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Monday, 17 February, 2003, 16:19 GMT
The cost of Nectar loyalty


Vodafone has proudly announced it is joining the Nectar loyalty card scheme. But brand loyalty is falling out of fashion and analysts are questioning whether Nectar is worth the money it costs to run.

"Throw it away, cut it in half, why be loyal to people you despise?" bellowed Michael Moore, political provocateur, people's champion and author.

The loyalty card is the paranoia of a company in a mature market that is desperate not to be forgotten

Dario Betti
Telecoms analyst
In his recent show at London's Roundhouse theatre, Mr Moore chose to unleash his ranting finale on the humble Nectar card rather than international politics.

Staff at the theatre rushed through the throng using fishing nets to catch the audience's cards, which are then sliced in half on stage.

Vodafone, however, has not been deterred.

'Unbeatable?'

It proudly announced on Monday that it had joined the Nectar club of super-brands rewarding their customers with Argos vouchers and blockbuster movies.

"Why would anyone chose to use a lesser network which can't offer Nectar points?" muses Lance Batchelor, marketing director at Vodafone UK, describing it as "an unbeatable offer for customers".

Competition amongst mobile phone sellers is, admittedly, frenzied.

But can the promise of a free McDonald's meal for every 250 spent really convince customers to stick by Vodafone?

'Paranoia'

"It's not going to attract new customers or make much of an impact on profits," says Dario Betti, senior analyst at Ovum telecoms consultants.

Nectar brands
Debenhams
BP
Barclaycard
Sainsbury's
Vodafone
Adams
First Quench
"Vodafone has done a bit of a boring thing as it moves towards becoming a company as boring as a grocer or a bank.

"The loyalty card is the paranoia of a company in a mature market that is desperate not to be forgotten."

Customer loyalty, meanwhile, is falling out of fashion, and not just amongst the anti-globalisation followers of Michael Moore and friends.

Value concerns

The threat of falling house prices and a weakening economy are all helping make customers less faithful to brands, according to KPMG Consulting.

During a downturn ... people want low prices not prizes

Simon Walker
KPMG partner
Their recent research shows that almost half of respondents said they shopped wherever was most convenient and a measly 2% professed they had been faithful to their cards.

"If people feel economically squeezed, they are even more sensitive to price rather than loyalty," says Simon Walker, a partner at the firm.

"The benefits of the loyalty card are treats which seem less important during a downturn when people want low prices not prizes."

Worth it?

Mr Walker says he is "deeply unconvinced" about the value of added sales from these cards compared to the costs incurred.

Nectar is an experiment with the next generation of loyalty cardholders who may prefer one card to a pocketful of plastic

Jeremy Baker
Marketing lecturer
Such schemes are expensive to run, he says, not so much because of the rewards, but more the cost of maintaining databases, mailing customers and issuing cards.

A spokeswoman for Nectar would not say how much the scheme costs to run, but admitted that costs were "substantial" even though they are shared between the various sponsors.

Neither would she give any indication of how much money the scheme aims to net for its sponsors.

The Nectar card, however, does seem to be close to its target penetration rate, boasting more than 11 million cardholders who have swiped their card at least once.

The big unknown

But the statistics don't account for how many cards have since been submitted to Mr Moore's scissors or - more likely - just completely forgotten.

"The traditional market for loyalty cards is saturated," says Jeremy Baker, a lecturer in marketing at London Metropolitan University.

"Nectar is a step into the unknown, an experiment with the next generation of loyalty card holders who may prefer one card to a pocketful of plastic."

But the experiment could be tricky to handle if all does not go according to plan.

Edward Ripley, a retail analyst at Datamonitor, says the firms involved will end up with a large dose of bad publicity should they wish to abandon the scheme.

And that would mean that involvement with Nectar could turn into an expensive experiment.

See also:

30 Oct 02 | Business
17 Sep 02 | Business
14 Sep 02 | Moneybox
05 Jun 02 | Working Lunch
20 Sep 02 | Business
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