What’s the Deal with Loyalty Cards?

It’s becoming increasingly difficult to shop anywhere without the store minions attempting to get you to sign up for the store’s customer loyalty card.  These are the cards that you are supposed to present at the checkout counter in order to receive a discount or points towards rewards to be redeemed at a later time.

Why don’t merchants try to engender our loyalty through offering good products, good prices and good service?  Will people buy shoddier goods at higher list prices and receive poor service if they think they are getting a better deal by being a member of the inner circle?  I don’t know.  Everyone likes to get a good deal on what they are buying, of course.  But why not offer everyone your best and fairest prices instead of causing them to fill their wallets with an ever growing number of merchant cards?

Merchants are doing it for several reasons.  One – they do believe that this is a way to tie customers to their store and to have them avoid the competition.  However, if the Rite-Aid and Walgreen’s both offer loyalty cards, why not get both?  They’re only a block apart, so shop where you want.  Then they try to tighten the noose by making you accumulate points through purchases in order to qualify for the higher discounts.

Two – they get lots of valuable data.  When a customer signs up for a card a file is established.  Depending on the store, you may provide them with just your name and phone number, or you might give them your address, age and other information as well.  These days, even if you only provide a name and phone number, it is easy and inexpensive for them to obtain the other info if they wish.  Now every purchase made is tracked and entered into the database.  Patterns are analyzed – for individuals and groups.  Most of this does help the merchants to make decisions about what to stock, what sells at what price, and other general marketing issues.  It also provides the merchant with a rich base of information on each customer that regularly uses the card.  For those who have concerns about corporate big brother, this is something to worry about.  For others, who like to receive notices and offers seemingly tailored to their needs and tastes, it is a good thing.

Three – they do it because everyone else seems to be doing it and customers have come to expect it.  If merchant A is offering an item that sells for $10, but is “only” $9 with the loyalty card, and merchant B sells the same item for $9 but offers no card, there are many, many people out there who will routinely patronize A because of the perceived discount.  So, merchant B raises the listed price, offers a card and sells the item for $9.  So now the item is being sold for $9 in both stores, but both merchants now have the additional expense of purchasing the card system and software and then maintaining it over time.

Through all of this, no one is saving any more money than could have been achieved otherwise.  In fact, since the cost of the card system and its attendant support have been introduced into the mix, the likelihood is that the prices paid by the consumer will eventually rise to cover that cost.

If one wishes to look further at the deleterious effects of loyalty card behaviors, it’s not difficult to do.  People driven by the perceived benefit of discounts through card usage will drive past the closer store to get to the card offering store, thereby using more fuel for the shopping trip.  It gets worse when, as is common in grocery stores, the card only provides “discounts” on certain items.  In those cases you will find customers driving to one store for items 1, 3, 5, and 7 and then going to a second or even third store for items 2, 4, 6, and 8.  The result being wasted fuel and time.

The end result is a case of changed perceptions, changed expectations, and changed behaviors – all with no change in product quality and no real change, at least in a positive way, in the product cost to the consumer.

The solution?  Get rid of the cards.  Compete on price, quality and service.  Yes, I know – not going to happen.  Probably not.  Certainly not until enough people realize what’s happening and stop signing up for the damn cards.  If customers refuse the cards, the merchants can figure out that people don’t want them.  If enough people refuse them, the cost of the system is being justified by a smaller and smaller percentage of the customer base, another sign to the merchant that the expense may not be worth it.

Maybe we can do away with the cards and go to a system of making our purchasing decisions based on buying the right product at the right price at the right time, from someone who is knowledgeable about the product.  Wishful thinking, I know.  Oh well.