Search This Blog

Friday, 2 February 2018

What should Sainsburys do now that they own Nectar ? Here’s my 10 point plan

Sainsburys announced this week that they have acquired Nectar and sister company i2C for £60m. 

For the sellers Aimia it marks an in glorious retreat from the UK that spelled disaster for their shareholders, having paid £380m for Nectar in 2008, 10 years later they have sold it for a fraction of their outlay, concluding that they have taken the programme as far as they can.
For the purchasers the prospects are much more encouraging and so the question is begged ,what should Sainsburys do now that they are in full control ?

Here are my thoughts  :

1. Firstly they should continue with what’s working. Around 15m people regularly swipe their Nectar card, the vast majority of them in Sainsburys but also including BP, ebay, Europcar and various other online merchants. There’s nothing immediately broken at the front end, although, as we will see later there are many ways they can make it better for customers and more profitable for Sainsburys.

2. They should build strong relationships with existing partners and continue to try and find new ones  - particularly those of interest to Sainsburys top 5% of customers. Nectar plays a valuable role for BP and the other partners. They don’t compete with Sainsburys who get the benefit of redeeming many of the points earned outside Sainsburys, which cost them nothing, or increasingly with newly acquired Argos. Sainsburys should reassure these partners that it is business as usual. They should continue to seek partners that offer complementary services (but given Sainsburys already have a bank, insurance telco & utility partnerships that doesn’t leave a lot). Fashion, travel and specialist services.  

3. They should re-confirm Nectar’s purpose as being :
a) to help them in their declared aim of understanding customers better than any other retailer
b) to provide a low cost way to acquire new customers
c) to provide a platform to better engage with existing customers so they can deliver more relevant and personalised services
d) to enable them to monetise supplier and third party relationships

This needs to be widely understood throughout the extended Sainsburys business – bank, utilty partnerships, Argos etc so that marketing monies that currently flow to Google, Facebook and others are wherever possible, channelled through the Nectar platform.

4. They should take an axe to Nectar’s cost base in two key ways
a) replace Nectar’s home grown and outdated IT systems with a cloud based loyalty platform such as Prime Cloud from Loyalty Prime (disclosure, we are advisers to Loyalty Prime). This would save £10’s millions in operating cost and headcount whilst giving management much more flexibility in the way they are able to help customers to earn and redeem their points.
b) Shut down all attempts at building an International business. I once attended a meeting at Nectar HQ to discuss a potential European venture. There was an extraordinary number of strategy and European management in attendance, all seeming very well paid and with no business to speak of.

5. They should innovate with customers to enable payment linked loyalty – allow customers to either register their personal Visa, Mastercard or Amex payment cards so they don’t need to carry an additional card and introduce a Nectar payment app (similar to Tesco Pay) to make things easier for customers who want to pay by phone.

6. They should enable customers to earn faster and much more generously on their online shopping.  They have an online shop but this only gives customers about 75% of the value they could earn from online specialists like Quidco. A simple “white label” partnership with Quidco could be transformational (disclosure we work with Quidco on white label partnerships)

7. They should use AI to deliver mass personalisation at scale. Nectar and sister company have done a good job in replicating the type of targeted communications that were pioneered by Tesco and dunnhumby. There isn’t much to choose between either service , each of which is in a lucrative monopoly position as gatekeeper to their respective customer base. Selling targeted and measurable media will continue to be a very profitable income stream funded by the major branded suppliers like P&G, Unilever, Mars etc – at least until these suppliers find ways to disintermediate i2c and/or dunnhumby, but that day still looks far away.
A big opportunity is to use new AI enabled tools like ciValue that can automate the allocation of offers to customers based on collaborative filtering and machine learning and automatically apply the governing “customer contact and relevance rules” so that all customers get the best available information or offer delivered at the right time via the right channel.  
Today the process for the above is highly manual, civalue (disclosure – we act as advisers to ciValue) would automate the sourcing, strategic targeting, execution, measurement and test and learn so that more communications can be delivered, more personally and relevantly, at much lower cost.

8. They should continue to give customers choice over their preferred redemption channels. Many customers will want cheaper groceries, others want to save for a holiday or special event. Let customers choose the path that’s best for them. They should enable more digital redemption. It’s a crime against innovation that Nectar is still largely card and paper based.

9. They should introduce tiers and create a VIP programme for the top 5% of customers who probably account for 30%+ of Sainsburys sales. These are most likely to be high spending affluent families who shop online and instore at Sainsburys, have a Sainsburys/Nectar payment card and have their utilities and insurance through Sainsburys. There are many concierge style services that could be offered to these customers – eg they could be allocated a Net a Porter style personal shopper – that could be delivered profitably and would help to lock in their lifetime loyalty and encourage others to engage in order to achieve similar benefits.

10. Finally, they should relaunch Nectar for Business. Currently this is a fairly hopeless b2b programme with limited member or partner participation. It could become a highly profitable programme that is compelling for SMEs and tradespeople and the many big businesses who supply them with goods and services, but it needs a new strategy, focus & leadership.

Wednesday, 14 June 2017

Solving the real time availability problem for clothing retailers

At any point in time, most clothing retailers do not accurately know, across all of their stores and channels, how many of the products they have ordered, are currently available for customers to buy.

This creates disappointed customers who cannot buy what they want and is highly frustrating for staff, store owners and their suppliers. It results in poor service, missed sales and significantly higher costs.

