Nectar: Making Loyalty Pay Case Study

Background and Problem Definition

Sainsbury’s is a medium-sized UK supermarket and gas station chain. It is also the largest participant of Nectar, UK’s most extensive rewards program. When Justin King took over as Sainsbury’s CEO in 2004, he was faced with the decision of whether Sainsbury’s participation in the Nectar loyalty program was worth its annual $120,000,000+ budget. King came over from ASDA, Sainsbury’s lower-cost competitor, where there was no loyalty program and the savings were applied directly to lower the product prices. King had 6 months to review the Sainsbury’s marketing strategy and to decide whether the company was going to maintain its 18-month- old participation in the …show more content…

The program also made it easier for Sainsbury’s to acquire new customers by allowing them to directly market to those consumers that collected Nectar points but bought their groceries elsewhere.
Some of the threats Sainsbury’s faced as the Nectar sponsor, included loosing market share to other grocery chains as well as the internal cannibalization by the other Nectar participants. For example, BP and Sainsbury’s both sold gas, and each company lost some of their customers to the other one. Also it had to be considered, that any negative publicity surrounding Nectar, if it encountered any, would reflect negatively on Sainsbury’s as it happens in any business partnership.

Quantitative Analysis

However, strength is always found in numbers, so naturally the most important argument for Sainsbury’s continuing participation in the Nectar program can be derived from the actual points value. More than 50% of all Nectar points were earned at Sainsbury’s. Nectar’s redemption rate was around 67%, out of those 80%, or 53.6% of total points, were redeemed at Sainsbury’s. Based on this information, it can be argued that Sainsbury’s saw a 3.6% return on the points it bought from Nectar. To make it clear the actual point consumption has to be considered. On average, a collector earned 300 points a month, so after 18 months of the program an active collector would have earned 5400 points. Out of 13.5 million collectors, only 88% or 11.88 million