The two companies will link their databases in a bid to better target consumers with relevant adverts and to improve the tracking of ads' effectiveness in persuading consumers to buy goods.
The system will help advertisers to target people according to their shopping habits offline as well as online and will help to determine when they have bought advertised goods in shops as well as online retail sites.
The plan will link the databases of each company so that Nectar's information can influence the results of the behavioural advertising system that determines what adverts a Nectar user sees on pages whose ads are supplied by Yahoo!.
The system is an opt-in one, meaning that consumers have to actively choose to allow their data to be used in this way. Nectar is offering some of its points as an incentive for consumers to participate and 20,000 have already signed up, according to press reports. Nectar and Yahoo! did not respond to requests for comment on the scheme.
The programme, called Consumer Connect, uses the past shopping habits of the 20,000 users to decide what adverts to show them in the future. Though this is already common with online behavioural advertising, previous systems have not been able to use offline shopping data to form part of users' profiles.
Press reports say that customers with Nectar accounts can have those profiles linked to their Yahoo! profiles without revealing personally-identifiable information to better target adverts to them when they surf online.
“For the first time UK advertisers will have a simple way to track offline sales from online advertising campaigns,” Mark Rabe, Yahoo’s UK managing director, told the Financial Times newspaper, which also reported that Cadbury would be the system's first trial user of the service.
This is then used to guess a person's interests and their likely buying habits in a bid to increase the relevance of the adverts that a user sees.
Some companies' tracking of users' behaviour has provoked protests over users' privacy, but the fact that users must opt-in specifically to this programme is likely to satisfy any concerns about its compliance with privacy laws.
Consumer protection regulator the Office of Fair Trading (OFT) last autumn launched an investigation into online sales and advertising practices to find out if they harmed consumers.
Its report, expected within weeks, will cover the practice of behavioural advertising. It said that one possible outcome is a demand that the industry create and adhere to a code of practice on the tactic.
The European Commission's Consumer Commissioner Meglena Kuneva has also expressed concern about the privacy rights of internet users. Last November she announced the creation of the Stakeholder Forum on Fair Data Collection to look into the issue.
"[The growing use of behavioural advertising] has an increasingly significant impact on consumers, who are genuinely concerned about the use of their private data," she said. "In this forum, publishers, advertisers, ad-networks, and other business representatives will shortly be invited to outline their plans and to address pertinent issues with the European Commission and other key stakeholders, such as consumer organisations.