Sainsbury's has bought Nectar for £60m in a strategic drive to ensure it knows its customers "better than anyone else". But to many the move has been driven by the bitter reality that consumers are disillusioned with traditional loyalty schemes.
Back in 2007, Aimia bought Nectar for £368m. Since then, Nectar has played a key part in Sainsbury's evolution as a business – notably in 2016 the scheme was used to estimate the correlation between the brands customers and those of Argos, which the grocery business bought that year.
However, the sale of Nectar for roughly £300 million less than its valuation ten years ago is a stark reflection of changed customer behaviour. When you consider Aimia is paying £105m to Sainsbury's to account for the number of unredeemed Nectar points in circulation, it becomes clear loyalty schemes are facing no less than an existential crisis.
Disillusionment with traditional schemes
The main challenge is that consumers are not activated by passive schemes,. In Nectar's case, one point was worth 0.5p in 95% of cases. In this situation, offering 100 bonus Nectar points is exactly the same as offering 50p off upfront. The whole initiative is just like cashback, something we as consumers pay little to no attention to. If anything, we'd prefer to save the faff.
Bryan Roberts, an analyst at TCC Global, is hopeful that this latest move will give Sainsbury's the opportunity to develop Nectar in ways that speak directly to modern consumers using the latest technologies.
"Sainsbury's can now take full control of the [Nectar] scheme, its data and the resultant insights that it and Aimia generated through i2c," explains Roberts. "Our research shows that shoppers have become a little disillusioned with traditional cards and points loyalty schemes, so this move gives Sainsbury's the opportunity to move Nectar on to the next level."
Indeed, there are a number of ways in which Sainsbury's can reinvigorate customer loyalty schemes and lead the way when it comes to finding a more lucrative and meaningful place for these businesses to work.
Catching up with the times
Historically, one key limitation has been the communication methods in use. Talking about the company's app update in 2016, Nectar MD Will Shuckburgh admitted "We had to fundamentally reinvent the programme... we were a fairly traditional, direct mail-based business."
In the digital age we now live in, customers of course require two way means of communication with brands and retailers. They need access on their terms, meaning instantaneously, but this doesn't mean bombardment.
Email, phone, text, messaging apps, social platforms and traditional snail mail, there are just so many– communication channels that brands are all too easily over-messaging to customers. In response, consumers are just switching off. It's not that they don't want to hear from brands they love, it's that they only have time to engage with the content when it's going to really help them in making a purchase decision.
The secrets of building loyalty
In a recent Wiraya report, entitled "Accessing the bombarded consumer' we unveiled a few rather surprising insights into the purchasing habits and desires of modern consumers. For example, an overwhelming 86%of customers who left their mobile network, bank or energy provider in the last six months did so because they wanted to the company to reach out to them and convey messages differently.
Two things had the biggest impact here: relevancy and timeliness. Nearly one in five (17%) complained that they never received relevant information. Another fifth (20%) said they received relevant information, just not when they wanted it or were in a position to read or engage with it.
This is why hyper personalisation is such a focus for digital marketeers. Essentially, they want every single message they send to customers to speak directly to that individual and to respond directly to their own needs, wants and desires. Sounds tough, but that's the high levels that's consumers expect now.
Digital marketing and customer loyalty schemes alike need to treat each customer as an individual and respond to their requirements just as a good company customer service rep would in an in-store face-to-face interaction.
There are a few recommended strategies for those companies and marketers that want to employ such as successful strategy, in order to not only reach the bombarded customer, but to genuinely engage. Plus, in order to win back loyalty through such schemes, it is becoming vital that businesses are able to map the customers' complete online and offline journey, in order to ensure valuable marketing of loyalty rewards where it genuinely helps to encourage shoppers to make a purchasing decision.
One of the most effective new channels that supermarket chains and other retailers need to learn to exploit to boost customer loyalty is voice. There is a significant development in this channel, and many large businesses are already exploiting the benefits.
It's all about the human element
Following the success of Amazon's Alexa and Google Home, customers are becoming increasingly familiar with voice controlled tech. With the latest advancements in making sense of rich customer data married with innovations in artificial intelligence and voice tech, it's becoming far easier to retain the human element of customer dialogue.
So it's little surprise to learn that banks and other service providers are already reaping the rewards of the voice channel, to allow their customers to access their loyalty schemes and other services.
Retailers like Sainsbury's can use voice to generate loyalty early on by creating an efficient welcoming process. The first 100 days are the most critical for ensuring a happy customer and for building long term loyalty. Remove or relieve tasks that are a burden for your customers to complete. Make communications digital, automated and easy to complete on mobile. If your customer isn't getting the most from their loyalty scheme or using their discounts, offer them something that works better for them.
So it's worth considering why voice, as a two-way touchpoint, is an increasingly essential channel to tie in with loyalty schemes to identify, for example, why and where particular rewards aren't driving sales.
Looking towards the future, as more of us become used to controlling our day-to-day technologies using voice, voice control is going to rapidly become the new valuable channel for brands,enabling that all important personal connection with consumers at scale. There is now an excellent opportunity for businesses to take the lead, offering truly effective communication to release new life into loyalty programs.
Sam Madden is UK Director at Wiraya.