Tesco has responded to the success of the Nectar loyalty card, launched by rival supermarket Sainsbury, by taking its own loyalty scheme online. Clever marketing and Tesco's unusually deft online touch bode well. But the decision to put online services at its heart may prove to be the scheme's Achilles heel.

Tesco, the UK's leading supermarket chain, is rolling out its new customer loyalty scheme after successful trials in August. Customers earn points that are converted into e-coupons and vouchers, which can be redeemed online. Tesco has approximately 10 million customers, all of whom will be encouraged to request vouchers and log on to the website to redeem their points.

The move is in part a response to the unqualified success of the Nectar loyalty scheme, which was launched to a fanfare of publicity in September by Tesco's arch-rival Sainsbury. It runs in conjunction with popular partners such as Barclaycard, department store Debenham's and BP, rapidly attracting 10 million members.

Its success has come as a surprise to many in the industry as the popularity of loyalty cards appeared to be on the wane.

Essentially, Tesco's new e-coupons and vouchers extend its existing loyalty scheme into its virtual store, Tesco.com. Tesco.com is one of the most successful online grocery sites in the world, with 85,000 visitors per day. As with Nectar, the scheme also offers customers additional benefits through Tesco's alliances with other companies.

The company has made good use of customer data gleaned from its existing loyalty scheme, allowing it to target customers based on their known spending and shopping habits. Customised mailshots highlight different advantages to different consumers.

Despite its savvy online operations, Tesco will need to ensure the scheme runs smoothly. Nectar, when it was first launched, encouraged recipients of its mailshot to register online. Unfortunately, the website was overwhelmed by the vast numbers of consumers - up to 10,000 per hour - who tried to use it. Goodwill quickly turned into frustration as irritated consumers either experienced difficulties checking their account or were prevented from registering in the first place.

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