Loyalty Program

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Card.Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour — behaviour which is potentially of benefit to the firm.Sharp, Byron and Anne Sharp (1997), "Loyalty Programs and Their Impact on Repeat-Purchase Loyalty Patterns," International Journal of Research in Marketing, 14 (5), 473-86.

In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, or club card is a plastic or paper card, visually similar to a credit card or debit card, that identifies the card holder as a member in a loyalty program. Loyalty cards are a system of the loyalty business model. In the United Kingdom it is typically called a loyalty card, in Canada a rewards card or a points card, and in the United States either a discount card, a club card or a rewards card. Cards typically have a barcode or magstripe that can be easily scanned, and some are even chip cards. Small keyring cards which serve as key fobs are often used for convenience in carrying and ease of access.

A retail establishment or a retail group may issue a loyalty card to a consumer who can then use it as a form of identification when dealing with that retailer. By presenting the card, the purchaser is typically entitled to either a discounts and allowances on the current purchase, or an allotment of points that can be used for future purchases. Hence, the card is the visible means of implementing a type of what economists call a two-part tariff.

The card issuer requests or requires customers seeking the issuance of a loyalty card to provide a usually minimal amount of identifying or demographics data, such as name and address. Application forms usually entail agreements by the store concerning customer privacy, typically non-disclosure (by the store) of non-aggregate data about customers. The store — one might expect — uses aggregate data internally (and sometimes externally) as part of its marketing research.

Where a customer has provided sufficient identifying information, the loyalty card may also be used to access such information to expedite verification during receipt of cheques or dispensing of medical prescription preparations, or for other membership privileges (e.g., access to a club lounge in airports, using a frequent flyer program card).

Loyalty programs can be "self-directed", where the benefit accrues to the consumer, or "other-directed", where the benefit accrues to somebody / something else. In the latter case, this is generally a charity, cause, or NGO (non-governmental organization.) By country United Kingdom The loyalty card market in the UK is one of the most significant in the world, with most major chains operating some form of reward system.

Of the "big four" supermarkets, only Sainsbury's and Tesco operate loyalty cards. Both Nectar and Tesco's Clubcard scheme have been criticised for not offering value for money. When Clubcard or Nectar points are used for money off supermarket shopping, they roughly equate to a 1% discount, although offers can increase this discount by as much as 4 times for certain rewards. Some retailers with banking operations also award points for every pound spent on their credit cards, as well as bonus points for purchasing financial services. A report in The Economist suggested that the real benefit of loyalty cards to UK outlets is the massive database potential they offer. The primary goal of a loyalty card scheme, from a business' perspective, is to improve their customer relationship management. Companies gather information on customers so that they can target them more effectively with marketing communications.

Tesco Clubcard After trials in 1994, Tesco launched its Clubcard, the UK's first nationwide supermarket-only loyalty card scheme, in 1995 with Dunhumby.

Nectar Sainsbury's launched its Reward Card in 1996. This was replaced by the Nectar card in 2002, which was launched in partnership with other major brands.

Others Safeway plc had a loyalty card, the ABC Card, however this was axed in 2000. Airlines, Hotels and other loyalty schemes also offer cards.

Marks and Spencer and the John Lewis Partnership have credit cards which give vouchers in return for spending, and do not issue separate loyalty cards.

Caffe Nero has simple cards made out of card which are stamped whenever the holder purchases a drink. When the card has 9 stamps, the 10th drink is free.

GAME has a reward card scheme, for every pound spent, 10 points are rewarded, for every 1000 points collected, you get £2.50 to redeem in the store, or online. Preorders give 20 points per pound.

United States In the U.S., several major supermarket chains and at least one major pharmacy require the cards in order for customers to receive the advertised loyalty price. These include Kroger and Safeway Inc. (each through both their own name and many of their regional chain names), Albertsons, Winn Dixie, Harris Teeter, Ingles, Giant Eagle, Tops Friendly Markets, and CVS/pharmacy. However, some stores may also allow a customer to use the store's card if a customer does not have theirs on hand (Kroger does not allow this although the customer can enter their phone number to bring their card up if they forget it) or if the customer is new and agrees to sign up right away. Many of the stores allow accumulation of fuel discounts. Some have tie-ins with airline frequent flyer programs, and some agree to donate a percentage of sales to a designated Charitable trust. Most notably, Wal-Mart does not have a loyalty card plan (though if one purchases a gift card s/he can generally earn a 3 cent discount per gallon of gas at the fuel stations located on Wal-Mart premises).

The practice is also common among book and music retailers, from large chains to independent retailers. In some instances, the customer purchases the card and receives a percentage discount on all purchases for a period of time (often one year), while in other instances, a customer receives a one-time percentage discount upon reaching a specified purchase level. (For example, a bookseller's loyalty card program might provide a customer with a 10% off coupon once the customer has spent $200.00 at the bookseller.) Best Buy's loyalty program similarly offers points redeemable for dollar-amount discounts after accumulating a set number of points along with other discounts from time to time, though the card is not required to receive their advertised price in most cases.

