would register online. Two months after the site's launch (and subsequent closure), a reworked and more powerful version of the web site was finally made available again.

In July 2002, LMUK secured a commitment of 25 million in equity financing for the programme from private equity firm Warburg Pincus. The investment in LMUK was made jointly by two funds, Warburg Pincus International Partners (a US$2.5 billion fund), and Warburg Pincus Private Equity VIII (a US$5.3 billion global fund that closed in April 2002). LMUK is headed up by a well-experienced team of loyalty marketing professionals who, between them, have over 90 years of experience in the field.

In December 2002, LMUK announced the addition of a fifth points-issuing retail partner, First Quench. The company operates over 2,000 high-street specialist drink outlets (off-licenses), with market reach within one mile of 22 million households in the UK. First Quench's brands include Thresher Wine Shop, Wine Rack, Bottoms Up, Haddows, Victoria Wine, and Drinks Cabin, and all were added to the Nectar programme.

In February 2003, clothing retailer, Adams, signed up. Later the same month, it was announced that the next new points-issuing retail partner was to be the mobile telephone operator, Vodafone UK.

In April 2003, Ford Motor Company in the UK signed up and was granted sector exclusivity. Ford offers 2 Nectar points for every 1 spent on routine servicing, non-warranty repairs, and Ministry of Transport (MOT) testing carried out on Ford vehicles at participating Ford dealerships. In addition, there are also 2 points per 1 spent for owners of any make of vehicle when they pay at participating Ford Rapid-Fit centres.

Later the same month, a few days after Ford announced its involvement in Nectar, LMUK also unveiled its first big plan to keep the momentum going for new and existing members of the programme: a Nectar Multipoints double points promotion twice a year. In conjunction with the four founding sponsors (Barclaycard, BP, Debenhams and Sainsbury's), LMUK supported the promotion through television advertising, point of sale activity, and in-store media.

In July 2003, although Tussauds' theme parks had been a cornerstone of the Nectar rewards structure since the programme's launch, LMUK's market research revealed that free entry to theme parks is a key reward for Nectar collectors, so an extended deal was struck between the two companies to ensure that this need could continue being met. Nectar collectors can redeem points for free entry to Alton Towers (2,500 points per person), Warwick Castle (1,500 points per person), Madame Tussauds (2,500 points per person), Chessington World of Adventures (2,500 points per person), and Thorpe Park (also 2,500 points per person). Points to be redeemed at Tussauds attractions need to be changed into Nectar vouchers first, which can be done either at the collector's Sainsbury's home store, or by calling the Nectar rewards line. When the vouchers are received, they can then be presented for entry to any Tussauds Group attraction.

Also during July 2003, British media reports of the losses made to-date by Nectar attracted much attention in both public and marketing circles, despite the LMUK explaining that the financial situation was very much as had been expected from day one. The Wise Marketer's interview (22nd July 2004) with an LMUK spokeswoman revealed that, because LMUK was a privately held company, the firm was unlikely to comment on its financial plans or profit forecasts. But one comment was drawn: "The accounts lodged with Companies House are very much in line with LMUK's expectations, and LMUK is encouraged by the figures so far". In fact, in LMUK's first year of trading (2002/2003), the firm showed a loss on paper of some 32 million, which could reasonably be expected following such a high-profile launch. The second year of trading (2003/2004) showed a loss of only 8.99 million. This means that the reduction in loss, year-on-year, was approximately 23 million. More recent figures at the end of 2005 showed that Nectar had made a profit of some 25 million during the year, and expected to see double-digit profit growth going forward.

In September 2003, LMUK announced another new points-issuing partner: the All:Sports sporting goods retailer. All:Sports' 4.9 million customers collect 2 points per 1 spent on all sports footwear, clothing, and accessories. The company's existing Smart:Card loyalty scheme, launched in 1992, was completely replaced by Nectar. Unlike the previous loyalty programmes of other points-issuing retail partners, neither the membership data nor the points from All:Sports' existing Smart:Card loyalty programme were rolled into the Nectar programme. Instead, members were given a deadline for redemption of any accumulated points, after which the programme ceased completely.

LMUK also confirmed that it was seeking to partner with more companies, including a high street bank, a utility provider, a pharmacy chain, and a dry-cleaning firm. According to LMUK, after one year, BP and Sainsbury's combined market share of the retail petrol market had increased by a total of 3% year-on-year. The inclusion of a high street bank in Nectar's list of sponsors was expected to be at least two years away from that time. The general idea, however, is to present Nectar collectors with the opportunity to earn points for banking activity and commitment. For example, consumers could be awarded points based on the amount of money they keep in a savings account, or on the value of bills paid, or even their choice of cash machine network for cash withdrawals.

