The Changing Face of Loyalty Schemes

The recent launch of Nectar has once more put the spotlight upon the loyalty card market. Backed by high profile brand names, the scheme's aim - to sign up half of the UK's 40 million households within one year - is certainly ambitious. Research carried out by NOP Financial shows that the programme has made a promising start, but has considerable ground to gain to threaten the domination of the market currently enjoyed by the Tesco Clubcard.

Despite the glare of publicity surrounding the brand's inauguration and technicalities caused by reported high demand, the NOP study found that over almost two thirds of consumers were not aware of the Nectar loyalty scheme a month after its launch, even when prompted.

The Nectar concept appears at first sight to offer a win-win situation for both provider and consumer. Consumer transaction data generated from different spending sectors provides valuable insight to the scheme's sponsors, whilst customers can redeem points with a plethora of suppliers. However, the real value of such loyalty programmes to the customer has been called into question. Their high set up costs may result in increased prices in-store, and in any case, are a few points towards cinema tickets enough to encourage consumer loyalty? The NOP research suggests not - half of consumers claim to shop at whichever outlet is most convenient, regardless of any loyalty scheme membership.

The study highlights some interesting differences between retail loyalty schemes and those offered by credit card providers, with the latter enjoying a higher rate of success in engendering brand loyalty through higher spend and exclusive usage. Just under a half (49%) of NOP's respondents who were credit card scheme members will always use that credit card when shopping. However, the relatively low revolving levels amongst incentive credit cardholders will undermine profit to the card issuers.

The high proportion of loyalty scheme 'junkies' is also underlined by the research, with membership of multiple loyalty schemes prevalent. This suggests that joint ventures such as Nectar will generate further transactional data on the same customers rather than leads to target as new customers. And what of those consumers not attracted by any loyalty scheme? Over a third (35%) of those interviewed by NOP Financial showed no inclination to collect 'reward' points at all - learning about this segment's behaviour will present a greater challenge for retail brands.

The launch of Nectar has focused attention to the 'loyalty' scheme market, and the scheme's target is certainly bold. Whether it can be met has yet to be seen - however, whilst it may enable Nectar sponsors to gain further insight into their existing customers, increasing their loyalty is by no means guaranteed.

Just under 2,000 consumers were interviewed by NOP Financial in October 2002, one month after the launch of Nectar. NOP's Financial Research survey will continuously monitor the loyalty scheme market from January 2003.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas unless otherwise stated.

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