In addition, office supply retailers Staples, Inc. and Office Depot started issuing club cards in 2005.

Almost all of the major hotel chains (Best Western, Choice Hotels, Holiday Inn, Marriott, Super 8 Motels, etc.) have similar cards that allow guests to earn either points (redeemable for discounts, future stays or other prizes) or airline miles (Hilton Hotels Corporation's Hilton HHonors program allows guests to earn both points and miles on the same stay, the only program to date that does so). All major US Airlines also offer rewards credit cards. Other travel related reward programs include SeaMiles, with points that can be redeemed for cruises. See list of travel reward cards.

Two major petrol distributors have adopted the Exxon-Mobil Speedpass which is not only a loyalty token, but also contains a mechanism for authorizing electronic payment, used by over seven million customers worldwide (in 2004).

For now, most American retailers have not implemented club cards. In a few cases (e.g., Federated Department Stores) this is because the retailer already issues its own credit cards, and thus already has a direct relationship with the consumers most likely to shop at its stores. Also, many retailers are simply not large enough to justify the cost of creating, promoting, and operating a club card program.

Some supermarket customer loyalty cards inadvertently work at the scanners of other non-affiliated stores. For example, a Kroger card has been successfully recognized as a respective loyal club member at stores in the Food Lion, Pathmark and Winn-Dixie chains.

A few states have begun regulating club cards. For example, supermarkets in the U.S. state of California are subject to the Supermarket Club Card Disclosure Act of 1999 . Some grocery chains have dropped their loyalty card programs. Rainbow Foods in Minnesota ended their loyalty card program after being acquired by Roundy's, leaving Minnesota with no major grocers that use such cards.

There are a few online loyalty programs that offer rewards for being a loyal shopper. The largest of these are Memolink, Mypoints, and Ebates. Some online loyalty programs focus on "other-directed" consumers, these include uPromise, Schoolpop, and iGive.com.

Australia The largest loyalty program in Australia is FlyBuys (Australia), established in 1994 and backed by Coles Group, Australia's largest retailer and National Australia Bank. About 2.7 million Australian households are active members of FlyBuys using about six million cards. Rival retailer Woolworths Limited offers an Ezy Banking card in partnership with the Commonwealth Bank.

Among other Australian retailers, the largest programs are Myer MYER one program (department store), the Priceline Club Card (health, beauty, home), Amcal Club (pharmacy), Millers Retail Club(apparel), and Brazin’s Pulse program (Virgin Megastore, HMV Group plc, Sanity, dusk, Bras n Things). Pulse has more than one million members.

All major Australian banks offer credit cards with reward programs. Many offer points conversion with the Qantas frequent flyer program. Rival airline Virgin Blue offers the Velocity Rewards card partnered with National Australia Bank.

The largest online rewards program is EmailCash.

Canada The oldest loyalty program in Canada is Canadian Tire money and Canadian Tire gives out coupons each time someone shops at their store. The Air Miles reward program is Canada's largest loyalty program - Air Miles can be earned at more than 100 different sponsors and there are almost a thousand different rewards to redeem for. The Bank of Montreal offers an Air Miles sponsored program to Mosaik MasterCard customers in Toronto, Calgary and Vancouver. In western Canada, another major program is run by Save-On-Foods with the Save-On-More reward program.

Another large Canadian loyalty program that has been around for a long time is the HBC Rewards program first started by Zellers. Loblaws offers the President's Choice Financial program where users of the service get PC Points towards free groceries. Shoppers Drug Mart operates its very own Shoppers Optimum Card as well as Staples Business Depot and the Dividends Card. The irewards program is Canada's largest loyalty program for booklovers, offering everyday discounts and special coupons at Chapters, Indigo Books and Music, Coles, SmithBooks, the World's Biggest Bookstore and chapters.indigo.ca.

Almost every gas station in Canada offers some sort of program such as Esso Extra at the Esso gas stations, Petro Points at Petro-Canada, CAA Dollars at Sunoco, Mohawk, and Husky, Canadian Tire money at Canadian Tire gas stations, or a coupon that grants the customer 3.5 cents off per litre of fuel purchased at Sobeys Fast Fuel locations that can be used at a Sobeys banner store. Loblaws, Atlantic Superstore, and Real Canadian Superstore also grant a 3.5 cent a litre coupon that can be used at their stores.

Many hotel chains also offer some sort of loyalty program. Canada is also home to Air Canada's Aeroplan.