In October 2003, Nectar signed up the energy utility provider, EDF Energy, as the programme's exclusive energy sponsor. The utility's three retail brands - London Energy, Seeboard Energy and SWEB Energy joined Nectar from the end of the 2003, from when the 5 million residential customers of EDF Energy's three regional retail brands were able to register to collect Nectar points through their gas and electricity accounts. EDF is using Nectar points to reward its customers for staying loyal to its brands, and also for making specific decisions about the way in which they pay their bills. Customers can collect extra points for prompt payments, or payments by direct debit, and more points if they choose to become 'dual fuel' (both gas and electricity) customers.

In December 2003, LMUK announced the implementation of customer service solutions from RightNow Technologies [www.rightnow.com]. After the installation, LMUK's contact centre experienced an immediate reduction in e-mail queries received from cardholders. Moreover, the company reduced its overheads by introducing RightNow within its contact management environment. Nectar's members also benefit from the technology by being able to access relevant information about the programme more quickly. RightNow's eService Centre system contains a proprietary knowledge engine which analyses and sorts information so that the most popular and useful answers come to the top of the list of knowledge items. This enables customers to find answers to routine questions almost immediately, minimising their need to telephone or e-mail the customer service team. Linked to LMUK's Siebel CRM system, the RightNow solution allows other queries to be routed to the most appropriate contact centre agents. These agents can then give consistent, accurate answers across all channels because they are provided with easy access to the most relevant information through the system. Because RightNow was able to host the solution itself, only two days were required for configuration, and two more for testing. As a result, Nectar was able to 'go live' less than ten working days after starting the installation process. Other notable organisations already making use of RightNow's solutions include Air New Zealand, Ben & Jerry's, Briggs and Stratton, British Airways, Cisco, Dolby Laboratories Inc., Pioneer, Raymarine, Remington, and Sanyo, the US Social Security Administration, and the State of Florida.

Then - focusing once again on the consumer-oriented Nectar scheme - in February 2004, the UK children's charity, NCH, became the sole charity redemption partner for the Nectar programme, meaning that members of Nectar can donate points to the charity. An online survey by Nectar had revealed that children's charities were the most popular with existing Nectar collectors. Nectar collectors can nominate their favoured NCH project when they call the Nectar rewards hotline to donate their points. A minimum of 250 points can be donated at one time, and any multiple of 250 points thereafter. For every 250 points donated, Nectar will contribute 1.25 to the charity, until a total of 75,000 has been contributed for the year. Thereafter for every 250 points donated, 1 will be contributed.

In March 2004, Nectar acquired its next two retail sponsors - Magnet (kitchen, bedroom and office installations) and Hertz (car rentals). At Hertz (a wholly owned subsidiary of Ford Motor Company), Nectar collectors earn 2 points for every 1 spent when they book a car or van directly with Hertz, either on prepaid rentals taken outside of the UK, or on retail leisure tariffs for rentals within the UK. The points can be registered at the time of reservation, whether online or by telephone, or at a Hertz branch when the vehicle is collected. Furthermore, Hertz says it will, from time to time, run special promotions to boost customers' points-earning power. At Magnet, collectors earn 2 points for every 1 they spend on a kitchen, bedroom, or home office (including all appliances and accessories) at over 200 of Magnet's UK retail locations. Points can also be earned at the same rate at over 180 branches of Magnet Trade, which supplies joinery and kitchen products to local builders.

Shortly after that, in July 2004, the programme added two new points-issuing sponsors - the pub and restaurant brands, Brewers Fayre and Brewsters. Members earn 2 Nectar points for every full 1 spent at any of more than 400 Brewers Fayre and Brewsters restaurants throughout the UK. There are, however, some things for which Nectar points are not awarded, including Breakfast, Travel Inn or other function room bookings, Travel Inn or other function room food orders, accommodation bookings, any other Travel Inn revenue items, any Touchbase revenue items, tobacco and tobacco-related products, and purchases of leisure vouchers. At the time, Nectar's active participants included half of the UK's households - some 13 million.

Then, in September 2004, the pan-European online travel company eBookers signed up with Nectar as the programme's exclusive online travel agency sponsor. Under the agreement, eBookers was marketed to Nectar cardholders, and those booking travel through the company earn Nectar points for doing so. At the same time, eBookers also became a supplier to Nectar, allowing collectors to redeem points for a wider range of travel products including flights, hotel bookings and car rentals.

