Whither goest thou, loyalty card?

I’d heard rumblings that retail loyalty cards are on the way out, but I’d had my doubts.  After all, didn’t I just sign up for Banana Republic’s loyalty card?  I even carry around a little green shopping bag that will net me a discount every time I buy.  Signing up also gained me at least one email a day from Banana Republic, and the conclusion I draw from their emails is this:  you’d have to be nuts to pay full price for anything from BR.  Thirty, 40, even 50% off.  I’m an Amazon prime member, and if you don’t think one-click buying and free shipping leads to late-night binging, you’re nuts.  I’m so loyal to Amazon I have to make myself go to the local independent bookstore and buy something several times a month, just to do my part to keep them in business.

I also have two grocery store loyalty cards:  Dominicks Fresh Values Card and the Jewel-Osco My Rewards card (previously, the Jewel-Osco Preferred Card).  They work pretty much the same:  scan your card, get lower prices.  Am I wildly loyal to either store?  Nope, and definitely not because of the card.  I rarely go to the Dominicks.  I regularly shop at Jewel, but not in my own town.  Nope, the one in the next town over is bigger, but not too big.  Plus it’s clean and has enough staff.  I also hit Trader Joe’s (for the vegetarian chili) and Whole Foods (more vegetarian stuff).   I’m not a vegetarian, but I’m married to one.

This week, my Jewel check-out lady said she didn’t want my card and I didn’t need to enter my home phone number into the little machine.  “We’re not doing that anymore,” was her only explanation.  Hmmm.  And today’s Chicago Tribune has a enormous ad that wraps around the front page.  It’s a teaser that basically says “Something new is on its way.  Be excited.”

I’m not excited, but I’m intrigued.  What’s up?  A Google search reveals this recent post by Tribune columnist and blogger Eric Zorn.   Zorn did the digging, and evidently, Jewel’s parent company Albertsons says it is doing some testing around its loyalty program.  A consultant Zorn contacted suggested that Albertsons might be keeping its options open in case it wants to sell the grocery chain.

Jewel has also dumped its promotion linking its rewards card to discounts on gasoline purchases (a feature that Dominick’s offers as well).  The website Coupons in the News notes that Cerebrus Capital, which purchased Albertsons in certain locations in 2006, had promptly discontinued that chain’s loyalty card shortly thereafter, touting the “same great deals” for all customers.  Not surprising the same strategy is followed after the Jewel purchase.

But how does this jibe with the societal trend to capture ever-increasing amounts of information about the public?  Today’s New York Times magazine has an awesome article about how the use of data, particularly from social media, was decisive in the 2012 presidential election.  Edward Snowden has revealed just how much personal information the United States government has access to.

A look back at a 2006 Harvard Business Review article, “Your Loyalty Program is Betraying You,” offers some insight.  The article outlines five reasons why a company might offer a loyalty program:

1. Discourage defections
2. Motivate customers to give more of their business to your company
3. Encourage additional purchases
4. Gather data about customer buying behavior
5. Turn a profit

On every count except #4, my Jewel-Osco My Rewards card is a bust.  Because I have a card at every local grocery store that offers one, there is no downside to shopping elsewhere.  Because there’s no financial reward for increasing my purchases,  there’s no incentive for me to do all my spending there.  Theoretically, they are incentivizing additional purchases by giving me coupons on products, but I rarely use them – usually because the purchase volume is so high compared to the discount.  (For example, Jewel wants me to buy 10 Lean Cuisine entrees, about $33.90 in purchases, to get $1 or $1.50 off.)   The card does provide them a complete picture of my buying behavior at their store, but I’m not sure they do anything meaningful with it.  I used to buy Ensure for my mother-in-law.  She died in 2009, but they’re still faithfully offering me Ensure coupons!  And when it comes to turning a profit, there’s no way to tell, but I imagine their profit margin is built in to the “discount” price. So, no big shock that Albertsons is considering another direction.

Here are two personal examples of loyalty programs that work better than My Rewards:

The Starbucks card not only makes buying a morning latte easy.  It feels free – since no money changes hands – and with the new smartphone apps, you don’t even need to carry the card around.  Starbucks recently moved from a reward system that gave you every 15th drink free to a more flexible rewards system.  This is good, because if you bought 14 drinks in a row, you’d probably pay for the fifteenth one.  I have two Starbucks on my way to work, and even thought I can buy Starbucks coffee in my company cafeteria, the cost to do so at a Starbucks store is exactly the same as if I’d bought it at work.  Plus I’m earning rewards.  Definite no-brainer.

My Chase credit card has also earned my loyalty.  I’ve got half a dozen credit cards, and I’d close the accounts if it wouldn’t mess up my credit.  Almost all our accounts are at Chase, so everything is linked online.  And Chase is easy to use, easy to understand, and you don’t have to have saved up a zillion points to cash them in for products, services, or even cash money.  I have over 47,000 points on my card right now, and I can go shopping on Amazon for anything I want.  100 points = $1.   Does my Capitol One card and my Bank of America card and my American Express card also have rewards programs?  Sure, but they’re not any better and I only want one card as my primary card.  

The bottom line is that creating a loyalty program for a commodity is probably a losing proposition, as incentives are very easy to match.  Notice how every credit card wants you to activate your card so that you can earn extra points at specific retailers?  Yeah, I only do that for my Chase card.  Discounts at a grocery store?  Ditto.  A true, hit-it-out-of-the-ballpark loyalty program would keep me from spending my money elsewhere while loving every minute of it.  I’m not aware of any programs that accomplish that goal.  If you know one, let me know!