BrainTrust Query: Are greater sales truly in the loyalty cards?

Discussion
Aug 08, 2006
James Tenser

By James Tenser, Principal, VSN Strategies


Reward card program members tend to spend more in 11 key merchandise categories than non-members, says newly-released research. Shopper motivation, however, appears to be a bit harder to quantify.


For a study released August 1, Maritz Loyalty Marketing, St. Louis, looked at reward card behavior among 2,178 adult shoppers and analyzed their responses across several demographic characteristics, including age, gender, geography and presence of children in the household. The researchers found that rewards program members are more likely to have spent a greater amount of money in the past six months in the categories examined.


The Maritz study looked at consumer behaviors related to both retailer frequent shopper cards and bank credit cards that offer points or cash-back rewards.


“In an increasingly fragmented retail landscape, customer loyalty programs are an important tool to help retailers maximize their share of wallet among consumers,” the researchers reported. Retail categories covered included: specialty apparel/large premium specialty stores; home improvement; electronics; department store or mass merchandise; drug stores; discount mass merchandisers; grocery stores; toy stores; office supply stores; and book stores.

PROGRAM
Total

Age





18-24

25-34

35-44

45-54

55-64

65+

Store or Membership

59%

59%

71%

66%

58%

50%

44%

Private Label /
Co-branded Credit Card


27%

35%

39%

27%

23%

21%

19%

None

34%

32%

21%

28%

37%

44%

46%
Source: Maritz Loyalty Marketing

The study revealed that heavier rewards program members are more likely to be one or more of the following: female, young, living with children under the age of 18 in the household or from the Northeast. While females were more likely (62 percent) to belong to a store or membership loyalty program than men, more than half of the men surveyed (54 percent) say they participate in at least one retailer rewards program.


“It is interesting to see that rewards program members are spending more. However, we need to keep in mind that the programs might not directly cause shoppers to increase their purchases,” said Tim Crank, director of product management, Maritz Loyalty Marketing.


Added Crank, “Whatever the reason, enrolling shoppers who are spending more is a great tool for retailers because it allows them to mine the data collected from loyalty programs to identify and create a dialogue with profitable customers.”


Discussion Questions: If consumer spending and card membership are indeed correlated, as this study indicates, what can be said about which is cause
and which is effect? Is the value of the data captured enough to justify maintaining card programs? Is there any true loyalty involved here anyway?

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15 Comments on "BrainTrust Query: Are greater sales truly in the loyalty cards?"


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Karin Miller
Guest
Karin Miller
14 years 6 months ago
I have read that Chico’s loyalty card has been a large component of their success, and I believe it. I signed up the first time I walked into one of their stores. Here’s the deal: once a customer has spent $500, she will always get a 5% discount. This asks something of the customer and motivates her to sign up so that the current purchase will “count” toward the $500. Another reason this program is attractive is that it does not involve enrolling in a credit card program. Once the customer has enrolled, she receives a monthly catalog with coupons both for the store and web site. This serves as a reminder and a motivator to return. When she returns to the store, she will see new merchandise and be greeted by a professional, friendly woman who knows the product and is usually a cut above the typical retail employee. Loyalty cards are ideal for retailers such as Chico’s that target mid to high demographic customers, have a niche within a large merchandise category, and… Read more »
Race Cowgill
Guest
Race Cowgill
14 years 6 months ago

I agree with Bernie: we need a lot more data to really assess what is going on here. Also, the cause-effect link could easily be calculated by running a controlled, randomized test over 12 or 18 months to see if taking a loyalty card causes shoppers to increase their spending.

Isn’t the big-picture issue here that retailers want and need ways to keep customers coming back and spending more? You may recall the data from our study that shows that the average retailer meets customer expectations weakly. No loyalty card program can possibly fix this problem, though they can mask it. On the other hand, fix this problem and you won’t need a loyalty program, because none of your competitors will even come close to what you do.