By September 2004, according to LMUK, the combined 16 sponsors had the potential to account for around 40% of an average UK household's expenditure, meaning that Nectar collectors shopping across all sponsors could earn points on up to 40% of their annual household expenditure. Furthermore, 62% of Nectar collectors claimed to have spent more with sponsors because of Nectar (i.e. they had consolidated their spend at sponsor locations).

In January 2005, Beefeater became the seventeenth sponsor to join the Nectar programme, offering customers two Nectar points for every 1 spent in any of the 156 Beefeater restaurants across the UK. Beefeater was the third brand from the Whitbread stable to join, following the addition of Brewsters and Brewers Fayre in summer 2004. As the figures stood at that time, Nectar had signed up 50% of UK households and Nectar collectors had collectively received around 400 million worth of rewards from the programme.

In June 2005 a surprise announcement revealed that Vodafone was to leave the programme and stop issuing points at the end of August 2005. Vodafone issued a simple statement on its web site: "Vodafone's agreement with Nectar is coming to an end and from 31st August 2005 you will no longer be able to collect Nectar points when you use your Vodafone mobile. We have taken the decision to focus on delivering customer value through our price plans." After The Wise Marketer pressed for further comment, a spokesman for Vodafone then issued the following statement clarifying its position: "Vodafone has been part of the market leading Nectar programme since June 2003 and has seen a positive churn differential between Nectar collectors and non Nectar collectors. However, in the light of Vodafone's internal repositioning to focus on tariffs, several projects are no longer aligned with this strategy". Vodafone's agreement with Nectar came to an end on 31st December 2005.

July 2005 brought a second shock, with the announcement by Barclaycard - a founding partner, and the key financial partner of Nectar - that it was also to leave the programme at the end of August 2005, concluding its initial three-year contract. The credit card giant planned instead to introduce a free travel insurance offer to woo consumers. According to a Barclaycard spokesperson, the move followed extensive research which showed that, above all, Barclaycard customers said they value the peace of mind provided by the company through its back-up services, particularly while travelling.

But just as the points-issuing partner base had diminished for the first time in the programme's three year history, LMUK produced a new points-issuing financial partner in the form of a co-branded credit card - the 'Nectar Credit Card from American Express' - offering consumers the chance to earn 2 Nectar points per 1 spent with Nectar partners, and 1 point per 1 spent everywhere else. And of course, double-dipping (by presenting both the American Express card and a Nectar loyalty card at the check-out) makes it possible for smart consumers to pick up 4 points per 1 spent at almost any partner outlet (2 for the co-branded card, and the usual 2 from the loyalty card).

At the same time, BP Retail renewed its contract with Nectar, attributing double-digit percentage increases in sales and gross margin to its partnership in the scheme. BP's own customer research revealed that Nectar was one of the main reasons why customers choose a BP site over other brands. The company expanded its use of Nectar, and began running a trial in which specific, individually targeted special offer vouchers are printed for customers at the point of sale, based on Nectar data.

At the end of July 2005 the programme's points-issuing partner count was restored when TalkTalk (the landline telecoms arm of The Carphone Warehouse) and Dollond & Aitchison (a high street chain of opticians) became partners. From September 1st, 2005, Nectar collectors earn 2 points per 1 spent on TalkTalk's fixed telephone line services (e.g. out-of-network call charges) and broadband internet services. Dollond & Aitchison also offers 2 points per 1 spent. Built on the promise of free telephone calls forever between its customers, TalkTalk had grown to 1 million customers since its launch in 2003. It aimed to double its customers by 2008 and expected Nectar to play an important role in customer acquisition and retention during that time. Dollond & Aitchison, a long established optical chain in the UK high street, has 372 stores throughout the country, serving about 1 million customers each year. At that time, Nectar's sector-exclusive points-issuing partners once again totalled 17, and the total number of UK retail outlets offering Nectar points stood at 6,500. According to LMUK, Nectar collectors had, at that point, redeemed points for rewards worth almost 500 million.

It was in October 2005 that a number of apparently flawed reports and rumours appeared in the British press saying - among other things - that LMUK was seeking new ownership following an initiative by initial investment partner Warburg Pincus. But much of the national press had misreported the situation, until The Wise Marketer emerged with details sourced directly from LMUK's management team. The company confirmed that, although the report of a potential change of ownership was definitely true, figures quoted by the press had been estimates and did not necessarily agree with the figures of LMUK or Warburg Pincus. It was, however, confirmed that the initiative to find new ownership stemmed from Warburg Pincus. Asked about any potential changes that a change of ownership could herald for the consumer, a spokesperson for LMUK commented: "As far as Nectar is concerned, it's business as usual".

