Privacy Issues and Loyalty Marketing

Aug 02, 2004

By John Hennessy

There is a lot of ground covered in an article on loyalty marketing in the June 25 Reporter Sherry Anne Rubiano does an excellent job of capturing many sides
of the discussion on loyalty card programs, the impact on shopper privacy and the use of shopper data by retailers.

Some argue that supermarkets should be trusted because violations of privacy would ruin their business.

Walt Heller, research director for Progressive Grocer, said stores have little incentive to give the data to third parties. “Frankly, I would trust the supermarket because
they don’t want to tee off a customer,” he said. “You’re far more likely to go on the Internet and get a bunch of spam back than you are with the supermarket.”

Research from ACNielsen (a RetailWire sponsor) suggests that most consumers agree with Mr. Heller’s assessment. According to Homescan panel data, 81% of shoppers participate
in frequent shopper programs. This number has more than doubled over the last eight years as frequent shopper programs have expanded.

Despite public assurances and in many cases written policies against selling or sharing customers’ personal information, there are still some who are leery about signing up for
a card.

John Vanderlippe, a member of Consumers Against Supermarket Privacy Invasion and Numbering, indicates that he will drive an hour to avoiding shopping at a retailer who requires
the use of a loyalty card.

Moderator’s Comment: Why doesn’t a supermarket take a stand in favor of shopper privacy and remove any need to supply personal information to get
a loyalty card?

All purchases made with a loyalty card are captured by electronic scanners. Those purchases are assigned to the card presented during that transaction.
Purchases made during subsequent transaction using the same card are added to the purchases of the card.

With this accumulation of transaction on a card, you can develop a profile of the preferences of that cardholder. It’s not important where that cardholder
lives. This does hamper targeted direct mail efforts, but one-to-one communication with shoppers can improve response and saves on communication.

Electronic communication channels can be used to communicate with the holder of each unique card number. The cardholder could check for personal offers
and messages related to his or her purchase history on a link from a retailer’s web site. Stores could offer any of several in-store devices that identify shoppers by the
barcode on their card and communicate privately with that shopper prior to or during a shopping trip.

Use of electronic channels like these is becoming more prevalent among retailers who also offer frequent shopper programs. Some retailers will issue anonymous
cards, but these retailers don’t promote this privacy feature of their frequent shopper program.

Combining anonymous but unique card issuance with personal, electronic communication channels would position a retailer well among shoppers concerned with
privacy without limiting the loyalty marketing capabilities of the retailer. This kind of customer-focused differentiation could win shoppers away from retailers who fail to adopt
this approach.

John Hennessy- Moderator

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