Nectar – who really benefits from multi-store loyalty?

A straightforward TGI* run reveals the conundrum. Almost half the adult population (more than 22m people) are patrons of one of the four partners in Nectar. But less than 2m people regularly visit Sainsbury and Debenhams, the highest crossover among the partners; and only 100,000 are patrons of all four.

The profile of regular users of each partner is also rather different: the BP and Barclaycard profile is more male; Debenhams is younger, Sainsbury's older; Debenhams' users are likely to have children, the other brands not; and there are significant regional variations.

So if a core benefit of Nectar is cross-sell, how likely is it that up to 20m rather different adults can be persuaded to shop in those stores and use their Barclaycard, when they habitually do not? In other words, can they be persuaded to "wear shoes" they wouldn't normally even try on?

And yet Nectar is claiming success with consumers, on the back of the large number of those who have registered (or tried to). Is this the novelty factor? Are there a lot of cards out there but not many people who have registered them? Or is it that people take these up out of habit -- desperate for something for nothing -- and any real change of behaviour is minimal?

The real challenge for Nectar is not sending out cards, it is getting consumers to use them. This challenge becomes greater when one reviews the current "loyalty" market. We typically have too many cards cluttering up our wallets. As often as not, we probably forget to flourish them when we're shopping. And when we do remember them, it's usually to think about the less than appealing rewards on offer; or the rather pathetic number of points we've accumulated; or how unnecessarily complex the redemption process is.

Our most commonly used cards will be those for stores we regularly visit. This prompts the growing belief that loyalty cards are a reasonable bribe to existing brand loyalists; but do little to change the behaviour of occasional or non-users -- with the possible exception of the 20% or so of the population who are promotionally sensitive and truly indifferent to the store they patronise.

With the growing number of schemes has come a greater awareness of the real value of the rewards. Consumers probably know the typical value of the currency (one point equals one penny). Schemes offering a lower exchange rate will be less attractive. Nectar again suffers by comparison.

As the market has matured, so consumers are clearer about which schemes are better, and which worse. The retail and financial services sectors, for example, have hardly covered themselves with glory in their lemming-like rush to compete for customers using loyalty schemes.

Texaco's Star Points scheme clearly accounted for annual incremental business, because it was the first. Tesco's Clubcard and Boots' Advantage card appear, for different reasons, to be ahead of the pack of traditional rewards schemes currently. The travel and leisure sectors seem to have moved the loyalty game on, by adding recognition benefits to these more commoditised schemes.

While the Nectar scheme offers multiple redemption points, this will be of little benefit to the vast majority of consumers who only patronise one partner.

Once the launch dust has settled, we will know better how many consumers have enrolled. More importantly, we need to know how many regularly participate in the scheme, and whether this is changing their behaviour (or simply confirming existing behaviour).

One big difference with the scheme is the second card offer, which may make Nectar more attractive to the whole family by fitting in with different family members' behaviour patterns. At the moment, the consumer may be underwhelmed by Nectar: the "shoe sales" opportunity may be limited. But if the consumer has gained little so far, potential partners may have more to gain.

There is a virtuous circle that could make the scheme more appealing to consumers and change their behaviour: the more partners that join, the more consumers will benefit. So the most recent announcements that First Quench, Virgin Radio and Adams childrenswear are joining the scheme may prompt other partners to follow suit, with Ford touted as the next big partner.

The benefit to First Quench is clear: a ready-made scheme; the organisational logistics up and running; access to millions of customers/prospects; and general noise created by the scheme raising the profile of their retail brands. There may be other, longer-term benefits to First Quench, eg to identify their more valuable customers from the data and generate a direct dialogue with them.

But the virtuous circle could quickly become a vicious circle. The benefits are currently stacked in favour of the partners. As more brand partners join Nectar, so the benefits to consumers increase -- but the benefit to those partners declines. Squabbling between partners will quickly lead to an unsustainable model, especially if too many promotion-hungry consumers join the card base.

So the way forward for Nectar is to focus on driving brand partners from complementary market sectors to sign up, rather than getting more consumers to join. Prospective partner brands must be aware before joining that scheme benefits will not be distributed equally: some will gain more than others. So they must be very clear and realistic about their objectives. When Nectar comprises a select few complementary brands with real appeal to all cardholders, the opportunity to change consumer behaviour -- to shoe the shoeless -- can be realised and more consumers enticed to join.

*TGI is Target Group Index - BMRB consumer panel data

If you have an opinion on this or any other issue raised on Brand Republic, join the debate in the Forum here.