The battle for customer loyalty takes to the skies - Sainsbury’s & IAG (BA) strike exciting new partnership 🧡💜🛫

In a rather dramatic move in the loyalty points world, IAG Loyalty (Avios) has announced that Sainsbury's will be its new partner moving away from its long partnership with Tesco. Sainsbury's customers will now have the ability to exchange Nectar rewards for Avios points. With this shift, Tesco customers have lost their ability to exchange their Clubcard points for Avios.

The specifics of the new arrangement are quite complex, and it will take customers a while to understand the value of their Nectar points in relationship to Avios and vice versa. It will also be interesting to see how the value proposition of earnings on the Nectar card compare to the Clubcard when it comes to exchanges with Avios.

While there is a lot to unpack about consumer value and the details of exchange rates and bonus periods, the real news may be in the impact to the supermarket sector. What type of revenue hit will Tesco face in the wake of this change? Will the partnership give Sainsbury's a competitive advantage worth their investment in the scheme? Finally, what is the impact of this happening in the midst of a pandemic when fewer people are travelling, therefore using travel rewards?

The Impact on Tesco

There undoubtedly will be many Tesco customers unhappy with the recent announcement. Still, it is not known if this will have any significant impact, in the long term, on customer loyalty or sales. While there was certainly an initial boost to sales and loyalty to Tesco, it is unknown how much residual value the program added. 

When Tesco initially added the air miles partnership with British Airways there was a lot of excitement around it. Major promotions were launched, including a chance to win a million air miles or even fly on the Concorde. This led to a spike in sales for Tesco, with some consumers switching grocers due to the offer.

There is less evidence that the rewards program continued to produce a strong ROI. The best proof of this may be the fact that the partnership has not been renewed after nearly two decades. It is safe to assume that both parties carefully reviewed the data to see if the program’s cost was worth the returns. Tesco recently launched their Clubcard Prices promotion, which offers Clubcard holders discounts in-store and online, suggesting a more inward-looking direction to loyalty at Tesco.

What Sainsbury's Nectar Has to Gain

It is reasonable to assume that Sainsbury's Nectar saw a partnership with the IAG loyalty program as a strategic advantage worthy of the investment. It is hard to believe they would enter such an agreement lightly. We can imagine that this was seen as a way to regain a competitive advantage over their rivals at a time when the battle for consumer loyalty and engagement has never been as fiercely fought.

Sainsbury’s have the opportunity to succeed where (potentially) Tesco didn’t to ensure the long term success of the tie-up. There is an opportunity for both organisations to use data to offer customers personalised and meaningful rewards. Undoubtedly, there will be plenty of eager travellers within the 18 million Nectar members. Maybe Sainsbury’s Taste the Difference customers might be interested in upgrade opportunities on BA? In reverse, Avios members with plenty of points might be attracted to grocery savings. Maybe, business travellers who typically shop at say Ocado and Waitrose could be lured to Sainsbury’s, for example?

The Impact of the Pandemic

This is undoubtedly an interesting time for such a partnership to come together. The COVID-19 pandemic has created significant shifts in shopping habits and all but killed airline travel.In the grocery marketplace, many consumers are making different choices regarding locations based on their needs and level of risk tolerance. People's work and commuting habits have changed, and many would rather have their groceries delivered than go into a store. They may also choose a grocer based on their COVID-19 protocols as much as location, selection, and pricing. This is backed up by the Office for National Statistics who announced that all sectors of retail reported large increases in total online sales in 2020, with food stores reporting the largest increase in online sales of over 79% for the year, a record annual increase for the sector.

At this moment, for many, loyalty schemes and rewards points may be a lower priority in shopping decisions. One of the main perks of this tie-up is the ability to use points earned with Nectar on travel through Avios. Travel has been one of the most hard-hit sectors during the pandemic. Whilst we all wait for the vaccines to roll out it's clear that international travel isn't at the forefront of our minds, however, many consumers may see this as a great opportunity to bank points ready for a holiday splurge in the (hopefully) not too distant future. 

Only time will tell how well the partnership between Nectar and IAG Loyalty will work out. Will it be a considerable upgrade for customers? More critically, will it be worth the business investment? Finally, how will all this be impacted when life begins to turn to normal after the pandemic? We will have to wait and see.

We’d love to hear your thoughts in the comments below: 

🛒 Are you a new Sainsbury’s shopper who’ll be taking advantage of this scheme? 

💳 Do points really mean prizes in the great game of grocery loyalty? 

✈️ Are you saving your points up ready for some upgrades when we can all book our holidays again?

Ed Armishaw, David Chapman & Neil McCann 

* These views are our own, based on our own research and opinions. They do not represent the views of our employer, nor have been informed by any conversations with Sainsbury's or Nectar360 teams.