The Downside

Peter Leech, managing partner, Equilum Consulting and publisher of the Know Thy Customer newsletter, notes the downside to the overabundance of loyalty cards. “Many retailers today have launched loyalty cards and points programs to find that almost all of their shoppers have picked up a card and are gaining points or discounts. This is initially good news until shoppers pick up their competitor’s card as well … and begin to gain points in several programs simultaneously. The problem is simple … these programs require no spend increase or loyalty commitment from the shopper in return for increasing value.”^[9] As many as half of all members of loyalty programs are free riders, enjoying benefits without spending more at the business that provides them. Is this widespread acceptance of loyalty cards a deterrent?

Richard Barlow expresses his concern for the current state of both hard and soft benefit loyalty card programs:

Traditional recognition tactics like special access to reservations, customer service and product information, and special deals and discounts are so widespread that their impact and execution are diluted.

Likewise, traditional hard benefits like miles and points for free flights, free nights and retail gift certificates saturate the membership environment as significant deterrents. First, it’s harder than ever to redeem miles and points for flights and nights. Too much promotional currency is chasing too little available inventory. Second, the one percent to two percent standing funding rate [points per dollar spent] for rewards offerings in retail and credit card programs becomes more plainly inadequate as consumers play in more programs and experience multiple instances of low return on their loyalty investments. The antidote to parity is innovation, and regardless how skillfully we manage to deliver our messages to the customer, customers are becoming choosier as a result of the barrage of ‘relationship’ offers. Sooner or later, it all boils down to what’s in it for the individual customer.^[10]

CMR will address what’s in it for the customer. Firms will have to use the information gained from the loyalty card program to serve customer needs, rather than company needs.

^[9]Peter Leech, “Can Stored Value Cards Drive Loyalty?” Know Thy Customer, March 2002, p. 2.

^[10]Richard Barlow, “Loyalty Marketing: Six Trends to Watch in 2002,” The DMA Interactive, January 9, 2002, p. 2.