Who benefits from Loyalty cards issued by big-box retailers?

November 8, 2012

I am sure that everyone who reads this article would minimally have a dozen of loyalty cards of retailers they visit but not many wouldn’t have really thought through on who really benefits from it. My strong opinion is Loyalty cards are more beneficial to the retailer than you. I have summarized my views both from India as well as from US perspective here.

In India, I have the loyalty cards for many of the big box retailers like Reliance, HyperCity, and Star Bazaar etc and generally the concept in India is to receive a free loyalty card if you are interested provided you make a minimal purchase of X bucks. If you don’t make the minimum purchase but you are interested in a loyalty card you can buy one for a nominal charge. Apart from the regular discounts that companies announce in newspapers, web etc which is available for anyone who goes for shopping, the only additional benefit of loyalty card is to accumulate points for every shopping you make. The points can be redeemed over a period of time typically for in-store purchase (typically private label brands) in future. But the key issue over here is the number of points you get for every buck you spend is very minimal and the equivalent value of these points in money terms is very low. To give example typically retailers may give 1 point for every 100 bucks you buy and this one point translates to a value of 25 paisa during redemption.  Though it is a point that there is nothing wrong in getting something instead of nothing, but the cost at which you end up earning this is more than the value you get from it. Assuming on a normal visit you purchase grocery worth of 2000 Rs from any of the big box retailers a simple math would demonstrate it. Typically there are two additional costs you incur in buying from big box retailers against purchasing your local grocery stores that is right across the street. They are cost of fuel, minimally a litre by car (Rs 75) and parking charges levied by most of them (Rs 20) adding to a total minimal cost of Rs 95 in addition to killing your time by browsing around the stores against a phone call to your retailer sitting right across the street who delivers what you want to your home. The points you get from the box retailers for this Rs 2000 purchase is 20 and its equivalent value is Rs 5 against the overall cost you incur of Rs 100. From the retailer standpoint, he not only has your complete profile and buying patterns which is a treasure that he builds over a period of time but also creates a fictional marketing strategy that makes you feel as if this is a good deal against buying from your nearby grocery store. You might fall under the exceptional category if your residence is just opposite to these retailers …You are also exposed to the risk of compromising your privacy (which they can potentially sell to others) as well as polluting the environment.

Now coming back to US, my experience was really hilarious. When I went to Kroger for the first time I saw few deals which are applicable only for people with Loyalty cards. Assuming the concept of issuing a loyalty cards would be in similar line to India (minimum purchase or purchase at a cost), I didn’t buy it. In a subsequent visit, when I get time to enquire about this card, they told, it is free to my surprise. Though the situation here demands you to take your car and travel to a grocery store unlike India, the value you get out of these points are minimal (In my case it is completely of no use as the value can only be redeemed against fuel purchase and I don’t own a car here).  Same was applicable for many other stores that I visited like Walgreen footlocker etc. From the retailers front I personally believe the return he gets from loyalty is very minimal as anyways most of the times you typically end up going to the store that is nearby (doesn’t matter whether you have a card or not) but the return that he gets from harnessing your personal profile including the database of every item that you purchase is huge. This would be used in an ethical manner to promote some targeted deals for you or used unethically to sell it to third parties to make money out of it. So don’t be surprised if you get so many emails, phone calls etc after registering for few of these loyalty programs though I am sure that well known brands would not do it (If you want to be sure better read the privacy conditions carefully before you sign up)

On the contrary there is another retail store Publix, who strictly has a concept of “No Loyalty Cards”. The company’s rationale is very simple. They don’t want to differentiate on price to any customers who visit their store. If at all they want to offer a deal, they publish their offers in form of electronic coupons in web. On top of it your privacy is completely taken care. I would call this as a real good example of meaningful differentiation strategy than blindly following the mass.

Venkatesan Sundaram
Senior Director, CRMIT

 Originally Published on Venky’s Blog

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