Last week, Sainsbury's, Barclaycard, Debenhams and BP teamed up to launch a joint loyalty card programme. They expect 50% of UK households to sign up within the first year.
The Nectar programme, which officially began on 16 September with a £40m advertising campaign, will allow UK shoppers to accumulate loyalty points at 1,800 outlets of Sainsbury's, Debenhams and BP and wherever they pay with their Barclaycards.
Loyalty Management UK (LMUK), a subsidiary of Loyalty Management International set up specifically to run Nectar, said the programme will allow the companies to access shared resources, increase customer loyalty and attract new customers.
Nectar also has implications for the firms' IT infrastructures, as loyalty cards have played an increasingly important role in customer relationship strategies, leading to the enormous amounts of data stored in company systems.
LMUK helps to control this data, essentially by acting as an accounting hub, collating details on points awarded to customers of the participants, said Alan Pratt, IT and operations manager at the company.
"The sponsors deliver us their transactions in an overnight batch, via a Web browser, which we hold in a central Oracle database," he said. "They can then search for information through the Web browser."
Although LMUK, whose systems are based on Unix running on Sun servers, has responsibility for storing the data, it does not restrict the way that Sainsbury's, Debenhams, BP and Barclaycard use the information, Pratt said.
"All the sponsors capture the data and analyse it in the normal way before sending us the details on the points that have been earned," he said. "The main advantage for the sponsors is the ability to share the cost of marketing, which Loyalty Management International has years of expertise in."
Using LMUK as an accounting hub makes sense because if the company had any more control of data it could lead to difficulties, according to James Adams, managing analyst at research firm Datamonitor.
"This situation would only lead to disadvantages from a technical standpoint, because the companies have already invested in their own systems," he said. "There would also be implications if there was any data sharing, because data is, of course, very valuable."
The introduction of Nectar did not result in a massive upheaval of IT systems for the four user companies, according to Douglas Gaeth, an independent marketing systems consultant who worked on the project.
"It was pretty straightforward for the companies because they were all doing loyalty programmes anyway," he said. "We carried out extensive proof-of-concept testing, looking at the ability of the hardware to integrate with the software for example, and we encountered no major problems."
Pawel Pudlowski, Nectar implementation manager for BP, confirmed that LMUK plays a limited role on the IT side. "No changes to the hardware were required - we keep our independent system and only send reports to LMUK," he said. "We have a full control on all the data collected at our sites."
Although no major IT changes were forced upon the four participants, there is scope within the Nectar programme to improve systems, Pratt said. "Joining a Loyalty Management International programme does, in many cases, prompt companies to utilise our data-warehousing capability," he said.
"Our main criteria is to be a secure transaction engine, but we have a wide-ranging network and are focused on the database so the opportunity is there."
LMUK's own systems are continually evolving, added Pratt. "Since it was designed it has grown," he said. "We are currently developing a system to support e-mail within the framework."
The customer service offering around Nectar will also evolve, Pratt said. Initially, cardholders will be able to redeem points in stores and via a call centre but plans are in hand to allow them to be redeemed online at the Web site www.nectar. com .
The number of participants is expected to increase. LMUK has not set specific targets but a similar scheme in Canada has about 30 sponsors. "We will be focusing on a range of industries including communications, banking, insurance, hotels and car hire," Pratt said.
But despite the investment in IT systems, not to mention the £40m spent on advertising, some industry experts have expressed doubts about how successful Nectar will be. Loyalty cards are a good idea in essence, but consumers simply do not remain loyal to one brand as there are so many alternatives, suggested Neville Roberts, a partner at consulting giant Accenture.
"It is tough to see how Nectar is going to work as people are still going to shop all over the place," he said. "The retail market is saturated and a loyalty card is not, in itself, enough to make someone shop in a particular store."
It is not a question of improving customer relationship and data management technology because, by and large, that is already in place among most large retailers, according to John Zealley, a partner at Accenture.
"The data is all there and has to be valuable but you have to question whether the retailers have executed the information properly," he said.
"There seems to be an obsession with points. If, for example, Sainsbury's could guarantee a quick queuing aisle for the most loyal customers that would be a real reason to collect points."
According to Adams, loyalty cards do not necessarily play this type of role, particularly for the supermarkets, because they are designed mainly for information-gathering.
"Joining Nectar may illustrate a degree of failure in this information-gathering, particularly in the way data is analysed," he said. "The companies may feel they will get more rounded customer data from this, beyond a simple address and payment method."
Cards may prove an even more valuable resource for retailers when chips containing more detailed information are included, Adams said. Multi-purpose cards such as Nectar will become increasingly prevalent when the EMV (Europay/MasterCard Visa) regulations, which will require every card to store information on a chip, become law in 2004.
"We will see the development of more and more applications on to a single card," he said. "One card could act as a credit card, loyalty card and a travel pass, for example."
Nectar, but not food of the gods
Peter Davis, group chief executive for Sainsbury's, said, "Nectar gives Sainsbury's a powerful tool with which to reward our existing customers and attract new ones."
Belinda Earl, chief executive of Debenhams, said, "Nectar will provide us with an excellent opportunity to acquire new customers and grow market share."
Richard Baker, deputy chief operating officer at Asda, which scrapped its loyalty card in 1999, said, "Customers are not fooled by marketing gimmicks. Shoppers' real loyalty only comes from offering the lowest prices on the right range of products."
Neville Roberts, retail specialist at Accenture, said, "It is tough to see how Nectar is going to work as people are still going to shop all over the place. The retail market is saturated and a loyalty card is not, in itself, enough to make someone shop in a particular store."