In February 2006, LMUK announced that the UK holiday operator Thomson had joined the Nectar loyalty programme as a points-issuing sponsor. Thomson had been a redemption partner until then. Thomson raised the number of Nectar participating stores in the UK to over 7,000. Thomson offers Nectar cardholders the chance to earn 2 Nectar points for every 1 spent on all Thomson holidays booked through the company's 750 stores throughout the UK.

In April 2006, the UK tool hire company HSS Hire joined the Nectar Business loyalty programme as a points-issuing partner, with a 31-day double points offer for new members. From 5th April 2006 customers of HSS Hire began earning points through the Nectar Business programme. Points are available for the hire of tools and equipment, and for the purchase of tools, equipment, maintenance, repairs, training, safety wear, and consumables. HSS awards its customers 2 points per 1 spent (excluding VAT) on the value of each transaction. To claim their points, customers simply present their Nectar Business card (or a domestic Nectar card) with each transaction. The points are automatically credited to the customer's Nectar account. Instead of showing a Nectar card with every purchase, trade account customers can simply have their Nectar account number tied to their HSS TradeCard account. And, to avoid any possible doubt about ethical employee behaviour, HSS Hire's terms and conditions state that employees cannot collect points for their personal Nectar account based on money spent by their employer.

In May 2006, the AA (Automobile Association) became the next partner to join Nectar, with consumers being rewarded for taking out and renewing personal memberships and other breakdown cover options. According to the AA, the company at that time had an active member base of some 15 million drivers. Starting in June 2006, Nectar collectors earned 2 Nectar points for every 1 spent on AA Personal Membership, including the optional European Breakdown Cover and Breakdown Repair Cover packages. At the time, more than half of the UK's households had a Nectar card, and the average Nectar-collecting household could (if they shopped with Nectar partners whenever possible) potentially earn up to 30 or more worth of rewards per quarter. According to LMUK, an average of 19 Nectar cards were being used at a point-of-sale during every second of every day, through the programme's nationwide network of points-issuing retail partners.

In August 2006, the on-demand rich media platform provider Scene7 announced that Nectar was to adopt its 'Scene7 eCatalog' product to provide members with an interactive version of the paper-based Nectar rewards catalogue. Nectar publishes two full reward catalogues each year, and distributes them to millions of households throughout the UK. The new online catalogue for Spring 2006 allowed Nectar points collectors to search for rewards in the catalogue and link directly to product pages online, where they could redeem points for theme park tickets, electronics, travel, homeware, children's toys and other items. The catalogue offers Loyalty Management full control over the creation and publishing of its own content. The electronic repurposing and distribution of the Nectar rewards brochure accounted for less than 1% of the cost of paper production. Nectar can now track offline versus online preferences for its members and said it will look at serving catalogues according to members' preferences. By that time, more than US$1 billion worth of rewards were reported to have been given to collectors since Nectar launched in September 2002.

Also in August 2006 Loyalty Management Services (LMS), a division of the Loyalty Management Group, supplied the technology behind the launch of 'targetneutral', a programme initiated by BP and which allows drivers to effectively neutralise their CO2 emissions by making online payments to carbon dioxide reduction projects. LMS worked with BP from the original concept to define the requirements and design for the targetneutral web site and then subsequently went on to develop, test and deliver the final solution, integrating novel functionality with creative design. Features include a carbon dioxide calculator, a database of users, a user reporting function and links to a fulfilment agency. LMS will continue to provide full support for the web site including content updates, site promotion, data hosting and technical support. Further functions were to be introduced later on.

In September 2006, Thomson Directories joined the Nectar loyalty programme as a points-issuing partner, both for consumers (when they use the directory to find businesses) and for Nectar Business members (when they advertise in the directory). Advertisers in the Thomson Local Directories earn Nectar points for the adverts they place (2 points per 1 spent on directory ad space each year). Consumers telephoning to use the directory service earn 50 Nectar points each time they make an enquiry (up to a maximum of 1,000 points per year). The programme was rolled out starting with the 2007 editions of Thomson Local Directories. Business members also collect points through the consumer-focused Nectar programme. Points collected with Nectar Business can be redeemed for a range of rewards (either for the business or for employees) including computers, office equipment, cases of wine, air tickets, or a day at the races.

