Taste of things to come?

Nectar may be dealing with its first sponsor drop-outs, but the loyalty card scheme is bullish and has major plans for the future, says Catherine Turner

The Nectar loyalty scheme arrived in stores less than three years ago. Hailed as the future of loyalty cards, it quickly became the UK’s biggest consumer loyalty scheme with 15 million members. Its attraction lay in its network of sponsor members, each offering points that could be exchanged for “rewards” including flights, holidays, restaurant meals, cinema tickets and money-off vouchers.

But, with founder member Barclaycard pulling out of Nectar (MW last week) and Vodafone having decided to quit the scheme, some believe Nectar’s sweet success is turning sour.

Sainsbury’s, Barclaycard and BP scrapped their standalone loyalty schemes to join the programme set up by Keith Mills, founder of Air Miles, in 2002. A fourth founding partner, Debenhams, had until then never run a loyalty scheme. Other retailers soon joined Nectar, which is run by Loyalty Management UK (LMUK), and it quickly grew to 17 sponsors including Argos, Beefeater, online holiday company Ebookers, and Threshers, with none of them choosing to leave – until now.

Barclaycard’s decision to pull out coincides with the introduction of a Nectar credit card through American Express. Barclaycard, however, insists Amex’s involvement has little to do with its withdrawal, and says it no longer believes the scheme is of value to itself or its customers. Instead, Barclaycard customers will be offered free travel insurance as the card business strives to return to its “peace of mind” ethos. Vodafone, which will leave the scheme at the end of the year, has declined to comment on its decision, but it is understood that LMUK is in talks with a potential replacement.

For Amex, with its upmarket aura, partnering Nectar is a brave move, says Mastercard Europe senior vice-president and commercial director Jeremy Nicholds. Despite having sunk millions of pounds into advertising to change perceptions, Amex is still regarded as a high-end card, he says. He also queries why Amex, which operates one of the best reward schemes, needs to be a Nectar partner. “Where does Nectar fit in?” he asks. “I don’t see it working. And if Barclaycard has decided against Nectar, that is a significant judgement.”

Nectar marketing director Richard Campbell counters that it is Amex’s own considerable experience of running a successful reward scheme that makes it an ideal partner. “Amex understands loyalty – it is generally acknowledged as the market leader in credit card loyalty schemes. We felt that it was a natural match,” he says.

Up to 1 million customers are expected to sign up for the Nectar credit card. Campbell also hints that new sponsor members may come on board and makes clear that the Amex scheme gives far more points per pound spent than Barclaycard. He feels the time is ripe for growth and aims to sign up about 25 sponsors that will cover 70 per cent of the sectors that comprise household expenditure. It is now about 50 per cent.

That could prove a tough task, according to Mintel director of retail research Richard Perks, who believes the end is in sight for reward schemes. He says retailers such as Safeway, which scrapped its ABC card after five years in 2000, and Asda haven’t suffered for not having them, and that consumers take such schemes for granted. He says: “I am a sceptic. From a consumer perspective loyalty cards are a price promotion; from a retailer’s point of view they are a way of collecting marketing information, but I am not at all convinced the benefits are worth it: running these schemes is hugely expensive.”

Perks adds: “Loyalty cards were in vogue for a time, but I think they’ve had their day. The problem with any promotion is keeping it alive. I would stop loyalty cards and invest the money in different prices and promotions: something that would have a bigger impact on consumers.”

Andrew Mann, head of rival Tesco Clubcard, which has 11 million members, believes there is a place for loyalty schemes, but admits retailers must try harder to keep customers interested.

And that, says Campbell, is what Nectar is aiming for next: it has launched a major brand-based campaign urging customers to see where they can spend their points. “The biggest challenge is getting customers to understand what they can get for their points. Our customers understand about collecting reward points, but we want them to know more about how they can spend them.”

Facts and figures

Nectar launched in autumn 2002 with members Debenhams, BP, Barclaycard and Sainsbury’s. Its founder is former Air Miles boss Keith Mills and it is run by Loyalty Management UK. Mills, LMUK chairman, was chief executive of London 2012, which last week won its bid to host the Olympics in seven years’ time.

Nectar has 15 million cardholders. Up to 1 million people are expected to apply for the American Express Nectar credit card, available from September.

So far, Nectar has given away more than £340m in “rewards”.

Current members are: Sainsbury’s, Debenhams, BP, Adams Kids, Thresher Group, Ford, Winemark, all:sports, EDF Energy, Hertz, Magnet, Brewers Fayre, Brewsters, Beefeater, Ebookers, American Express and, until the end of the year, Vodafone.

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