Sainsbury’s purchase of Nectar: Bringing the customer data honey-pot in-house

By Mark Hinds, CEO, Polymatica

Sainsbury’s £60 million purchase of the Nectar loyalty scheme raised many questions. Would the purchase really help the supermarket understand its customers better than anybody else – and unleash the financial potential of that knowledge? Or would growing consumer disillusionment with loyalty schemes prove too much to overcome?

The reasoning behind the purchase is clear. Companies such as Amazon have demonstrated that customer data, far from merely being a useful offshoot of existing revenue streams, can actually be a principle revenue driver – provided it is properly utilised and controlled.

Owning Nectar outright allows Sainsbury’s to take full control of its customer data and tackle the challenges facing loyalty schemes head on. For instance, what is the best way to use the particularly rich seam of data loyalty schemes generate? And how do schemes need to evolve to better serve consumers and retailers?

Winning the youth vote

One example of the challenge facing loyalty schemes is how to attract the youth market. For some time now the dominant mechanic of loyalty schemes – carrying separate loyalty cards for each retailer – has been out of step with the expectations of younger shoppers, who increasingly only carry a single mobile device, not a wallet bulging with cards for every occasion. Similarly, schemes which assume customers will make a single large ‘weekly shop’ will not be able to reflect and reward the behaviour of younger shoppers, who now increasingly make frequent small transactions.

There are already solutions to this challenge: from developing better mobile apps that customers can use in-store, to building greater flexibility around how schemes recognise and reward buyer behaviour. However, even this is only tinkering at the edges if a retailer can’t identify the precise reason for its loyalty scheme – and how both the scheme and the data it generates work within the retailer’s wider business strategy.

Why are we here?

A typical loyalty scheme will fulfil multiple functions for a retailer. However, in general these are focused on four goals:

-       Consumer Intelligence Programmes: By better understanding consumer behaviours and buying patterns, retailers are able to effectively serve a wider spectrum of shoppers rather than solely relying on a focused business model tailored to one specific type of customer.

-       Shopper Marketing Programmes: Allowing retailers to deliver personalised advertising – the focus here is being able to target promotional spend much more effectively than purely using broad in-store mechanisms.

-       ‘Reward’ Programmes: covering small rewards, such as cashback, ‘points’, or free coffee. These programmes can be beneficial in a tight market – they can incentivise someone to choose a certain retailer where the customer perceives this as added value on top of an already competitive position. They won’t compensate for the core customer proposition being uncompetitive and may do little to drive loyalty.

-       ‘True’ Loyalty Programmes: These schemes aim to tie consumers into multiple offerings (for example a phone contract and an insurance package) from the same retailer by offering substantial benefits only available when specific thresholds are met – this is the classic airline type programme where the benefits grow rapidly with increased spending.

All of the above are potentially of huge value to retailers. However, what is certain is that a scheme that provides real returns to the retailer won’t be focused on only one goal. Customers, and their data, are an asset – which means that retailers need to realise the maximum value from them. But what does that mean for the future of loyalty schemes?

Survival of the fittest?

There has been a sea change in what priorities retailers place on their loyalty schemes. Where once the most pressing goal was tying consumers into using a single retailer, today many more retailers recognise the value of data-gathering, and the insights that can then be extracted from this data. This may make “loyalty” schemes a misnomer. However, we’ve not even begun to scratch the surface of the value that could be delivered through these schemes, whatever they end up being called.

For instance, we are likely to see schemes move into providing rewards, offers and incentives in real-time. Today it’s not unusual to wait days before receiving marketing offers based on recent purchases. This time is used by marketing teams to analyse individual spending in light of a retailer’s broad customer purchasing records, in order to deliver optimal, closely-targeted offers to individual consumers, and avoid ‘spamming’ them with irrelevant offers.

As back-end technology continues to evolve, in the near future we will start to see loyalty data used to deliver closely-targeted marketing – determined through automatic analysis of equally huge customer spending datasets – on-the-spot. This means the supermarket can influence the customer before they have even left the store, and while they are still in a position to alter their spending.

Seizing control

However the use of loyalty data ultimately evolves, many retailers feel, like Sainsbury’s, that the key to maximising its utility will lie in establishing closer and more direct control over this data. Retailers will then aim to use this greater control to evolve backend systems and processes to drive closer, more direct, and more immediate engagement with consumers – and ultimately encourage those customers to spend more, more often.