This is a multi-billion dollar industry problem but one that we can now help clothing retailers to solve. 

We can deploy RFID technology and AI to enable retailers to capture and deploy real time stock availability data so they can increase sales, reduce waste and deliver much better customer engagement  

The core of the proposition is a multi-channel Real Time Product Availability Engine which uses RFID technology and AI to process product, order and fulfillment, replenishment and returns data and translate them into actionable insights that can be deployed in real time via retail applications and services including : ERP systems, order management systems, logistics systems, store compliance and workflow solutions as well as CRM, customer loyalty and customer service solutions

The early adopters of this new technology are delivering stunning results.

Real time availability data analytics are set to have as big an impact on clothing and fashion as the introduction of epos data in the 1980's and loyalty data in the 2000's.

Thursday, 31 December 2015

2016 - the year of cashback marketing ?

The UK loyalty programme market is thriving as most retailers, other than those pursuing a discount led strategy, offer some kind of loyalty programme to supplement their core proposition and to help them to understand their customers. In recent months we have seen the launch of new programmes from Waitrose, Morrisons, Pets at Home and M&S whilst mainstream programmes such as Tesco Clubcard, Boots & Nectar are used every week by tens of millions of consumers. These programmes are more or less the same today as they were when Tesco first launched Clubcard over twenty years ago - typically points based, requiring customers to remember to carry a plastic card and swipe it at the till and to carry paper based vouchers which they receive through the post or printed at till. There has been very little take up so far of digital enabling technologies from companies like Mobilize and Eagle Eye which offer significant cost savings to retailers and much greater convenience for customers. At some point this will surely change but the owners of these programmes so far have been highly resistant to change.

Meanwhile, under the radar and evolving from the world of online affiliate marketing, we are seeing the rapid growth of cashback programmes from Quidco, Top Cashback and, seemingly, just about every bank you can name.  What's going on ?

Well, for customers, cashback market leader Quidco delivers value that is in a different league from that on offer from the supermarket programmes. The average Quidco customer accrues around £70 per year mainly from their online shopping. The most savvy who use Quidco for online, instore and grocery shopping are earning £100's and sometimes £1000's per year. This is because Quidco provides cashback from over 5000 retailers and on average the typical retailer will give around 5% cashback per transaction. Quidco also provide cashback on leading grocery brands.

For retailers, Quidco provides access to millions of digitally savvy, affluent, high spenders who love to shop and who can be marketed to at a highly granular level based on their detailed shopping habits and reached at a much lower cost than through google. What's not to like about that ?

With banks its a slightly different story. After many years of silo based, shareholder centric, product and acquisition led marketing they are finally waking up to the benefits of customer centric marketing. Recognising that a surer way to create value for shareholders is to focus on serving existing customers better. A bank's best customers are typically those that are regular current account users as they have a much higher holding of higher margin products such as mortgages, credit cards and insurance. Hence the drive to acquire current account customers and reduce churn. Cashback programmes are emerging as the preferred option given the success being enjoyed by Quidco and others.

Our hunch is that we are going to witness significant growth and innovation in this space. Mainstream retailers will look to evolve their single brand programmes and offer their customers more choice and higher value. Banks will leverage their data assets to enable retailers to target those customers that matter most. More customers will accrue rewards instore by using their bank cards rather than a separate loyalty cards. Cashback on grocery shopping will grow significantly as fmcg companies continue to invest in direct to consumer marketing and seek to bypass the closed access programmes managed by dunnhumby and Aimia.  Speciality retailers, restaurants and service providers will switch marketing funds into those programmes that enable them to attract new, lapsing and loyal customers at low cost. Happy days.  

Wednesday, 7 October 2015

Has the botched sale of dunnhumby cost Tesco shareholders $1 billion?

Has the botched sale of dunnhumby cost Tesco shareholders $1 billion ?

Normally if you choose not to sell an income producing asset at least you get the consolation of keeping the income stream. A potential cash windfall is offset by continued and hopefully growing earnings.

But that won't be the case for Tesco who, according to observer estimates,  have given away income of about £50m per year to their former JV partner Kroger. They did this because Kroger had a change of ownership clause which was triggerable if dunnhumby came under new ownership. By negotiating an exit from the Jv and keeping all of the necessary people and technology they require, Kroger are able to continue to benefit from the services that dunnhumby were providing them but without having to pay fees to the UK organisation. As a quid pro quo,Kroger enabled dunnhumby to continue with a small US operation, search for another USA grocery partner and to be sold to a 3rd party.

The agreement has cost Tesco about £50m per year in reduced income (money that would have flowed to them via the USA JV) as it is highly unlikely that they will be able to find another partner that is willing to pay anywhere near the fees they received from Kroger. This is because Kroger are much bigger than their grocery peers and the other major grocers already have alternative analytics partners who are providing similar services to those provided by dunnhumby.

The second major clanger dropped during the process has been to redefine the contract term that exists between Tesco and dunnhumby. dunnhumby's profits arise as a consequence of its monopoly rights to use Tesco's Clubcard data. This was an in perpetuity arrangement that would have been attractive to a potential acquirer of dunnhumby but potentially might have constrained Tesco in years to come. So it made sense to put a lengthy contract term in place. By establishing a 5 year agreement, Tesco have thrown the baby out with the bath water, giving an acquirer next to no time to recoup it's investment and hence there are no longer any willing acquirers.

Consequently there is no sale and dunnhumby is left without its prized USA asset and the source of 60%+ of its profits and value!