Sainsbury’s today reported it first half sales rose 4% to £13.4bn helped in part by its partnership with Nectar. Retail Week takes a look at the loyalty scheme.

Why are we talking about this now?

Sainsbury’s said today its Nectar data and Brand Match promotion has combined to drive forward sales and profits at the UK’s third largest grocer.

What is Nectar?

Sainsbury’s has been using the Nectar loyalty card for ten years. Points can be earned at around 4,000 locations and include transactions such as shopping for groceries, booking a holiday, paying household bills and buying petrol. Members can also earn Nectar points at over 500 online retailers if they shop via nectar.com. These Nectar points can then be redeemed at participating businesses for money off shopping, travel, eating out, and general merchandise. Launched in 2002, Nectar now reports that it now has over 18.5 million members.

How does it work for businesses?

Nectar is owned by Aimia, a global loyalty management business and offers businesses three options to partner with them. Programme partners allow consumers to earn points at the business but not redeem them; Nectar eShops Partners offers consumers the same but online or rewards partner who offer shoppers the opportunity to both collect and redeem points.

Which businesses are involved in the scheme?

Other than Sainsbury’s, BP, Amazon, American Express, Homebase, British Gas, Expedia, easyJet and Ebay are all involved in the scheme. Nectar is also looking at opportunities in areas such as media and financial services.

How does it compare to competitors such as Clubcard and Boots Advantage card?

Tesco’s Clubcard, powered by partner Dunnhumby, uses the data garnered from the loyalty scheme to inform product ranges, which Sainsbury’s also does with Nectar. Another popular loyalty scheme is the Boots Advantage Card, which the health and beauty retailer uses data collected from 10.7 million active users to target marketing and money-off deals.

However, the key difference with Nectar is that it has partners other than Sainsbury’s.

How has it benefitted Sainsbury’s?

With 16.5 million of its customers now signed up to the loyalty scheme, Sainsbury’s said Nectar continues to be a “key source of competitive advantage”. Highlighting continued growth of the scheme, a record number of consumers used their Nectar cards to do their Christmas 2011 shopping at the grocer, with £100m worth of points redeemed.

As well as encouraging customer loyalty, Sainsbury’s benefits from the data the card generates to determine the product ranges it stocks in stores, identify potential store locations, make sourcing decisions, and measure the effectiveness of promotions, as well as help plan future promotions.

Sainsbury’s director of loyalty and insight Andrew Mann said last month: “If a customer has bought a kitten or had a baby, we can see that and offer them promotions that work for them. Customers are pleased when they receive offers that identify their needs and offer solutions.”

Sainsbury’s has also been able to use Nectar to drive its other offers, including its home and car insurance products.

How has it benefitted Homebase?

In 2009 Homebase scrapped its Spend and Save programme and became the first DIY chain to join Nectar. In its half-year financial update last month, the retailer pointed to Nectar as a key driver of customer loyalty. With 7.2 million Nectar customers shopping at Homebase, Nectar has a sales participation rate of over 60% of total Homebase sales, as customers redeemed over 1.7 billion Nectar points in store in the six months to September 1, a rise of 12% on the year.

Sainsbury's outstrips Tesco as profits rise 5.4%