Loyalty is the nectar of the supermarket

As a regular Sainsbury’s shopper I am a bit put out by this new Nectar Loyalty Card. I was quite happy, every now and then, to have my grocery bill reduced by redeeming my points. Now it is all so much more complicated.

Of course, when you see the form you have to fill out in order to replace the existing Sainsbury’s Reward Card, it all begins to make sense. Apart from anything else, this is a massive data collection exercise. And before you think that there is any privilege attached to being either a Reward Card or Nectar Card holder, think again as you pass the large containers stacked high with application forms waiting for just about anyone to fill them in.

The launch of Nectar is viewed by many as Sainsbury’s latest attempt to catch up with Tesco which, long ago, stole a march on other retail multiples with its refined use of data gleaned from its Clubcard. But the launch also puts the spotlight on the whole area of promotions, both strategic and tactical.

Programme manipulation

Sainsbury’s admitted that after it terminated the Air Miles contract – and no one is quite sure who got rid of whom – sales growth slowed. It is now hoping that the Nectar Loyalty Card will reverse that situation. Reward cards are generally seen as strategic, long-term promotional programmes, but, as the Tesco Clubcard shows, it is how you manipulate the programme that really matters.

The great difficulty in gauging whether promotions work is in the actual definition. If, as Promotional Risk Management director Brian Gibb says: “Sales promotion is a mechanism that persuades you as a consumer to buy that product at point of purchase,” then even a Buy One Get One Free (Bogof) is a valid sales promotion.

There are many, however, who believe that Bogofs have no place in the sales promotion armoury and anything that does not add value to the brand should not be considered part of a promotional programme.

Managing director of Communicator, Paul Seligman, says: “My job is to add value, not take it away. What many people call promotion is actually discounting.”

But Iceland’s strategy of supplying endless Bogofs obviously worked because when the supermarket dropped the strategy for what it called “a wider value-driven proposition” sales began to fall. In the 13 weeks to the end of June, Iceland’s sales were down 5.8 per cent. Surely this is proof to the doubters that Bogofs drive sales – albeit at much expense, usually to the brand owners who foot the bill.

Gibb says: “Iceland’s decision to drop Bogofs is astounding. Furthermore, the launch of Nectar means that competition in the retail sector will be even more intense. Retailers need to focus on promotions that raise their profiles but also add value to the customer. Bogofs were an integral part of Iceland’s marketing and proposition. If I was a customer, I’d be asking what Iceland is doing for me now.”

But maybe Iceland’s idea is to embark on more strategic, long-term promotions, like its competitors, in order to raise its game. Theoretically, this sounds fine, except for the fact that Iceland already is a well-defined and well-received brand as the retailer that provides good value for money. That’s why people shop there.

But promotional marketing consultancy KLM director Jon Derry still believes that real sales promotion has nothing to do with price. He says: “If you base everything on price you will end up with the situation the airline industry now finds itself in, where price has become so important it has encouraged consumers to stop thinking about any other attributes of the marketing mix. The result is you have an airline like British Airways, which is no longer a FTSE 100 company, its market share has plummeted, and it is having to reinvent itself. The market is now dominated by budget carriers that have convinced everyone that price is all-important.”

Changing agendas

Derry believes the great benefit of promotional marketing, and one that BA will need to use, is the ability to move the agenda away from price.

He adds: “Sales promotion is one way you can offer added value. The airline industry is a good example of a market driven down by price where, ultimately, carriers will have to use added-value sales promotion to start building value in consumers’ minds. You don’t need a sales promotion agency to tell you how to do a Bogof or tell you that if you take 20 per cent off a price you will sell more. True added value promotions must take the focus away from price and volume and introduce elements such as rewards, redemptions and winning prizes.”

It is this thinking that may have prompted Iceland to change direction and will be, according to Gibb, why Asda, which also relies heavily on price discounting with its Every Day Low Prices (EDLP) strategy, will have to come up with something new.

Gibb says: “It doesn’t matter how good your deals are in-store, you have to get people inside in the first place.” He quite rightly points out that few consumers realise that a tin of cat food may be 2p cheaper if they shop elsewhere, in the same way that he believes prices at Sainsbury’s will start to creep up as footfall increases through the long-term Nectar strategy.

One of the perceived benefits of sales promotion is the ability to measure and track the success of any promotion. But the truth is that, while long-term, strategic promotions can be measured, it’s a different story when it comes to tactical programmes.

Cause and effect

Derry says: “When it comes to tactical sales promotion, there is no will on the client side to do any meaningful evaluation – mainly because it is so difficult to do. If you spend &£250,000 on a promotion that has been and gone in six to eight weeks, what is the point spending four to five weeks trying to model that promotion versus others. All that clients are interested in is what has happened to the sales curve. And then it is very difficult to tell whether an increase in sales had to do with the promotion or a decision by Tesco to give your product greater space in store.”

Even chairman of the ISP, Randle Stonier, admits that “most promoters still say measuring is contentious and difficult because of so many extraneous factors”, but he insists that sales promotion can be accurately measured over a long period of time. He cites the Air Miles and Iceland Bogof examples, where sales figures clearly indicated that an adjustment to the promotion led to a dip in sales.

Empirical results

Stonier says: “Sales promotion plays a key role in delivering real empirical results. But cases like Sainsbury’s and Iceland show how important it is for an organisation to select the right components of the marketing mix and to access the best expertise so as to offer the right promotion that appeals to its customers. Advertising or price cuts are not always what they want.”

But Stonier sees a much greater problem on the horizon for the promotions industry – a problem that he believes not nearly enough practitioners even know about, let alone care about.

Here comes Europe

He says: “The year 2005 is the target date that has been set to create a European standard for sales promotion. There is a lot of debate and lobbying taking place at the moment. But it is astonishing how many companies and brands are completely unaware of what is going on. If things don’t go our way, we could see a much more constrained environment for promotion, more along the lines of what happens in Germany, Austria and Scandinavia. There are a lot of things that we take for granted now that could disappear overnight. At the moment we have a very liberal trading environment, but that could change.”

Hopefully that will not mean that Sainsbury’s shoppers are in for more changes on the loyalty card front. With a &£25m marketing spend behind it, one would presume not.