Nectar Case

Problem Statement Sainsbury’s implementation of LMUK’s Nectar loyalty program is one of its largest outsourcing collaboration in history. Although the partnership has been proven to be successful, Justin King ponders over whether Sainsbury’s should continue to work with LMUK or go solo and develop its own loyalty program. Benchmarking with other grocery chains, the group chief executive is wondering if Sainsbury’s should continue to invest £120 million on Nectar or shift the investment to other potential uses to generate more returns. If Sainsbury’s pulls out from the collaboration and discontinues its investment in Nectar, it will risk losing its customer equity built upon the Nectar loyalty program. Thus, Sainsbury’s should stay with LMUK and invest into improving its loyalty program to grow customer equity and retain its profitable customers.

Market Analysis The grocery market is undoubtedly large and is dominated by four large players which are: Tesco, ASDA, Sainsbury’s, and Morrison. The rest of the market is taken up by smaller grocery chains and convenience stores, which have been losing market shares to the aforementioned supermarket chains. Loyalty programs were introduced several years ago, but is not necessarily a current industry trend in the grocery retail market since companies hold conflicting beliefs towards the effectiveness of a loyalty program; some believed strongly in loyalty programs, while others believed that customers preferred price-cuts instead. Nonetheless, loyalty programs much like Nectar were common overall in the United Kingdom. The correlation between a customer loyalty program and sales revenue or market share is not illustrated in the market; Tesco, which believes strongly in its program, has leading market share of 26%, but Sainsbury’s, which also has a program, is losing market share to ASDA while having the same share of 17% each. However, revenue is not an accurate measure of the benefits of a customer loyalty