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Loyalty program
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Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour — behaviour which is potentially of benefit to the firm.
In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, advantage 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.
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Encyclopedia
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behaviour — behaviour which is potentially of benefit to the firm.
In marketing generally and in retailing more specifically, a loyalty card, rewards card, points card, advantage 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 (also known as keytags) 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 discount 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 demographic 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. These cards can be used to determine, for example, a given customer's favorite brand of beer, or whether she is a vegetarian.
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 card).
By continent and country
North America
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 (each through both their own name and many of their regional chain names), Albertsons, Winn-Dixie, Harris Teeter, Ingles, Giant Eagle, Tops, and CVS/pharmacy. Cards from other, even competing chains will generally work at other stores to receive the advertised loyalty price, because only a few companies make the cards, but stores generally will not allow this since it will not allow a customer to be tracked, though a customer can make it work if they use a self-checkout. Even though this will work to receive the advertised loyalty price, any points and/or future discounts someone may be trying to earn from using the card at another store will not be added since a different chain would use a tracking system with a database independent of the other chain. 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 customers can enter their phone number to bring their card up if they forget it, or have another customer's phone number entered) 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 charity. Most notably, Wal-Mart does not have a loyalty card plan (though someone who purchases a gift card can generally get 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.
Independent hardware stores such as Ace Hardware and True Value added customer loyalty programs in order to compete more effectively against larger chains as well as gather customer data. 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's 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.
For now, most American retailers have not implemented club cards. In a few cases (e.g., Federated Department Stores, Kohl's) 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. An example of a so-called consumer-centric card (without cost, registration, or information-tracking) is the MyJoeCard operating in Kansas City.
Max & Erma's has a loyalty program called Good Neighbor Rewards. Guests are rewarded based on their number of visits by either 5%, 10%, or 15%. Additionally, guests are periodically given additional rewards by way of free items added to their loyalty card electronically.
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 its 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, ClubShop and Ebates. Some online loyalty programs focus on "other-directed" consumers, these include uPromise, Schoolpop, The BSP Rewards Network and iGive.com.
Canada
The oldest loyalty program in Canada is probably Canadian Tire money, in which the Canadian Tire company gives out coupons which look like currency. 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 and CIBC offers an Aeroplan program to customers who are enrolled in certain credit card programs or accounts. Another large Canadian loyalty program that has been around for a long time is the HBC Rewards/Club Z program first started by Zellers. Loblaws offers the President's Choice Financial program where users of the service get PC Points towards free groceries. Some retailers run their own rewards programs, such as Shoppers Drug Mart's Shoppers Optimum Card and Staples Business Depot's 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, Save-On-More at some Chevron stations in BC, 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. Sunoco's CAA reward offering ends at the end of 2007, to be replaced with Sunoco's own Performance Points reward program.
Many hotel chains also offer some sort of loyalty program. Canada is also home to Air Canada's Aeroplan.
Oceania
Australia
The largest loyalty program in Australia is FlyBuys, established in 1994 and backed by Wesfarmers (formerly Coles Group) and National Australia Bank. About 2.7 million Australian households are active members of FlyBuys using about six million cards. Rival retailer Woolworths launched its Everyday Rewards fuel discount card nationally in 2008 and by July 2008 had three million cardholders.
Among other Australian retailers, the largest programs are Myer's 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, HMV, 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.
Europe
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.
After trials in 1994, Tesco launched its Clubcard program, the UK's first nationwide supermarket-only loyalty card scheme, in 1995 with dunnhumby. 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.
The patronage dividend rewarded the loyalty of the owner members of Britain's retail consumer co-operatives since the Rochdale Pioneers of the 1840s. Paper record-keeping transformed in the 1960s into a trading stamp scheme managed by the Co-operative Wholesale Society (CWS), which was gradually withdrawn as margins declined. The loyalty card concept was used by some co-operatives to restore dividend payments at the turn of the 21st century, notably by the CWS's "Dividend" card, which was replaced by The Co-operative Membership card program, adopted by several larger co-operatives.
