Do loyalty cards really work?

5th Sep 2009

A recent survey has discovered that while many of us own loyalty cards for particular companies, the personal details handed over by loyalty scheme members has yet to result in improved communications.

According to a recent study from GI Insight, some 87% of UK consumers own at least one loyalty card, with a fifth of them owning four or more cards from different companies. GI Insight’s analysis of the top 250 UK firms (by turnover) found that the number of loyalty schemes operating has increased 2.5 times over the last 10 years. 41% of the top  companies are currently running a scheme, and GI Insight predicts that the  overall majority of top consumer companies will have a scheme by 2013.

Among the most popular loyalty cards is the Nectar scheme from Sainsbury’s, which rewards customers with two points for every £1 spent in the store in England and Wales, and one point for every litre of fuel purchased from its forecourts. Nectar points can also be gathered at Homebase, BP, expedia and Gala Bingo, and on selected websites when visited via 

Boots Advantage Card rewards shoppers with four points for every £1 spent on most purchases within the store and online, while Tesco has recently doubled the number of points Clubcard shoppers can earn as part of its revamped loyalty scheme after attracting nearly half a million new Clubcard customers over the past three months as a result of an earlier campaign that rewarded double points on selected items.

Card value not being realised

All very impressive, but GI also found that effective use of personal details handed over by loyalty scheme members has yet to result in relevant communications, with 68% of all customer communications irrelevant to the recipient. The high level of targeting and personalisation that ought to come from loyalty scheme membership is not being realised, perhaps because of excessive dependence on CRM applications.

That's for the retailers to worry about. From a customer perspective, what's interesting is that there is an increasing concern about how much information is being gathered. Oracle CEO Larry Ellison has consistently dismissed critics of large government databases and possible ID card schemes by pointing out that there's more than enough personal  information on credit cards and store cards already to negate paranoid privacy concerns. 

Given the concern expressed by the UK public about the prospect of ID cards, can we extend Ellison's argument to loyalty card schemes? Former Home Secretary David Blunkett – who was one of the strongest advocates of ID cards – picked up on this point. "There is a suspicion that if government is doing it there must be something wrong. But if the private sector is doing it with loyalty cards it is OK," he said. "Store loyalty cards keep continuously updated details such as the size of a person's household, whether they're employed or not and the ages of their children, besides what they like to eat, where and how often they shop and even what brand of toothpaste they use."

In reality it was a ludicrous piece of political expediency rolled out in a bid to excuse a policy that the majority of the electorate opposed. The comparison just didn't stand up. Schemes like Nectar are voluntary and collect limited personal information on shopping habits and are regulated by the Data Protection Act.  Basic information like name, address, sex, and contact details are provided on sign up and people can choose to opt out of certain questions they are uncomfortable with like numbers in the household, number of cars, etc. Opting out of providing data for a national ID card was – at the time at least – not going to be an option...

RFID loyalty cards

Certainly the cynical will suggest that the real purpose of loyalty card programmes is not to reward the faithful, but to accumulate vast amounts of data about customers. What happens to that data? Is it used to re-shape customer propositions and optimise supply chain management operations? Is it used to ensure that campaigns and special offers are closely matched to customer expectations and needs? Or is it shared with partners and third parties resulting in a barrage of automated cold calls just as EastEnders is starting?

There are other concerns with new technological developments such as RFID tagging. RFID-enabled loyalty cards enable retailers to identify shoppers remotely as they enter the store, using details of their identity and purchase history to pitch products to them and to track their movements and activities within the store. Clearly this could cause problems with consumers typically unaware of the presence of RFID tags.

Back in 2004, the METRO Future Store in Rheinberg, Germany was accused of passing out RFID devices hidden in the store's loyalty cards which could not be completely deactivated after purchase, despite METRO's claims. RFID chips are currently being trialed in supermarkets in the UK.

The European Commission has taken an interest, suggesting applying the same rules used for data protection in other fields to this new technology. Brussels has proposed the introduction of the so-called 'opt-in' principle for RFID, which involves requesting the consent of users when personal data are contained in tags. The principle would be applied in shops where RFID tags are regularly used. Once the shopper leaves the retail space, they would automatically be deactivated "unless the consumer chooses to keep the tag operational".

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