Poison chalice for the drink of the Gods

Reward scheme Nectar is the latest in a long procession of brands that has promised more than it could deliver.

As we reveal in this week’s magazine, Loyalty Management Group which runs the scheme has been deluged with complaints from customers unable to obtain the rewards Nectar offered them.

This is not the first sales promotion scheme to go awry and surely will not be the last. In the febrile atmosphere of modern marketing, where increasingly cut-throat competition stalks the high street, offers are being made which sound too good to be true. And in many cases, they are.

Nectar, the loyalty card which offers points to customers shopping at Sainsbury’s, BP, Debenhams and Hertz, was relaunched last summer in an attempt to escape its downmarket, discount image. Rather than simply offering money-off points, it shifted the emphasis to handing out rewards.

The theory is that women do a lot of hard work shopping for the family and feel they should get something in return. And who better than Nectar to give them their due?

To spice up the relaunch, Nectar offered some free rewards such as pamper treats and adventure trips, with no points needed. It could be that someone was unaware of the female bias of Nectar. It was swamped with requests for pamper treats, while the more male-orientated adventure trips attracted little interest.

Such was the demand to be pampered that Nectar was unable to supply all the massages and beauty therapies it had promised. This sparked a flood of complaints from unhappy card-holders who had to make do with alternatives.

Sales promotion practitioners take such disasters in their stride, aware that theirs is a high risk, high reward business. It is notoriously hard to calculate exactly what response a promotion will get and many of them go seriously under-redeemed. So when a promotion is wildly successful, sales promotion people see it as a vindication of their strategies, even if it leaves brand owners with egg on their faces.

In the most competitive markets such as broadband, mobile phones, credit cards and banking, it is getting hard to attract customers at all without some extraordinary free giveaway or incredible introductory offer. Consumers are being trained to expect massive rewards if they switch supplier. This is a dangerous state of affairs, sparking a customer acquisition arms race.

Take Carphone Warehouse’s recent offer of a free Dell laptop or Sony PlayStation 3 to people signing up for a two-year broadband contract with its recently acquired AOL brand. Carphone has to make the purchase work and is desperate to attract customers. But those lured by the laptop offer may show little loyalty when the two-year contract ends, and could well jump ship at the first opportunity. The offer looks like short-termism to bolster the acquisition.

Carphone Warehouse’s “free” TalkTalk broadband offer in 2006 showed just how one of the new mega-offers can damage a brand. The influx of thousands of customers taking up the cheap as chips service left its customer service struggling to cope with demand. This seriously dented Carphone’s reputation.

There is a long and ignoble history of promotional disasters.  In 1992, the UK marketing industry was rocked by Hoover’s free flights over-redemption fiasco, when customers buying a vacuum cleaner were offered free airline tickets to the US. Hoover was unable to honour the offer after huge take-up, leading to litigation which eventually destroyed the company.

In the same year, Pepsi Cola Philippines ran a prize offer for holders of bottle caps with winning numbers. A computer glitch meant the winning number appeared on thousands of bottle caps instead of just a few. Pepsi refused to pay out to all the winners, sparking riots in which dozens of company trucks were burned and three people were killed in a grenade blast. However, the company was eventually cleared of any liability by the Philippines Supreme Court.

The obvious way of avoiding such problems is easier said than done – do not make mistakes. But sales promotions need to be well researched so redemption is accurately predicted. They need to be properly insured in case they do go wrong and must have adequate legal approval.

The disappointing aspect of all this for Nectar is that it could drag down the names of participating retailers such as Sainsbury’s and BP. LMG denies the faux-pas was a result of  pressure to deliver on the relaunch as the company was about to be sold off. As the disaster unfolded, LMG was acquired by Canadian company Aeroplan for £360m, netting founder Sir Keith Mills a personal fortune of £160m.

The battle to attract customers is getting increasingly frenzied as the rewards for the winning brand owners become ever more stratospheric.

Promotional offers will get more brazen and risky and will continue to go wrong. It is up to brands to ensure that they keep their names off the list of shame.