Case Study Description of Nectar: Making Loyalty Pay
Loyalty Management UK (LMUK) manages British supermarket chain Sainsbury's frequent-shopper card program, called Nectar. LMUK uses Sainsbury's sponsorship as the magnet to attract other retailers into a profitable, multisponsor loyalty network. Examines the economics and consumer behavior of retail loyalty programs and allows comparison of the brand-building power of a single-sponsor program to the promotional power of a multisponsor program. Describes the launch of the program and its first 18 months of growth, at the end of which it is the largest loyalty program in Britain. Illustrates the use of the program to deliver customer-specific promotions to the 13.5 million-member database and how the program evaluates the success or failure of specific promotions.
Swot Analysis of "Nectar: Making Loyalty Pay" written by John Deighton includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Loyalty Program facing as an external strategic factors. Some of the topics covered in Nectar: Making Loyalty Pay case study are - Strategic Management Strategies, Data, Networking, Supply chain and Sales & Marketing.
Some of the macro environment factors that can be used to understand the Nectar: Making Loyalty Pay casestudy better are - – banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%, competitive advantages are harder to sustain because of technology dispersion, cloud computing is disrupting traditional business models, geopolitical disruptions, increasing energy prices, increasing government debt because of Covid-19 spendings,
increasing commodity prices, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
Introduction to SWOT Analysis of Nectar: Making Loyalty Pay
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Nectar: Making Loyalty Pay case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Loyalty Program, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Loyalty Program operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Nectar: Making Loyalty Pay can be done for the following purposes –
1. Strategic planning using facts provided in Nectar: Making Loyalty Pay case study
2. Improving business portfolio management of Loyalty Program
3. Assessing feasibility of the new initiative in Sales & Marketing field.
4. Making a Sales & Marketing topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Loyalty Program
Strengths Nectar: Making Loyalty Pay | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Loyalty Program in Nectar: Making Loyalty Pay Harvard Business Review case study are -
High switching costs
– The high switching costs that Loyalty Program has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Learning organization
- Loyalty Program is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Loyalty Program is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Nectar: Making Loyalty Pay Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Low bargaining power of suppliers
– Suppliers of Loyalty Program in the sector have low bargaining power. Nectar: Making Loyalty Pay has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Loyalty Program to manage not only supply disruptions but also source products at highly competitive prices.
Operational resilience
– The operational resilience strategy in the Nectar: Making Loyalty Pay Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Training and development
– Loyalty Program has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Nectar: Making Loyalty Pay Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Diverse revenue streams
– Loyalty Program is present in almost all the verticals within the industry. This has provided firm in Nectar: Making Loyalty Pay case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Ability to lead change in Sales & Marketing field
– Loyalty Program is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Loyalty Program in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
High brand equity
– Loyalty Program has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Loyalty Program to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Digital Transformation in Sales & Marketing segment
- digital transformation varies from industry to industry. For Loyalty Program digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Loyalty Program has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Effective Research and Development (R&D)
– Loyalty Program has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Nectar: Making Loyalty Pay - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Cross disciplinary teams
– Horizontal connected teams at the Loyalty Program are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Organizational Resilience of Loyalty Program
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Loyalty Program does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Weaknesses Nectar: Making Loyalty Pay | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Nectar: Making Loyalty Pay are -
High cash cycle compare to competitors
Loyalty Program has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Loyalty Program supply chain. Even after few cautionary changes mentioned in the HBR case study - Nectar: Making Loyalty Pay, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Loyalty Program vulnerable to further global disruptions in South East Asia.
Aligning sales with marketing
– It come across in the case study Nectar: Making Loyalty Pay that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Nectar: Making Loyalty Pay can leverage the sales team experience to cultivate customer relationships as Loyalty Program is planning to shift buying processes online.
Need for greater diversity
– Loyalty Program has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Lack of clear differentiation of Loyalty Program products
– To increase the profitability and margins on the products, Loyalty Program needs to provide more differentiated products than what it is currently offering in the marketplace.
Increasing silos among functional specialists
– The organizational structure of Loyalty Program is dominated by functional specialists. It is not different from other players in the Sales & Marketing segment. Loyalty Program needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Loyalty Program to focus more on services rather than just following the product oriented approach.
No frontier risks strategy
– After analyzing the HBR case study Nectar: Making Loyalty Pay, it seems that company is thinking about the frontier risks that can impact Sales & Marketing strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Nectar: Making Loyalty Pay, is just above the industry average. Loyalty Program needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Low market penetration in new markets
– Outside its home market of Loyalty Program, firm in the HBR case study Nectar: Making Loyalty Pay needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Interest costs
– Compare to the competition, Loyalty Program has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Capital Spending Reduction
– Even during the low interest decade, Loyalty Program has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Opportunities Nectar: Making Loyalty Pay | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Nectar: Making Loyalty Pay are -
Leveraging digital technologies
– Loyalty Program can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Loyalty Program can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Better consumer reach
– The expansion of the 5G network will help Loyalty Program to increase its market reach. Loyalty Program will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Loyalty Program in the consumer business. Now Loyalty Program can target international markets with far fewer capital restrictions requirements than the existing system.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Loyalty Program to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Creating value in data economy
– The success of analytics program of Loyalty Program has opened avenues for new revenue streams for the organization in the industry. This can help Loyalty Program to build a more holistic ecosystem as suggested in the Nectar: Making Loyalty Pay case study. Loyalty Program can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Loyalty Program has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Buying journey improvements
– Loyalty Program can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Nectar: Making Loyalty Pay suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Loyalty Program can use these opportunities to build new business models that can help the communities that Loyalty Program operates in. Secondly it can use opportunities from government spending in Sales & Marketing sector.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Sales & Marketing industry, but it has also influenced the consumer preferences. Loyalty Program can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Loyalty Program can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Building a culture of innovation
– managers at Loyalty Program can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Sales & Marketing segment.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Loyalty Program can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Nectar: Making Loyalty Pay, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Nectar: Making Loyalty Pay External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Nectar: Making Loyalty Pay are -
Stagnating economy with rate increase
– Loyalty Program can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Loyalty Program in the Sales & Marketing industry. The Sales & Marketing industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Technology acceleration in Forth Industrial Revolution
– Loyalty Program has witnessed rapid integration of technology during Covid-19 in the Sales & Marketing industry. As one of the leading players in the industry, Loyalty Program needs to keep up with the evolution of technology in the Sales & Marketing sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Environmental challenges
– Loyalty Program needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Loyalty Program can take advantage of this fund but it will also bring new competitors in the Sales & Marketing industry.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Loyalty Program.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Loyalty Program needs to understand the core reasons impacting the Sales & Marketing industry. This will help it in building a better workplace.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Loyalty Program can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Nectar: Making Loyalty Pay .
Shortening product life cycle
– it is one of the major threat that Loyalty Program is facing in Sales & Marketing sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Loyalty Program with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Easy access to finance
– Easy access to finance in Sales & Marketing field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Loyalty Program can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Consumer confidence and its impact on Loyalty Program demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Weighted SWOT Analysis of Nectar: Making Loyalty Pay Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Nectar: Making Loyalty Pay needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Nectar: Making Loyalty Pay is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Nectar: Making Loyalty Pay is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Nectar: Making Loyalty Pay is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Loyalty Program needs to make to build a sustainable competitive advantage.