Safeway's ABC Card was discontinued 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. GAME has a reward card scheme for which every pound spent a customer is rewarded 10 points; for every 1000 points that one collects, one gets £2.50 to redeem in the store, or online. Preorders earn a customer 20 points per pound.
Ipoints is a coalition program featuring online retail partners. Rewards are redeemable from 200 ipoints.
UK Websaver is a loyalty card designed to encourage communities to use local businesses.
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 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.
Germany
The largest loyalty program in Germany is Payback, which was launched in 2000. According to a study in August 2007 by GfK, 61% of German households have a Payback card. It listed the program as having a 42% share, with the Shell ClubSmart program as third most popular with 13%.
Switzerland
Loyalty programs are popular in Switzerland, with the two main supermarket chains, Migros and Coop, leading the field with their offerings. The Migros card can be used at the Migros supermarkets, Ex Libris (books, DVD's), SportXX, and more. The Coop Supercard earns points on purchases at Coop and a variety of other associated stores.
Other stores such as Interio, a furniture retailer, are also joining the market with loyalty cards and store-based incentivised credit cards.
In recent years, online loyalty programs have also started to target the Swiss. First to make an offering in Switzerland was German-based Webmiles. Claiming to be Switzerland's first online bonus program, Bonuspoints was launched in early 2008 and offers incentives for shopping at 70 different online stores.
Hungary
Two coalition loyalty programs loyalty programs in Hungary are SuperShop and Multipont. SuperShop was established in April 2000 and is backed by premium partners Kaiser's Supermarket, K&H Bank, OBI, OMV, Photo hall and PLUS Supermarket.
Asia
Malaysia
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. Another card is Real Rewards where holders who spend at their merchants get to exchange points for free gifts.
Genting Highlands Resort has its own loyalty card, WorldCard (same as mentioned below) that is primarily used to gain points in Genting Highlands' Resorts and Attractions. However, it can also be used for Starbucks, Coffee Bean and Häagen-Dazs and it is valid in three countries, namely Malaysia (where Genting Group is based), Singapore and Hong Kong. Jusco also has its own loyalty card, known as J Card.
In early 2008, ValueClub Marketing and Services Sdn. Bhd. launched it V-Kad at North Malaysia especially in Penang state. V-Kad has actively joint by various industries such as F&B, fashion, saloon and optics. It provides V-Kad members to collect V-Points to redeem gift and exchange services with the participating merchants.
Singapore
The three largest loyalty programs are LinkPoints, WorldCard (aggregate program of Genting Resorts, Suntec City Mall, Star Cruises & Indigoz)and SAFRA Card. The LinkPoints Programme has more than 1 million members and over 600 participating merchant outlets.
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 Indonesia.
Other notable programs in Asia include KrisFlyer, the Singapore Airlines rewards program, and Asia Miles, which was part of Cathay Pacific.
India
i-mint is India's largest coalition loyalty program, with approximately 5 million members. BPCL's PetroBonus 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. The Maruti Suzuki AutoCard, launched in association with Citibank and Indian Oil had 370,000 cardholders as at October 2008.
Republic of China
Shanghai
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 SAR
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.
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.
The largest online rewards program is EmailCash.
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.
Criticism
Companies complain that these loyalty program discount goods to people that are buying their goods anyway, and that 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, a means of subsidising frequent-spenders. Commercial use of the personal data collected as part of the programmes has the potential for abuse. It is highly likely that consumer purchases are tracked and analyzed towards more efficient marketing and advertising (in fact, this can be one of the purposes of the loyalty card.) To some, participating in a loyalty program (even with a fake or anonymous card) funds activities that violate privacy. There has also been concern expressed regarding RFID technology being introduced to loyalty cards.
Loyalty and credit card reward plans might be viewed as modern day examples of a kickback. An employee who needs to buy something (such as a hotel room or an airline flight) for a business trip but who has discretion to decide which airline or hotel chain to use has a powerful incentive to choose the payment method that provides the most credit card rewards or loyalty points instead of minimizing cost for the organization.
See also
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