Nectar: Making Loyalty Pay Case Study
Nectar: Making Loyalty Pay Case Study
Background and Problem Definition
Sainsbury’s is a medium-sized UK supermarket and gas station chain. It is also the largest participant of Nectar, UK’s most extensive rewards program. When Justin King took over as Sainsbury’s CEO in 2004, he was faced with the decision of whether Sainsbury’s participation in the Nectar loyalty program was worth its annual $120,000,000+ budget. King came over from ASDA, Sainsbury’s lower-cost competitor, where there was no loyalty program and the savings were applied directly to lower the product prices. King had 6 months to review the Sainsbury’s marketing strategy and to decide whether the company was going to maintain its 18-month- old participation in the Nectar loyalty program. This case analysis is going to argue that Sainsbury’s should maintain its participation in the Nectar program.
The Nectar loyalty program was launched in 2002. The scheme was backed by £50 million pounds worth of advertising and direct marketing spend to support the launch. A number of organizations or sponsors joined forces to launch this coalition loyalty program; Sainsbury’s, Barclaycard, Debenhams, and BP, all merged their existing loyalty programs under one umbrella brand called Nectar. Their existing rewards programs were phased out within a year of the launch of Nectar and their members were encouraged to transfer to the new Nectar scheme. Consumers who used their Nectar card at participating outlets collected points, typically 2 points per each pound spent, which then could be redeemed directly at Sainsbury’s at checkout as credit towards the grocery bill or through Nectar for free flights, vacations, or Argos Catalogue purchases. Nectar was operated by Loyalty Management UK (LMUK), which covered the loyalty program’s administrative costs, customer data collection, point redemption, and other day-to-day operations for all participating sponsors. Points were sold to the sponsors for $0.005 each
Background and Problem Definition
Sainsbury’s is a medium-sized UK supermarket and gas station chain. It is also the largest participant of Nectar, UK’s most extensive rewards program. When Justin King took over as Sainsbury’s CEO in 2004, he was faced with the decision of whether Sainsbury’s participation in the Nectar loyalty program was worth its annual $120,000,000+ budget. King came over from ASDA, Sainsbury’s lower-cost competitor, where there was no loyalty program and the savings were applied directly to lower the product prices. King had 6 months to review the Sainsbury’s marketing strategy and to decide whether the company was going to maintain its 18-month- old participation in the Nectar loyalty program. This case analysis is going to argue that Sainsbury’s should maintain its participation in the Nectar program.
The Nectar loyalty program was launched in 2002. The scheme was backed by £50 million pounds worth of advertising and direct marketing spend to support the launch. A number of organizations or sponsors joined forces to launch this coalition loyalty program; Sainsbury’s, Barclaycard, Debenhams, and BP, all merged their existing loyalty programs under one umbrella brand called Nectar. Their existing rewards programs were phased out within a year of the launch of Nectar and their members were encouraged to transfer to the new Nectar scheme. Consumers who used their Nectar card at participating outlets collected points, typically 2 points per each pound spent, which then could be redeemed directly at Sainsbury’s at checkout as credit towards the grocery bill or through Nectar for free flights, vacations, or Argos Catalogue purchases. Nectar was operated by Loyalty Management UK (LMUK), which covered the loyalty program’s administrative costs, customer data collection, point redemption, and other day-to-day operations for all participating sponsors. Points were sold to the sponsors for $0.005 each