BP reward levels vindicated by new calculations

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By: Wise Marketer Staff |

Posted on October 1, 2002

A recent statement from industry analysts, Datamonitor, suggested that BP has quietly reduced the pound-in-pocket value of its rewards, and that customers may feel short-changed by the recent swap from Premier Points to Nectar points. However, the opposite has since proved to be true.

It its statement entitled Nectar: sweet, but with a sour twist, Datamonitor says that BP is giving its customers a lower rate of reward through Nectar than it did through its previous partnership with Premier Points.

The statement claims that, where Premier Points are redeemed for money off at Argos, customers effectively receive 0.8 pence in value per litre of fuel purchased (which is equivalent to a 1.06% rate of reward at 75p per litre of fuel). Assuming the same fuel price, Datamonitor also claims that members of the Nectar programme receive only 0.5 pence in value per litre purchased (which would represent a 0.66% rebate on fuel purchases).

Mike Phillips, fuel retailing analyst for Datamonitor, originally wrote, "BP clearly hopes that customers do not feel short changed, but Premier Points will keep running until 2004 - perhaps as a bit of insurance," adding that, "customers might not notice - but if they do, Nectar could turn slightly sour for BP."

Since then, Phillips has explained to The Wise Marketer that the full information was not readily available at the time, and that the revised figures do present a much more favourable picture overall.

In his evaluation of Nectar's reward value, Phillips assigned a nominal cash value of 0.5 pence to each reward point. But, while that rate does apply to Sainsbury's money-off vouchers, the actual redemption value of a Nectar point varies dramatically from one reward partner to the next. The value of a point depends entirely upon where it is redeemed.

However, assuming the same cash value of 0.5 pence used by Phillips, the figures quoted by the statement would seem to be incomplete, neglecting to consider the 100 litre point bonuses which have been publicised by BP from the start of the Nectar programme.

For each 100 litres of fuel purchased, Nectar members are awarded an additional points bonus. The first and second bonuses after joining the programme are 100 points per 100 litres, and subsequent bonuses are 50 points per 100 litres. This significantly alters the calculation of BP's overall reward value.

Calculating the truth
It is important to understand that the calculation of reward percentage is based on two assumptions - the price of a litre of fuel, and the assumed cash value of a reward point. Both figures are highly variable under normal market conditions.

Taking the point bonuses into consideration, and assuming a constant price of 75 pence per litre of fuel, and assuming a cash value of 0.5 pence per Nectar point, BP customers actually receive the following benefits: