How many loyalty cards do you carry? What motivates you to sign up for these programs? According to a 2004 poll conducted by Boston University’s College of Communication, 86 percent of American shoppers use some form of store card or discount card. Grocers and retailers offer cash back, rewards points, special offers and other bonuses. However, what’s the cost? Someone pays for these perks, and it’s not just the non-card holders.
The concept is simple: reward customers who regularly patronize your business. Buy groceries and get a discount on gasoline. Save up points and use them for freebies later. Track your purchases for targeted coupons and marketing promotions: no more dog food coupons for those who don’t have pets and no Hamburger Helper coupons for regular purchasers of meat-free frozen meals. Regular customers get bonuses and companies maintain a loyal customer base. It’s a win-win, right? Not so fast.
In some circumstances, these programs do work exactly as intended. You buy your usual grocery staples and earn benefits gradually that you would not have had otherwise. Using a store credit card may mean special sales and savings that really can help a savvy shopper get more for less. It seems like letting someone know that you prefer name-brand coffee over store brand and never buy nondairy creamer is a small price to pay in exchange for such deals. However, the flaws in the system become apparent on closer inspection.
Annual expenses to maintain loyalty programs run about $5-10 million. So how do companies afford it? Beyond the revenue ensured by regular customers, non-sale prices often run higher at stores with card programs. The organization Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN) has formed to protest the deceptive pricing practices and the collection of personal information along with it. A member of the organization conducted his own informal study on price differences among four stores, two with savings cards and two without, and found that the sales savings with cards often don’t balance out the higher prices on other items. Members consider these programs an invasion of privacy that lures customers in by promising savings and playing deceptive number games. Fear of fraud or misuse of information is not just paranoia, particularly if a third-party handling the program administration lacks adequate security measures. Furthermore, customer segmentation is a double-edged sword. “Loyal” customers are generally defined as those who bring the most revenue to the store. When a store caters to the highest spenders, it risks adversely affecting lower-income and minority populations.