How Nectar uses AI to make loyalty smarter

Nectar is the biggest loyalty programme in the UK, with 19 million members, but is having to adapt to the digital age.

Nectar: the brand's 'A national of individuals' campaign from March
Nectar: the brand's 'A national of individuals' campaign from March

But the scheme faces several challenges. Direct mail campaigns that send consumers physical vouchers no longer cut it in a world where smartphone use is almost universal. 

Then there is the rise of powerful own-brand loyalty schemes such as My Starbucks Rewards and Amazon Prime.

Finally there’s Nectar’s reliance on major brand partners such as Sainsbury’s and British Gas, which account for the bulk of loyalty points handed out by the programme.  

Both brands have altered the way they issue loyalty points in the last year. For Sainsbury’s, that meant shoppers would earn half as many points for every £1 they spent.  For Nectar, that meant taking a hit on the number of points issued. For the full year 2015, Nectar points issued were down 4.5%.

The chief executive of Nectar parent Aimia, Rupert Duchesne, described the change in strategy as beneficial over the "longer term" – but added that a successful transition to digital would be crucial to Nectar’s future.

To that end, Nectar upgraded its app earlier this year and launched a TV campaign to push its more personalised offering.

UK managing director Will Shuckburgh says the app has had "millions" of downloads, including from consumers new to the Nectar programme. He claims consumers now receive up to 150 offers a week, rather than the 30 a year offered via direct mail.

"We had to fundamentally reinvent the programme," he says. "We were a fairly traditional, direct mail-based business.

"That’s old school – we wanted to turn into a brand where customers could access us on their own terms, in their own way, in a way relevant to them."

Last year, Nectar put a hold on all marketing activity so that it could focus on evolving into an omnichannel scheme. Now, says Shuckburgh, half of Nectar’s members use the scheme via digital.

Part of Nectar’s hoped-for differentiation from rival schemes is its use of AI to personalise offers. The new feature stems from Nectar Beta, the scheme’s innovation arm.

"Relevance is central," says Shuckburgh. "The whole app is based on machine learning and the offer stream – the more it knows what you want, the more we can make sure [the customer] gets more relevant offers."

As more consumers use the app and other digital channels to redeem points, the better the machine learning function becomes at guessing what future offers may be relevant.

Shuckburgh does not go into detail as to how the AI tech works, but does admit it’s "not perfect". (And indeed, most of the recent reviews of the app on Google Play and iTunes are not particularly positive, though the app overall receives positive ratings).

Nectar is not the only loyalty scheme exploring AI as a way to generate more personalised offers. O2 earlier this year launched a hackathon to examine how AI might boost its Priority offering.

"I think everyone’s at the early stages of thinking how best to use [machine learning]," says Shuckburgh. "But I do think in marketing generally that AI will play a really big role in making marketing more relevant and helping listen to customers."

"AI can really allow brands to listen to customers and respond to that."

To build on its marketing push in March, Shuckburgh says the brand will launch "large-scale" activity over the next 12 months. Nectar is also increasingly exploring programmatic and ad formats such as YouTube pre-rolls, to "live and breathe" its intention to be more relevant to consumers.

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