Cast your mind back a decade and all the major UK grocers were either operating their own loyalty card scheme or trialling one. Fast forward to today and most have been ditched, the money from running them ploughed into reducing prices instead.Only Tesco, with its 12-year old Clubcard scheme, has really pushed the boundaries of what a loyalty card scheme can deliver, leaving Sainsbury's, which opted instead for a safety-in-numbers strategy by joining member scheme Nectar, bringing up the rear. Until now.
Last week, the industry was presented with the tantalising prospect of a proper two-horse race between the two loyalty card schemes. Loyalty Management UK, which operates the Nectar scheme, announced it had persuaded Peter Gleason, former MD of retail media at Dunnhumby - the customer insight specialist behind Tesco's Clubcard data analysis, to switch stables.
As MD of the group's new data analytics division, currently being established, Gleason's remit is to better exploit Nectar data through shopper insight, analysis of products and customer information, and strategic business decisions.
Sainsbury's has earmarked £1.2m to help him out. But can it really get as much out of Nectar as Tesco has out of Clubcard?
It certainly has his work cut out. Tesco Clubcard has 13 million members and is arguably the most advanced loyalty scheme in the UK. About three quarters of transactions at Tesco tills are accompanied by the swipe of a Clubcard and the retailer has been more than adept at utilising that mass of data to better understand its customers and develop its business.
"Clubcard is not the only reason why Tesco has done well but it's a key reason," according to Hugh Birkitt, chief executive of the Marketing Society. "It almost has a one-to-one relationship with its customers. You could go as far as to say that if you've not got access to this level of data then you're not really marketing, you're just retailing.
"The advantage Tesco has had is it can understand who's taking what off its shelves. That's very different to just filling the shelves whenever they're empty."
Sainsbury's, on the other hand, is a mere shelf filler by this definition. One of several partners in the 10-million-strong Nectar card scheme, it has been unable to delve as deeply into its customers' lives as its bigger rival, collecting just six pieces of data from each transaction (date and time; Nectar card number; how many points earned; retailer's code; location code; and an offer code, where relevant).
The new data analytics division, created when Loyalty Management renewed its contract with Sainsbury's, is about to add a very important string to the retailer's data mining bow.
From now on, it will be able to carry out SKU level data collection and mining, enabling it to link an individual customer with the products they have purchased.
This provides significantly richer data than can be gleaned from simply taking information from the 'till roll', which has no link to individual customers. In short, Sainsbury's will finally discover who is buying what.
There are still very few retailers around the globe that have the ability to do SKU-level data collection and mining. It has been made difficult by the large volumes of data involved, the lack of available tools to perform the data mining and a dearth of sufficiently skilled people in the market.
It is still very early days for the new analytics division - IT systems are still being built and the analysts recruited - but Brian Sinclair, Loyalty Management UK's MD, is confident about what it will be able to do.
"It's about knowing more about the customer and predicting what they will do in the future," he says.
This will enable Nectar to make serious advances on the existing marketing and promotional activity currently undertaken for Sainsbury's. It will be able to devise more relevant offers and ensure the right promotions find their way into the hands of the most relevant customers. "We'll be able to let them know that a new version of an existing product that they buy is coming out," he says.
This data will also be made available to major suppliers such as Procter & Gamble and Unilever, again with the objective of providing Sainsbury's customers with better offers. "P&G will know that certain customers have previously bought a product and samples and offers [of new products] can be provided," says Sinclair.
It has started to extract some of the data now but will not be using it for marketing promotions until later in the year.
The news does not faze Gleason's former employer, however. Tesco has more or less "nailed promotions and marketing", according to Edwina Dunn, co-founder of Dunnhumby, and has moved on to using the data for a much broader range of activities to help Tesco and its other clients.
"Twelve years on we're doing new and more exciting things than ever," she says. "We thought we'd run out of ways to improve but in terms of understanding customers we've only just scratched the surface. We've a free rein to try things in Tesco and at the moment we are really in a phase of intensive innovation."
Dunnhumby is inviting Clubcard members to get involved in market research, for instance. These findings will then be mixed with the transactional data to create a much richer data mix that can then be mined.
"As an example, we could use the database to select a sample of known users of a particular product and then question the heavy, light and occasional users of it. It sounds obvious but companies don't do this," says Dunn.
The company is also using the data to identify which promotions are failing to deliver a decent uplift in sales, allowing Tesco to remove these and free up margin for the introduction of new and more effective promotions.
It is also developing a ranging programme to help Tesco tailor its product ranges within individual stores.
"To keep the range optimised is a really exciting and challenging area. It's the most important area for us," says Dunn.
There's no doubt that Clubcard has reaped major rewards not just for its customers but also for Tesco, which begs the question: why haven't others made a successful go of loyalty cards?
Sainsbury's may have a long way to go to catch up, but at least it is now in a position to exploit its Nectar data in similar ways. It'll be interesting to see how successfully it does this now that it has elicited the help of an ex-Dunnhumby expert, Peter Gleason.
As Birkitt points out: "It is not just about having the data. It's what you do with it."n