Mark Heckman
Guest
14 years 6 months ago
There is no question that when retailers launch loyalty programs, their best customers, who are spending more than average already, tend to dominate the top deciles of spending within the loyalty program as well. While there is certainly an opportunity for the retailer to induce incremental spending with rewards and promotions, the biggest single payback for most programs can be customer retention across key categories that may be under fire from new competition. A few years back, a major retail CEO actually was quoted that the reason they were going to introduce a loyalty card was based upon shoppers saying they would spend more if they had a card that delivered discounts. I had to laugh. Programs that require shoppers to use a card to get the discounts they used to get without a card never drive incremental sales. Reward programs, however, that recognize and reward shoppers for the past patronage and do so consistently, are the programs that create loyalty and can increase the percentage of dollars shoppers spend at that retailer vis-à-vis a… Read more »
Dan Raftery
Guest
14 years 6 months ago

One of the early goals of loyalty programs was to get most of a retailer’s shoppers to sign up. Huge amounts of effort were directed to the roll out phase and when cards were novel, the effort was often successful. A couple of years into this adopted marketing program the grocery industry realized two things: it is important to not force the issue on the small portion of shoppers who resist signing up and swiping the card every time a member shops is harder than expected. These issues — and several more — are still in play for loyalty programs, with or without a card. I observe that those companies who have stayed the course are now experiencing something like a perpetual motion machine. Cause and effect are a loop of fuel and momentum; of questions and answers; of change and consistency. If the relationship between shopper and store/retailer is symbiotic, loyalty programs can be the shared nutrient.

Mark Lilien
Guest
14 years 6 months ago

Most “loyalty” programs are really discount programs that reward the top-spending customers who are most price sensitive. Women make less money than men, so it’s no wonder they would use “loyalty” programs more. Retailers whose positioning isn’t unique, facing competitor “loyalty” programs, have little choice. There’s not much difference between CVS and Rite-Aid, so both have “loyalty” programs. There’s a big difference between Trader Joe’s and most other supermarkets, so Trader Joe’s doesn’t need a “loyalty” program. The “Triple-A Team” (Abercrombie & Fitch, Aeropostale, American Eagle) doesn’t need a “loyalty” program. Barnes & Noble and Borders both have “loyalty” programs because they’re similar. Why not call these programs by their true identity: they’re discount cards, not “loyalty” cards.

Gene Hoffman
Guest
Gene Hoffman
14 years 6 months ago

Loyalty to a retailer is fused by the feeling that you are getting personal advantages, experiencing conveniences, and sense being valued as a customer and a person. A Loyalty Card can help, of course, but be cautioned by Oscar Wilde’s words regarding loyalty, “If you are not too long, I will wait for you all my life.”

Ken Wyker
Guest
14 years 6 months ago

There’s not much evidence of cause and effect in this study. The correlation between spending and card membership is simply due to the fact that better customers get more benefit from a card and are therefore more likely to have one. The card itself does not drive incremental sales at all.

However, the cards are essential for true customer-centric marketing, which has proven to be effective and far more efficient than broadcast promotional efforts. It’s not the cards themselves that have an impact, it’s the way the information can be leveraged that makes them so powerful as a merchandising and promotional tool.

Smart retailers with loyalty cards are investing in ways to leverage their data to quietly drive incremental sales in ways their competitors can’t match. They won’t announce what they’re doing publicly, but you can see the impact on their bottom line.

Mark Burr
Guest
14 years 6 months ago
Card programs are a high cost with little benefit to the retailer and an inconvenience to the consumer. Cards add cost to the retailer in stock of cards, personnel in managing the program, technology in managing the program and administration of associated systems. This all bodes hugely well to the consultants that sold the retailer the program in the first place. Consumers response to card programs has the result of an inconvenience to them in application, mail, extra time in usage at the store and simply an additional token on an already crowded key chain. Thus, more often a nuisance than any real enhancement to a pleasurable experience. I too add to the previous comments making the distinction between these being discount programs rather than loyalty programs. Neither the discounts received in return for the inconvenience nor the supposed rewards do anything to create real loyalty to the retailer. Consumers will at some point also realize that, while saturated by these programs, they are paying for them. No retailer enters into these costly programs without… Read more »
Ben Ball
Guest
14 years 6 months ago
Data and discounts are what you get from a card program. Loyalty is what you get when you combine the data and the discounts to offer me a better shopping experience. Ha! Nice assertion, Ben. And true enough as far as it goes. But there is one other huge component to the “Loyalty” created by a given card and that is the value of the reward. Having logged over 2 million miles on American and accumulated over 1 million Marriott points in your life, you should know what you are “loyal” to…FREE VACATIONS! And what about that new credit card in your wallet (the one you just got after swearing you would never add another card to your repertoire of two?). That’s right, the one that offers you discounts on gas. What’s more top of mind right now than saving money on GAS??? And didn’t you almost run out last week trying to find a SHELL station so you wouldn’t miss your discount? Isn’t that “loyalty”? Hmmmm…I guess that depends on whether or not I… Read more »
David Livingston
Guest
14 years 6 months ago

These are good questions and difficult to answer. With so many rewards programs at various venues, true loyalty is hard to measure. In my business, working with retailers who use a loyalty card helps us increase the accuracy of our research. We can measure market share down to the city block. However, there are still many successful retailers with no loyalty program at all. And when we guess at their market share down to the city block, we are usually within 5%. Is it worth it? Obviously to the retailers who have dumped their programs or never had one, it isn’t.

