J Sainsbury's shows how to destroy customer loyalty with your own loyalty scheme

Profile picture for user slauchlan By Stuart Lauchlan October 15, 2014
Summary:
J Sainsbury's has alienated customers by meddling with its successful loyalty card scheme, while Morrisons makes a late gambit in this space.

Sitting here at Dreamforce in San Francisco and hearing all about building customer loyalty through effective marketing, I was struck by the timeliness of a perfect example back in the UK of how to screw that very thing up.

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We’ve written a lot about the turbulent UK grocery store market and the pressures that the traditional big names have come under from the rise of low-cost upstarts, such as Aldi and Lidl. This is leading to some bold initiatives on the digital front from some - and some really stupid decisions from others.

Yesterday J Sainsbury, currently vying with Walmart-owned Asda to take the second place in the UK grocery market behind the (deeply troubled) Tesco, shot itself spectacularly in the foot by changing the Ts and Cs on its phenomenally successful Nectar loyalty card scheme.

Currently Sainsbury’s customers get two loyalty points for every £1 spent in store or online. But from early next year, that’s being slashed by 50% to one point for every £1 spent. The firm did at least have the sense not to roll this out before Christmas, but even so the out-of-the-blue announcement immediately sparked a customer backlash on social media channels as loyalty turned instantly to disloyalty.

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For its part, Sainsbury’s made a valiant effort to pitch a 50% cut in benefits as something good for shoppers with one-off promotions such as a

month-long 10x bonus points on fuel event after the change, as well more bonus points events across the store. At times like Christmas, we'll also be holding bigger and better 'Double Up' events to give you great value when we know it matters most to you.


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But however this is dressed up, it’s a brutal revision of the Nectar scheme. It’s even scrapped it own green incentive scheme, so that Nectar card holders no longer get a point when they bring their own carrier bag.

This month Sainsbury's suffered a slump in quarterly sales, which pushed the retailer's shares to a six-year low.

Jan-Pieter Lips, president – EMEA, Aimia, insists:

We’re always looking at how Nectar can evolve to reflect the way members like to shop. When we launched more than 10 years ago we took a standardized approach to awarding points.

This is part of an exciting trend of loyalty programmes, shifting emphasis from base reward on spend to reward for active engagement.

His argument seems to carry some weight with the Institute of Grocery Distribution (IGD) industry group which suggests:

Nectar has long been an important source of customer insight and generator of shopper loyalty and by updating the scheme, its role will shift to become a more effective driver of footfall for events and promotions and build customer engagement.

The move comes at a time when Sainsbury's is seeking to reduce its use of promotions and focus more on lower base prices, in response to shoppers' increasing demand for value. Suppliers should therefore stay close to Sainsbury's as the role of Nectar evolves - Sainsbury's will hope that these changes will make it a more effective tool in driving loyalty.

Clearly, Sainsbury's will be sensitive to the charge that shoppers will be less well rewarded under the new system so it will be keen to emphasise the positives, particularly in terms of more generous deals to spend points. Tesco for instance has long had offered four times face value Clubcard rewards on selected deals so a move in this direction by Sainsbury's should make the scheme more popular with shoppers.

Sainsbury's sees its Double Up programme as an important way to help stretch shoppers' budgets. This gives Sainsbury's more flexibility and potentially creates different types of opportunities for suppliers.

Morrisons match move

But the move comes just as rival Morrisons makes a late stab at succeeding with its own loyalty scheme called Match & More, designed to price-match against the discount chains, Aldi and Lidl.

This is the first supermarket loyalty card explicitly to price match against the discount chains. Holders of the loyalty card will get 10 points for every 1p that another supermarket is cheaper than Morrisons.

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That sounds good, although will need to get 5000 points to earn a £5 voucher to spend in store. So you basically need to find 500 products that are cheaper in Aldi or Lidl to get your money.

Morrison’s group marketing and customer director Nick Collard told Marketing magazine that this would be:

a totally cross-channel piece, including some really fantastic digital.

The loyalty scheme represents a change of direction for Morrisons which had previously said it preferred:

to present our customers with immediate savings such as weekly promotional offers and value for money products.

But CEO Dalton Phillips reckons there’s a benefit to Morrisons coming so late to the loyalty card game:

We believe we can offer something much stronger than anything currently on the market. We have learned from other price match programmes so our customers will not collect lots of small vouchers or have to redeem them through a website when they get home from their shop.

My take

Badly handled with some unconvincing spin that isn’t going to convince anyone, Sainsbury’s just demonstrated how to alienate loyal customers.

Making the announcement in the run up to Christmas, even though it won’t kick in immediately, just adds to the folly.

As for Morrisons, it’s just too, too late for this move.

With market-leader Tesco also in its own self-engineered meltdown, the winners remain Aldi and Lidl.