Nectar Case Study

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  • Topic: Loyalty program, Nectar loyalty card, Air Miles
  • Pages : 9 (2892 words )
  • Download(s) : 237
  • Published : August 17, 2008
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Case Summary:
Nectar is a loyalty scheme, which differentiates the market and was launched in September 2002. A number of organizations like Sainsbury’s , Barclaycard, Debenhams, and BP amalgamated their existing loyalty schemes under one umbrella called Nectar. This scheme is operated by an independent company called Loyalty Management UK (LMUK), this allows the partners to concentrate on their own business. The registration is easy and is completed by filling out an application form available at the partner’s outlets and on the internet as well. The nectar points are redeemed for free flights, meals, vouchers etc. The high spenders are attracted by rewards like “Flights to Australia” and the low spenders are attracted by rewards like “Free Video Rentals.” The operating costs are low due to shared costs divided between the partners, whereby partners can avail themselves of a much richer data bank of their customers, analyzing their purchases across different products and purchased in different outlets. Trouble arose during the first week of operation, due to the reward of 100 bonus points the demand increased and the registration website collapsed when it experienced 100,000 hits per minute and the personal data of other shoppers could be viewed. The use of such loyalty programs is highly popular with airlines who derive a large proportion of income from this source. Although these programs are significantly costly for merchants offering them, advocates of loyalty programs argue that the information obtained from these schemes helps them better understand the customer needs, preferred brands and buying patterns which in turn helps in development of new products and future promotion design. The core strength and unique selling point of the Nectar scheme is the variety of firms participating in it. Nectar overtook Tesco’s club card in November 2002 as the most popular scheme. Many retailers believe that the costs of rewards and operating costs of running the initiative simply outweigh any benefits of running a loyalty program. They argue that, the funds would be better allocated to improving customer service levels within stores. Some research point out that some retailers who have no loyalty schemes in place, have in fact, higher scores for loyal shoppers. Loyalty schemes have also been criticized for their messy and lengthy redemption procedures and the insignificance of rewards in comparison to the expenditure needed to obtain them.

SWOT Analysis

StrengthWeaknessOpportunityThreat
1.Repeat Customer Purchase. Expectation did not meet advertisements.Enhancing Brand image – feel good factor.Strategic Alliances formed by Competitors. 2.Variety of choice goodsCollapse of the Website.Opening up of new avenues for customer base expansions.Breach agreements of or with-drawal of partners. 3.Diversified services to avail.Terms and Conditions not clearly stated in case of BP.Adding more market leaders of various fields as partners. Bad economy conditions, will bring down consumption

Question 1 – Discuss the advantages and disadvantages associated with retailer loyalty programs such as Nectar’s from both a customer and retailer perspective?
Loyalty programs are a way of establishing a long-term relationship between the customer and a retailer. The purchasing patterns of individuals and customer loyalty are established by means of a loyalty card program. The scheme’s main objective is to improve customer loyalty by rewarding varying shopping behaviors differently. The scheme allows customers to be tracked by frequency of visit, expenditure per visit and expenditure per product category. Retailers can gain an understanding of the types of products that are purchased together. The identification of target market segments allows tailored products, services and communications to be aimed at them. Considering nectar as an example:-

Retailer advantages:
The programme’s management is...
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