Divided loyalties

Sainsbury’s insists its review of the Reward Card does not mean the scheme’s future is on trial. But at a time when supermarkets are playing for customer loyalty with everyday low prices and GM-free and organic produce, how can it justify the

A lone member of Sainsbury’s staff has been handed a task of supreme importance to the supermarket chain’s future success.He or she – Sainsbury’s will not even reveal the gender of the staffer – has been asked to find ways to improve the retailer’s Reward Card loyalty scheme. The executive may decide the card should be scrapped altogether, though this would directly contradict marketing director Sara Weller, who says its continued existence is assured.

While other businesses may have been tempted to call in an army of consultants on &£1,200 each a day to carry out such an important task, Sainsbury’s chief executive Peter Davis, who joined in March from Prudential, is keeping the loyalty card review on a small scale.

But its consequences will be enormous. On one person’s shoulders rests the future shape of the direct marketing industry and retailing in the UK.

The staffer will decide whether the money being invested in the Reward Card would be better employed elsewhere. An estimated &£500m has been spent on the loyalty card since its launch in 1995, and of this, more than &£100m is estimated to have been spent on operating the card, while the rest is for loyalty points, effectively, sales promotion.

Plummeting sales across the chain over the past five years make it hard to measure how Sainsbury’s has benefited from the scheme. Or whether the group’s performance would have been even more disastrous without it.

According to Weller, who joined Sainsbury’s in January from Abbey National, the data collected from the use of loyalty cards is extremely valuable: “Not only on an individual customer basis, but on a store-by-store basis. It enables us to understand our customers at each outlet, and therefore be able to offer ranges to suit those customers,” she says.

But the person responsible for the loyalty card review might reason that this data could be gleaned much more cheaply – for example by examining checkout data or quizzing shoppers as they leave the store.

Weller insists the chain is only looking at its options over the way the loyalty scheme is run, and will not be scrapping it altogether.

“We are reviewing our scheme, and this is consistent with most of the major supermarkets. We are now focusing on opportunities to take on a new generation of customers,” she says.

News of Sainsbury’s review has emerged three weeks after Safeway announced it is scrapping its own ABC card, and its intention to plough the savings into price cuts. It also comes as a smaller specialist rival, the frozen-food chain Iceland, creates headlines with its latest commitment to healthy eating.

Iceland announced last week that it was banning genetically modified ingredients from its own-brand foods, and that all of its own-label frozen vegetables would be 100 per cent organic within months. Schemes such as this offer consumers a different choice and may form the future of customer loyalty.

Marketing strategy or expensive gimmick?

Sainsbury’s says the Reward Card scheme is still an important part of its marketing mix, though some industry insiders believe that in areas such as packaged goods, a loyalty card is a luxury and will soon be a thing of the past. Many suggest they have never been anything more than an expensive and unnecessary gimmick that adds little value for customers.

Claydon Heeley Jones Mason managing director Mark Leversedge says: “Loyalty card schemes such as Airmiles have proven successful, but they are expensive to run and in the case of supermarkets, they are a luxury.”

But if Sainsbury’s does decide the Reward Card is a luxury it can ill afford, Tesco’s Clubcard would be the only remaining card in the supermarket arena, giving it an advantage over Sainsbury’s.

“Strategically, that is the issue,” says Waitrose marketing director Mark Price. “Can one afford not to have it, leaving the way open for the other? Tesco would milk it if Sainsbury’s did drop its scheme.”

Customer benefits

Weller denies Sainsbury’s would base any decisions on Tesco policy: “We would only drop it if it was no longer beneficial for our customers,” she claims. Brave words indeed.

Price, who says he has never approved of loyalty cards, says that the cost of running the scheme is better invested in other areas. He adds: “It has been proved that reward cards do not increase spend or increase loyalty. Boots spent &£54m setting up its scheme – yet its sales went up by less than 0.3 per cent.”

He predicts that it may not be Sainsbury’s which ditches its loyalty card, but Tesco. He believes Tesco’s policy of everyday low prices leaves its Clubcard adding little value. After all, this is the same route both Asda and Safeway have gone.