Also in September 2006, Nectar launched a free online game called Everyone's a Spinner, offering members the chance to win prizes for participating. The competition ran throughout September, and up until 10th October 2006, and involved players spinning a web-based wheel for chances to win an iPod Nano, a digital camera, a DVD player, or the grand prize of a family holiday in Florida, USA. Those who didn't win a prize online were given access to members-only special offers, such as 1 off a CD at CD-WOW, or a trial of eight DVD rentals at Blockbuster.co.uk. The competition was created by interactive promotion agency, ePrize.

In January 2007, Nectar began giving its cardholders the chance to turn unwanted mobile phone handsets into Nectar points while at the same time helping people in less developed countries, by teaming up with the charity Greener Solutions. The phones are sent to less developed countries where they will be used by people otherwise without access to such equipment - extending their lifecycle and making good use of what would have been redundant technology. Cardholders trade in the phones via the mobile2points link on Nectar's web site, which calculates instantly how much a handset is worth in points. For example, an old Motorola V3 Razr was worth 3,000 Nectar points. The amount of points exchanged per phone depends on its age and condition.

In March 2007, Nectar announced that the cost of reward redemptions was to be reduced for one month in a 'Spring Sale'. During the month-long promotion, a variety of different products were featured in the sale each week. At the same time LMUK announced the signing of a new points-issuing partner, Gala Bingo, from June 2007. Also in March, Sainsbury's renewed its contract with LMG, operator of the Nectar coalition loyalty card programme, and said it will continue to offer Nectar points in its stores. According to LMG, Sainsbury's would become the first major retailer to use LMG's new data analytics service to gain additional insight into customer shopping trends from detailed analyses of transaction and loyalty card data. The service analyses the products bought by Sainsbury's customers to help improve understanding of their shopping and buying habits. The supermarket said it will also be sharing information with its suppliers to help them understand the purchasing behaviour of customers, with the aim of aiding both new product development and customer communication efforts.

At that time, half of all UK households held at least one Nectar card. Nectar had grown from its 4 launch partners to 16 companies issuing Nectar points nationwide, with a High Street presence in more than 6,000 outlets. Debenhams said that it had recently run a trial programme in which Nectar collectors could redeem their points in real time for full or part payment toward purchases in the store. The uptake among consumers had been encouraging, and the retailer planned to extend real time redemption to all of its stores.

Starting in mid-April 2007, Nectar collectors visiting a Vue cinema were able to swipe their Nectar card to redeem 1,000 points for a free entry. In fact, collectors could already swipe their Nectar cards for money off at Debenhams, catalogue retailer Argos, and Sainsbury's. They could also present their Nectar cards at Blockbuster to pay for DVD rentals (costing 500 Nectar points), Tussauds Group attractions (including Alton Towers, Thorpe Park, and Chessington World of Adventures) and Legoland to pay for tickets (starting from 4,300 points per adult, and 3,000 points per child).

In July 2007, Nectar partnered with Family Investments, a Child Trust Fund (CTF) provider, to offer a CTF account that can be topped up using Nectar loyalty points. Like all CTFs, monetary contributions can be made to a 'Family Investments CTF from Nectar' account by friends and family. But they can also choose to contribute Nectar points to boost the account, either online or by telephone. Research from Nectar showed that grandparents - who LMG says generally don't redeem their points as often as other Nectar cardholders - would welcome the opportunity to add the value of their Nectar points to a grandchild's account. As an introductory offer, those who opened an account received a bonus contribution of 1,000 Nectar points upon application, plus another 1,000 points if they set up a regular direct debit to the account. The money accumulated in a CTF account can only be accessed by the child, and not until they are 18 years old. A maximum of 1,200 (in addition to ordinary government contributions) may be added into each account every year, regardless of whether that contribution is in cash, Nectar points, or a mixture of the two.

Also in July 2007, Nectar launched a 'Swipe to Win' promotion through the supermarket chain and founding partner, Sainsbury's, with more than 18 million game cards being distributed to consumers who used their Nectar card with purchases of 10+ (or 5+ at Sainsbury's Local stores). Each game card provided a one-in-three chance of winning instantly in-store. But for members who did not win a prize in-store, the game card also contained a unique code that gave them an extra chance to win online at the programme's web site. Visitors to the online promotion site (created and managed by ePrize), entered their game card's unique code and their e-mail address. They could then play a click-and-win game by popping virtual balloons for the chance to win one of the thousands of prizes on offer. The game immediately notified players if they were winners, and confirmed with an e-mail. The prizes included 10 grand prizes of 100,000 Nectar points, or 1,000 first prizes of 1,000 Nectar points, or 10,000 second prizes of 100 Nectar points.

