If Debenhams defects, what future for loyalty?

Loyalty card scheme Nectar faces a damaging blow should Debenhams, one of its founding members, decide to pull out. The department store chain, which was taken over by a venture capital consortium in December, says it is reviewing all its operations and there has been speculation that new chief executive Rob Templeman will struggle to find sufficient reason to maintain Debenhams’ involvement in the Nectar scheme. Losing the chain would take away one important tranche of the scheme’s appeal.

A Debenhams spokeswoman says: “It is logical to review everything. It doesn’t mean it is all going to be closed down, but it is fair to say that we are looking at all these things. There is no conclusion yet.”

Richard Campbell, marketing director of Loyalty Management UK (LMUK) – the company which runs Nectar – plays down the possibility of Debenhams withdrawing from the scheme, describing it as a “non-story” since Templeman is reviewing every other aspect of the business as well.

Campbell says: “It is extremely rare that a sponsor chooses to leave us. We would replace one that did with another company from the same category.” The only other department store chain of comparable stature to Debenhams, however, is House of Fraser, which runs its own loyalty scheme through its Recognition Card.

While Debenhams’ customers can earn Nectar points by shopping at the store chain, those points cannot be redeemed there – they must be exchanged for a wide range of other benefits, such as cinema tickets or McDonald’s hamburgers.

Debenhams is also testing out its own loyalty scheme – with points redeemable in the store – linked to a credit card, which has been offered to a trial group of customers since November. It is unclear how the new scheme works in tandem with Nectar, and whether customers have to choose to which of the two schemes their loyalty points are allocated.

Since Nectar has only been running for 18 months, it will be difficult for LMUK to demonstrate its long-term benefits. The scheme, launched in September 2002 by Air Miles founder Keith Mills, brings together Debenhams, Sainsbury’s, BP, Barclaycard and other retailers as “sponsors” – destinations where card-holders can earn points. These can be redeemed by Sainsbury’s customers in their home stores, or exchanged for a variety of benefits.

Some in the marketing industry think it is possible that Debenhams will quit the scheme, given its recent change in management. Steve Shutts, head of loyalty consultancy BPM, which is part of TBWA/GGT, says the venture capitalists now in charge of Debenhams need to find cost savings quickly. Loyalty schemes – as long-term ventures that require great commitment from management in manipulating the data collected from the cards – are an easy target. “If the skills aren’t embedded in the organisation that receives the data, it will never do anything for the business. Debenhams hasn’t got much history of wanting to get to know its customers in this way,” says Shutts.

Shutts also points to comments from Terry Hunt and Clive Humby, the direct marketers behind the Tesco Clubcard scheme. Hunt and Humby say that it has taken the retailer eight years to start seeing real benefit from the scheme. Shutts says: “In the book Scoring Points, they admit it took them years before they got to grips with using the data. Senior management at Tesco had a sense that it was powerful stuff and needed to be invested in, but Debenhams has neither the time nor the inclination to do so.”

At launch, Nectar was intended to reinvigorate loyalty cards, which were becoming perceived as just another marketing gimmick with minuscule benefits. A surfeit of schemes watered down the proposition, so Nectar’s “coalition” approach was supposed to make it easier for people to accrue points, as they can be gained from so many different collection sponsors.

However, many experts believe loyalty cards are becoming outdated. Recent research from the Institute of Grocery Distribution shows that few consumers would consider switching stores because of loyalty cards and that people have mixed attitudes to how desirable they are. But retailers say the point of loyalty schemes has always been to try to increase the share of customers’ spend that goes into their stores, rather than getting them to shop at the stores exclusively.

Phil Andrews, managing partner of direct marketing agency Partners Andrews Aldridge, says loyalty cards have had their day: “Consumers are increasingly cynical about loyalty schemes. All too often, these cards are not about loyalty at all but about rewards. The discount loyalty scheme seems to have had its day. It is a sector that is due for a shake-up – Nectar doesn’t seem to be as big as we thought it would be.”

Even though consumers are realising that loyalty cards are of little financial benefit, some proponents say this doesn’t really matter: the schemes are not about creating “value” for shoppers, nor even about creating “relationships”, so much as giving people something to dream about while pushing their trolleys round the supermarket. Air Miles managing director Drew Thomson says: “If, while you are shopping, you are earning a weekend break, you’ve got the end of a rainbow to look forward to while you are doing the dull stuff.”

But, it may not be long before shoppers become bored of this, too. Will we always be willing to deceive ourselves that spending years saving points for a night in Paris makes up for the tedium of the aisles – or the inflated supermarket prices we have to pay to fund our dreams?