Q&A: David Johnston, Nectar UK parent company CEO EMEA

Marketing Week: Is Nectar essentially a b2b or a b2c brand?

David Johnston: We see the brand as both b2b and b2c. We run the business to try and create value for both. The delivery of the business model is in building the value in the {Nectar} currency. If we build a value for the card-holder then it will change their behaviour, for example if you are going out of town and there’s a choice between Sainsbury’s and Asda the shopper will go to the former. That builds a deeper relationship between the customer and those brands.

MW: How has the Nectar scheme evolved over the past decade?

DJ: We have come a long way in 10 years and a lot of focus now is on interactions rather than transactions. It’s not just about buying stuff. For instance, with British Gas you can earn points by switching to paperless billing, while in the public sector we are working with Birmingham and Royal Borough of Windsor and Maidenhead councils on points initiatives for going to the gym and recycling. The latest partner is Oxfam and it’s another example of how people can earn points for something more than just a pure commercial transaction.

MW: Partner brands benefit from sales but do they benefit from customer data and actionable insights?

DJ: We have a large analytics team and its all about helping partners with segmenting and activation via our Intelligent Shopper Solutions unit. We are getting SKU level data from, for instance, a Sainsbury’s shopper’s basket. We help Sainsbury’s and its suppliers understand all that is going on not just at sales level but customer specific level – that drives the special coupons given out at the Sainsbury’s till. Data is only shared with the sector partner so, for example, a BP shopper will not be targeted by Sainsbury’s directly. They can be if they go via Nectar and our direct marketing office.

An example of actionable insight is if a card-holder moves house we know that – and we know we might be interested as a customer for Homebase, so they’ll get a follow-up mailing from us and hear from all the Nectar partners in the neighbourhood.

MW: What does a potential Nectar partner have to demonstrate?

DJ: Fundamentally there has to be an alignment of objectives with our brand. Nectar has 18.5 million cardholders now, it’s a very scaled business and we work with mainstream brands. The process of singing up with a new partner is not done in weeks but takes months. We spend a lot of time doing data matching and understanding the fit – including the fit to existing Nectar clients. A measure of how well the process works is the strength of our renewal rate. Sainsbury’s renewed at the start of this year and Homebase renewed the year before.

MW: How do you set targets for Nectar’s success?

DJ: One key metric is how much of a card-holding household’s expenditure earns points. Currently about 50 per cent of a household’s expenditure earns points and by 2015 we want that to be 60 per cent.

MW: Have technological advances and social media changed the game for loyalty programmes?

DJ: Technology is starting to change the game. As regards points data, card holders can log into Nectar now via Facebook and we have a mobile app. We have got a lot more feedback from consumers than we ever had and we are changing but I wouldn’t say social media has fully transformed the business. The 18.5m cardholders are representative of a cross-section of the population and while we know there is a youth niche where those changes are more obvious, social media has not fundamentally changed Nectar right now. We always have to be mindful of our very broad representation in the UK. We want to be half a step ahead of our consumers in terms of technology but not five steps ahead because it will switch people off. What is changing is the impact of mobile and possibilities such as being able to activate a personal offer targeting you in store. The growth of smartphones and what they can do will continue to change the loyalty experience.

MW: How much of a concern are consumer attitudes to data security and the growing sense of the value of their own personal data?

DJ: It’s a critical area for our business and over the past 18 months we have developed our “data values’. They can be summed up as “TACT” – Transparency, Added Value, Control and Trust. We are open when people join as a consumer what we are going to do with the data and what we are not going to do with the data. We are going to add some value to you when you receive points and you will get offers that are targeted and more likely to be interesting to you. You have control over the extent of Nectar’s contact with you and we hope you can trust us because our communications have some sense that our hearts are in the right place and we make some good choices. Regarding customer attitudes to loyalty cards and the value of the data transaction, our own research show consumers are pretty clear on the implications of the transaction and providing the card gives them value they are comfortable with sharing their data.

MW: Nectar has a daily deals offer – how do you stay credible in this market given recent criticism of the offers and marketing?

DJ: There is too much offer anarchy in the marketplace. That does not mean you cannot be involved credibly in daily deals and we are trying to do it in a different way. It’s about targeting and segmenting for the customer you already have. You have to make sure people opt in and hopefully you do this with good stuff that’s much more targeted and relevant to them. We are aware of the challenges and some of the pitfalls in that market and a lot of what not to do has been demonstrated to us. Being 10 years old we have to keep our experience fresh so we keep innovating and introducing new things like this. Legislation and industry practice is struggling to keep up with the pace of technological change and that’s a global challenge for Aimia.

MW: Where can the loyalty market innovate and where is Aimia identifying potential for growth?

DJ: The market is nowhere near mature. We think loyalty and use of cards will continue to grow. The trend is to look at the US as being a mature market but there are still strong elements of growth in the US. Fundamentally one of the reasons is that the 80/20 rule is true – 80 per cent of your business comes from 20 per cent of your customers and technology enables you to harness a one-to-one relationship with those 20 per cent. We can form a deep and engaged relationship with them in almost any category. Also, technology means the “50 per cent of my budget is wasted” mantra is no longer true. From an innovation point of view mobile will be the big shift over the next five to 10 years. We are looking to expansion in India and are working in South Africa and in some of those emerging markets we see loyalty programmes being created around mobile and leapfrogging a stage.

Our corporate vision is to be the recognised global leader in loyalty – there are opportunities for growth and industry consolidation and we also see analystics growing in every single element of our business.