Republic of Ireland In the Republic of Ireland loyalty cards have been in operation since 1993, when Superquinn introduced its SuperClub loyalty card scheme. This is regarded as having been the prototype for such schemes in Europe. However, loyalty cards did not expand until 1997, when Tesco Ireland introduced its Clubcard scheme, shortly after its purchase of Power Supermarkets. This was essentially a simple expansion of the UK scheme (see above) - cards for this are physically identical to those used by Tesco in the UK and they can be used in both countries. Dunnes Stores responded with the introduction of their own ValueClub scheme in June 1997. Today these are three main schemes operating in Ireland, although ValueClub has been withdrawn from Dunnes' Northern Ireland stores.

All five major petrol station chains in the country operated a scheme during the late 1990s - Esso had "Tiger Miles" (with Tesco ClubCard points offered as an alternative), Maxol had "Points Plus", both of which operated on the principle of getting items from a gift catalogue, with Royal Dutch Shell using Dunnes' scheme, Texaco using the SuperQuinn system, and Statoil operating a cash-back system, "Premium Club". Due to increasing oil prices and tightening of margins, all of these schemes ended by the end of 2005. Tesco Ireland's petrol stations still, however, give Clubcard points.

GAME, a major computer game and hardware retailer also operate a cashback card scheme, which was merged with Electronics Boutique's programme following the separation of their northern European stores into the hands of GAME. The scheme returns one-fortieth of the spend, more than twice as generous as Tesco.

Asia In Malaysia, the BonusLink program was introduced in a joint venture between Shell, Parkson, Maxis and MBF. The BonusLink program is coalition with earning and redemption partners allowing members to earn points at a number of Malaysian retailers.

In Singapore, the three largest loyalty programs are WorldCard (aggregate program of Genting Resorts, Suntec City Mall, Star Cruises & Indigoz), LinkPoints (NTUC Fairprice supermarket chain) and SAFRA Card.

In Indonesia, Centro Friends card is a loyalty card for Shoppers of Centro Department Stores. The Body Shop People card is the loyalty card for The Body Shop stores in IndonesiOther notable programs in Asia include KrisFlyer, the Singapore Airlines rewards program, and Asia Miles, which was part of Cathay Pacific.

In India BPCL's PetroBonus program is a pioneering program and also one of the largest in the country with about 2 million members for the fuel card program. It also has variants for Fleets and Convenience store customers. Likewise IOC's Fleet Card Program XTRAPOWER has recently crossed 1 million mark. IOC has launched a loyalty program XTRAREWARDS for Retail Customers. Along with Reward Points it offers other benefits through its alliance partners.

In China, the Smartclub program allows all Shanghai residents to earn SmartPoints free, each time they take the subway, bus, or taxi. Those SmartPoints can be combined with points earned at McDonald's, eLong, Sport100, cinemas, bookstores, and other SmartClub partner retailers.

Hong Kong also offers the Octopus Rewards program, which started as a chip based smartcard for transport and now, the octopus cards can be used to earn points in certain shops.

In Taiwan, the French retailer Carrefour has recently introduced a new loyalty scheme whereby customers can earn and redeem points for purchases made in the store, and also earn additional points for all purchases made using a Carrefour branded credit card.

Program management Across the globe loyalty programs are increasingly finding the need to outsource strategic and operational aspects of their programs, given the size and complexity a loyalty program entails. Program managers are typically agencies with specialist skills in loyalty consulting, creative and communication, data analytics, loyalty software, and back end operations. Leading providers of such services globally include Carlson Marketing & ICLP. Regional players in this field include TMW in UK, Loyaltyworks or Maritz in the U.S., Rymax, SurfGold and CTELoyalty in Asia, Loyalty Matrix in Malaysia, DIREM and NetCarrots in India.

Criticism Companies complain that these loyalty program discount goods to people that are buying their goods anyway and the expense of doing these programs rarely pays. Other critics see the lower prices and rewards as bribes to manipulate customer loyalty and purchasing decisions, or in the case of infrequent-spenders, subsidy frequent-spenders. Others worry about the commercial use of the personal data collected as part of the programmes. It is also highly likely that consumer purchases are tracked and analyzed towards more efficient marketing and advertising (in fact one of the purposes of the loyalty card). There also remains the possibility that law enforcement agencies could be granted access to the stored information during an investigation of a customer's activities. For example, in 2004, a Winn-Dixie key-ring card was left behind at the scene of the crime, which led to the criminal. There has also been concern expressed regarding RFID technology being introduced to loyalty cards.

Loyalty and credit card reward plans can be viewed as modern day examples of a Political corruption#Kickbacks. Take an employee who needs to buy something(hotel room or flight) for a business trip for later reimbursement. The employee may choose the payment method that provides the most credit card rewards or loyalty points instead of minimizing cost for the organization.

See Also

Incentive Program
Loyalty Marketing
Travel Incentive
Incentive

References

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