Should retailers want to be alone?

Sainsbury’s announcement that it is launching a fully-fledged banking service elicited a predictable response: it is a me-too effort designed to trump Tesco, which continues to hold most of the aces. Trailing profit figures from Sainsbury this week will do nothing to belie this picture: they will confirm just how strong Tesco’s hand is – at the moment.

But what of the future? Sainsbury’s has little option but to take the ‘strategic’ view. Only in the medium- to long-term can it hope to regain the initiative. Whether it will do so remains to be seen. For now, we can only comment on how divergent the marketing strategies of the two supermarket chains are likely to become – contrary to current appearances.

For Tesco is something of an oddity. It is sticking to a policy of ‘splendid isolation’ while most major high street players huddle for comfort in increasingly complex coalitions.

Yes, Tesco does have a tactical money-off alliance with B&Q and it does collaborate (very much as senior partner) with NatWest on the Clubcard Plus scheme. But this is a world away from the flurry of deal-making which has Sainsbury’s at its hub. Sainsbury’s, it will be recalled, is a fully paid-up member of the Smart Card consortium – which is the most developed of the brand coalitions. Among the consortium’s other partners are Next, Ford, Cellnet, Allied Domecq and, of course, the pivotal founder member Shell.

Both Sainsbury’s and Shell have an additional exclusivity agreement with Air Miles, which has suggested to some that they may inveigle Air Miles’ owner BA into the alliance – a coup indeed. But this secondary alliance is interesting for other reasons as well. In a recent ‘turf war’, Shell (which has Air Miles exclusivity over petrol forecourts) was forced to back off when Sainsbury’s chose to offer Air Miles on its own forecourts through its proprietary Reward card scheme.

The incident demonstrates not only Sainsbury’s importance in the pecking order, but also the fragility of this and other brand coalitions.

Certainly there are important strategic reasons why the partners should stick together. For example, partnership spreads the cost of expensive but invaluable loyalty schemes. It also provides a means of finessing the banks in the provision of retail financial services.

But coalitions are also subject to short-term conflicts of interest – which will become increasingly difficult to manage as more partners pile in. Compromise will be indispensable if the partnership is to survive. Yet implicit in compromise is the threat of brand dilution.

Tesco or Sainsbury’s; isolation or federalism? Which is the right route? It’s the Maastricht dilemma of marketing.v

Cover story page 36; News page 7; Pitcher page 27

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