Mark H. Goldstein
Guest
Mark H. Goldstein
14 years 6 months ago

This Maritz study is a good one. It supports loyalty programs (no great surprise coming from Martiz) and card programs and the data collected from them. If a retailer is multi-channel, the combination of web (transactional, behavioral and self-reported) data and the in-store transactional and store visit data indeed provides a robust customer profile.

What retailer would not like to know the motivations of their best shoppers and have the ability to target them via email, kiosk or postcard with specific offers that interest them? Thus, the data is really critical.

I would venture and say every retailer benefits, thus the holistic importance of ‘cards’ which identify shoppers in store. You need some say to identify the shopper in store, thus the card (alternatively you can use the shopper’s credit card, ask for a phone number, etc.) but why not offer a 20 cent card, if the user is willing to carry it?

Bernie Slome
Guest
Bernie Slome
14 years 6 months ago

The discussion questions posed are truly great questions. They are indeed worthy of both comment and debate. While I am one who is never reticent to offer an opinion, today I must be a fence sitter. I am missing a couple of components. They are:

a) how much more over the course of a year does a loyalty or membership card shopper spend?

b) how much more does a private credit card shopper spend than a non-credit card shopper?

c) who spends more a loyalty card or a credit card shopper?

d) how many of the respondents have multiple loyalty or credit cards for competing retailers?

e) how many of the loyalty card members actually use their loyalty rewards?

Obviously my gut says that some type of loyalty program is important, but with most companies offering them, what’s the differentiator? Have the cards and programs lost their effectiveness? Are they in danger of becoming similar to airline frequent flyer programs…tons of points, but never able to be used?

Richard J. George, Ph.D.
Guest
14 years 6 months ago
First, most of these programs are mislabeled. Instead of calling them loyalty cards, I suggest we call them frequent shopper or discount cards. For the most part the cards are used to provide savings to their users. While this is a potentially useful role for the cards, I think it misses a real opportunity to capture the heavy volume shopper. Instead, loyalty shopper programs should attempt to identify the problems or needs of the heavy shopper and attempt to respond accordingly. How about a special check-out line for “gold” card shoppers or even an appointment to check out, thus reducing the wait in line, or how about a special deli ordering system for gold card holders? The key is identify their needs, not simply give discounts. The idea is to treat everyone the same, but reward differently. Second, the data mining aspects of loyalty cards makes sense. However, the retailer needs to use this data to efficiently and effectively target the loyal shopper. Don’t collect it if you’re not going to use it in your… Read more »
Shaun Bossons
Guest
Shaun Bossons
14 years 6 months ago
Loyalty Programs are one of the key strategies that I recommend to any retailer I am working with. The caveat is that only with strategic planning and foresight can the scheme be a success. Poorly planned and implemented reward programs are unprofitable, which has lead to high failure rates in the US and Europe. Programs that are well structured and built into the retailer’s ethos from customer, to store, to corporate office will succeed and provide a myriad of benefits to the retailer from bottom-line profitability, to being better able to operate and serve customers better. This is partly based on how the retailer integrates customer data within their key marketing processes. Because retailers have jumped on the “Loyalty Card bandwagon” over the last few years, customers have an increasing amount of choice and as a result will join more than one reward program. For this reason, it is key to ensure the program is run well and offers true customer-specific benefit instead of a generic reward that misses the mark on an individual customer… Read more »
Stephan Kouzomis
Guest
Stephan Kouzomis
14 years 6 months ago

Bank loyalty cards are much closer to what consumer loyalty is about. There are more benefits and non price opportunities.

Retailers in our grocery business use it only for discounts, and tracking category information, to offer incentives for shoppers to buy from such categories.

So why bother, retail grocery people. Just give the discount, as the product is scanned without a card. It happens all the time when shoppers speak up. Hmmmmmmmmmmmmm

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