In August 2007, Nectar announced that it was to undergo a major re-branding on its fifth anniversary in September, featuring a redesigned logo to go with a new-look Nectar card, and a range of new rewards options focusing on the idea of 'fun and treats'. The new brand identity was to be supported by the biggest marketing campaign conducted since the programme's launch five years before. This 7 million campaign was to be rolled out over a period of several months through direct mail, hands-on contact, points of sale, digital marketing, and various media channels (both traditional and digital). Nectar's new identity is intended to reflect a clear association with rewards, moving toward a more emotional relationship with cardholders. LMG said that this move was largely driven by market research and consumer insights that found that Nectar cardholders prefer to be rewarded with personal treats. Rewards are to be repositioned as "treats" and, in addition to the core rewards already available, the programme began to introduce new 'Star Treats' and 'Star Treat Giveaways' (promotional campaigns) that run at various times of the year. Star treats add more value to existing rewards by offering special deals, while Star Treat Giveaways tend to be of high perceived value and are aspirationally-focused. The re-branded image was revealed to Nectar collectors via a "Re-Card Pack" mailing. There was also a great deal of in-store support from Nectar sponsors, and the Nectar web site itself was also completely revamped in line with the new image. LMG forecast that 1 billion worth of rewards would be issued by the end of 2007.

Also in October 2007, LMUK won a significant judgement in the Court of Appeal, against the government's VAT department, HM Revenue and Customs (HMRC). The dispute with HMRC was over VAT input tax recovery (the claiming back of VAT paid during the course of business operations). Despite an appeal by HMRC, the Court of Appeal agreed with an earlier court decision that businesses that provide rewards in exchange for loyalty points are actually supplying services for VAT purposes. As a result, the court held that Loyalty Management had incurred VAT input tax on the supplies for loyalty redemptions, and was therefore entitled to claim that VAT back.

During January 2008, founding partner Debenhams announced that it would not be renewing its sponsorship contract with Nectar when it expired on 15th February 2008, after which no Nectar points could be either earned or redeemed through Debenhams. According to industry commentators at BMO [www.bmo.com] who questioned Debenhams about the decision to leave Nectar, the department store has been working on producing its own loyalty programme with a store card that awards loyalty points, and MasterCard credit and debit card offerings that will also offer Debenhams loyalty points for all card spending. For LMG, although it has lost a founding partner, this has presented an opportunity to bring in a new department store partner and could help to create a new 'wave of excitement' among programme members.

... this case study is continued in full in 'The Loyalty Guide' report, and details every other aspect of the programme's strategy, including:

  • The full history of Nectar to-date
  • The 'Nectar Business' B2B programme
  • Changes to the company structure
  • Nectar's online portal: Nectar eStores
  • Nectar rewards and redemptions at-a-glance
  • Nectar earning opportunities for consumers
  • Nectar redemption options for consumers
  • Nectar earning opportunities for businesses
  • Nectar redemption options for businesses
  • Nectar's special interest clubs
  • The latest membership and redemption figures

Click here for details of the report

 


 

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About the author...

The Loyalty Guide is brought to you by Wise Research Ltd, the internationally respected research organisation set up to provide specialist business intelligence on the latest worldwide developments in customer loyalty.

Wise Research Ltd is the company behind The Wise Marketer, the online customer loyalty information source. The business was founded in 2001 by Robin and Peter Clark, both acknowledged thought leaders in customer loyalty and customer relationship marketing.

Peter is a loyalty systems specialist with over 20 years experience in designing, specifying and implementing database, customer marketing and customer relationship management solutions, and 8 years of marketing journalism experience. Peter implemented his first leading-edge CRM system in 1997 and has continued to adapt, refine, test and analyse the latest concepts, tools and systems for customer loyalty programmes.

Robin was the editor of Customer Loyalty Today, the world's first subscription journal on customer loyalty, from its launch in 1993 and was the author of two editions of the best-selling Customer Loyalty Report in 1995 and 1997.

In authoring The Loyalty Guide, Peter and Robin have gathered, collated, analysed and presented in an easy-to-access format their decades of specialist expertise, and have conferred with the world's leading experts to ensure this report provides you with the very latest and most up-to-date market intelligence.

 

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