Weller says Sainsbury’s low prices are not the only attraction for customers and that it is targeting a different market from Safeway: “If buying a car was just about price, then BMW would never sell any cars,” she says.

Claydon Heeley’s Leversedge believes Tesco uses the data it gets from the scheme to some benefit. “For example, the company noticed that in a particular area there was a concentration of old people. So it provided them with a free bus service to the store,” he says.

But Waitrose’s Price criticises the way Sainsbury’s and Tesco use loyalty card data: “Sainsbury’s looks at the information and notices that some people don’t buy frozen food. So its gets the suppliers to fund direct mail offering these customers a discount. Those people most probably don’t buy frozen food because they don’t want it. At the cost of 50p per mailshot, that is an expensive time-wasting exercise.”

Industry sources believe there is a lack of software capable of intelligently mining this data.

Verdict Research director Mike Godliman says: “There is so much information, they don’t know what to do with it, they need more sophisticated software.”

And Price adds: “Everybody says loyalty cards are very important for data collection – but for what? You don’t need to know that kind of information about people. Trying to analyse all the data is madness.”

But the Sainsbury’s staffer may heed the words of other industry observers who are less sceptical about loyalty cards.

Retail Intelligence senior analyst Richard Perks says: “It would be wrong to ditch them. It’s still early days and their potential is huge. But I do think that Sainsbury’s misses out by not contacting all its loyalty card customers directly, as Tesco does.”

TBWA GGT Direct chief executive Mike Cornwell, whose agency has just launched the House of Fraser loyalty card Recognition, says: “Loyalty cards still have a value in that they reward your best customers, but they are not the be-all and end-all. The mistake the supermarkets made at the beginning was trying to find too much information on people.”

Whether or not supermarkets do ditch reward cards, what is apparent is that each is already trying to carve out a niche offering something different from the other.

Loyalty e-volution

Leversedge believes loyalty cards will mutate to become more online-oriented. “There will be a move towards a more personalised experience,” he says. “In terms of online, the software will have the capability to identify you as you make a purchase, and will be able to give offers and discounts immediately.”

According to Verdict’s Godliman, the Internet will account for five per cent of supermarket business by 2005.

Somerfield, which has a more downmarket, older customer base, announced last week it would be scrapping its home-shopping service. The move has not been greeted with enthusiasm. “If our predications are correct,” says Godliman, “then Somerfield is immediately wiping out five per cent of future sales.”

TBWA’s Cornwell agrees: “Over time people will stop buying in bulk at the supermarket. Loyalty will become more important when people aren’t spending money face to face.”

Sainsbury’s has already recognised this and is planning to expand into the area, according to Weller: “Home shopping is something we are going to be rolling out aggressively,” she says.

But Retail Intelligence’s Perks says the biggest problem supermarkets face at the moment is how to keep the loyalty card scheme alive.

According to Verdict research, consumers are becoming increasingly indifferent towards loyalty schemes. They know they add little benefit to their weekly shop, and in many cases they feel they are offering supermarket chains free information with little in return.

Godliman says: “When loyalty schemes were first started they offered consumers something extra, but there came a point when consumers’ wallets were full of plastic cards and they stopped being a loyalty tool and became meaningless.”

And now Wal-Mart has entered the market, the loyalty battle has moved over to lower prices territory. Price says: “If I was a shareholder I would look at Asda, Safeway and Waitrose and ask myself ‘How confident am I that the money being used for the Reward Card scheme would not be better used developing another area?'”

So for the Sainsbury’s staffer, whoever you are, it is a tough call. Scrap the card, and hand a major marketing coup to Tesco. Or keep it and continue to pump funds into an expensive marketing fad, while rivals claim the high ground on price. And if you do decide to keep it, improving it will add more costs to the equation.

The answer will provide a flavour for the future direction that Sainsbury’s Davis wishes to take the chain – either a head-on competitive strategy with the likes of Wal-Mart, or a more upmarket positioning where price is desensitised.

The ultimate decision will be down to Davis and may turn out to be the most important he has ever had to take.

Latest from Marketing Week


Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now


Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.


From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.


Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3703 or email customerservices@marketingweek.com

If you are looking for our Jobs site, please click here