Just how much do consumers get out of a typical loyalty rewards program? Not nearly as much as the companies behind them do! Most of these programs offer such poor rewards that you generally save less than a dollar per $100 spent.
In return, retailers gain valuable information about your shopping habits. Sophisticated databases store information on the specific products you buy, which could show if you smoke, prefer organic produce, choose low-cholesterol margarine or have a preference for certain snack foods. This can then be used for targeted marketing, either by the retailer themselves, or others that they sell your information to.
How stores benefit from loyalty programs
A loyalty program helps companies with insightful marketing. Scanned data shows who's buying what, when they're shopping and how, as well as behavioural shopping patterns – then they link this data to customer demographic and psychographic information. This is known as data mining, and begins with the information you give the store when you apply for the loyalty program.
"Customers can be segmented on any number of attributes using loyalty card data," says Carla Ferraro, Research Fellow at the Australian Centre for Retail Studies at Monash University. "For example, functional shoppers visit when they need to and typically only buy what is on their shopping list; social shoppers visit more often as part of their broader leisure activity and buy more impulse items; and value-conscious shoppers visit and typically purchase when products are on sale or are attached to a sales promotion."
Stores design targeted marketing material according to consumers' specific spending habits, which you're more likely to read and act on by coming into the store.
They also use the information to come up with in-store marketing ideas. There's a story about a manager at Wal-Mart, the massive US discount retailer, who noticed a correlation between the sales of nappies and beer: on Friday afternoons, men aged between 25 and 35 bought both products. The manager decided to put beer next to nappies, and sure enough, beer sales increased spectacularly. Disturbing? Possibly. But effective nonetheless.
Loyalty card customers spend more
In 2009, Myer published numbers proving that customers with loyalty cards – and especially those who receive marketing emails – spend more. Although this could be because high spenders are more likely to sign up for loyalty programs, it's interesting to note what difference it makes if they receive email marketing material. Myer reported that on average, in a year:
- customers spend $795 in store,
- loyalty card customers spend $822, and
- loyalty card customers who've registered their email address spend $971.
are gearing up for similar results. Their goal is to encourage customers to buy specific products, get you into the shop more often to spend larger amounts and ultimately reinforce their relationship with you (and discourage you from engaging with their competitors). And the evidence suggests supermarket loyalty programs are getting there.
"The total basket size has jumped up for customers who have linked their Everyday Rewards card to the Qantas Frequent Flyer scheme," says Richard Umbers, Woolworths' General Manager of Customer Engagement in 2009.
Loyalty card programs make you "sticky"
According to Roy Morgan, in 2009, only about one in 10 Woolworths shoppers shopped exclusively at Woolworths, with even fewer loyal Coles shoppers.
Dr Paul Harrison, Senior Lecturer in Consumer Behaviour and Advertising at Deakin University, told us that loyalty programs are designed to rectify this low level of loyalty. "A loyalty program creates a barrier, which makes it harder, psychologically, for the consumer to shop somewhere else," he said. "Ultimately, the supermarkets are trying to create an unconscious response, so it just becomes easier for the consumer to shop, for example, at Woolworths, rather than at Coles."
Avoid the shopping traps
To take action against supermarkets' tricks, follow our tips:
- Stock up on all the basics once a month at your local discount store, such as Aldi.
- Use unit pricing, as sometimes the biggest packet isn't the cheapest.
- Go online to check specials for the week at your local supermarkets and plan your meals accordingly.
- Avoid doing small top-up shops when you can, as they'll result in more unplanned spending, research by Roy Morgan shows that the more often you shop, the more you spend.
- Buy locally whenever you just need milk and bread, to avoid temptation.
Find more tips in our article about supermarket sales tricks.
Behind the scenes: Myer One loyalty program
Myer's prospectus for its public offering in 2009 gave interesting insights into its loyalty program.
- "The Myer One database is a comprehensive and valuable source of customer information, and enables Myer to more effectively target its offering to changing customer needs and drive sales through enhanced marketing initiatives.
- "Myer One offers have been found to be an effective way to draw customers into the store and generate additional sales in quieter trading periods – for example, offering 'double points' can increase a day's sales by up to 20%.
- "The Myer One program is primarily designed to encourage high-value Myer customers to consolidate their department store spending with Myer and to attract new high-value customers."