Are Store Loyalty Programs Really Worth It?

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Store Loyalty Programs

Source: web

Everyone loves obtaining rewards, especially for activities they have to perform in any case. Retail stores use this behavior to increase customer loyalty. This becomes important because every locality that retail stores cater to is now targeted by more than one department store, grocery, drug store, and other retail outlets. While this offers customers plenty of choice, the retail outlets would like to maximize their profits by ensuring that you do most of your shopping with them. This has become important as studies reveal that the average American shops at five different grocery stores – one for produce, one for meat, and another for dry pasta and cereal, and so on.

What do Loyalty Programs Offer Customers?

Most store loyalty programs offer customers extra discounts on some products. They might also offer points based on the amount spent. The store then offers to redeem these points at a future date by offering additional discounts, flying miles, or even cash back on future purchases. Many stores also alert customers to special offers and mail them targeted discount coupons based on past purchases. Ultimately, customers are lured by the promise of savings when they enroll in a store loyalty program.

How do Stores Benefit?

Stores benefit in multiple ways when they offer loyalty cards. First, customers are more likely to become repeat shoppers as they are assured of some discounts and can accumulate points toward a future reward.

Stores can also track purchase behavior because the loyalty cards allow them to capture and electronically store a lot of information about the customer. The store has the customer’s name, age, address, as well as a list of products they purchased and can also track frequency of visits. This information is used by the store to customize the marketing material targeted at the customer. For instance, if a customer purchases baby food but not diapers, the store will offer additional discounts on baby food to try and make the customer purchase these products also from them. Additionally, many stores retain the right to sell all of the personal data collected by them to third-party users. This too nets the store additional income.

Disadvantages

While customers are lured by the rewards and discounts offered by store loyalty cards, there are some disadvantages as well. As stores can sell the data collected or store them in not so secure servers, customers run a risk of loss of privacy. The value of this privacy depends on the type of information the store obtains. Most people will not be very bothered about information such as their favorite brand of toothpaste being analyzed. However, drug stores record information about the medication you purchase, the type of birth control you use, and so on.

Apart from the lack of privacy, a few randomized studies have found that stores offering loyalty cards price their non-discount items higher than those without loyalty cards. In other words, the discount offered by the loyalty card will reduce the price of the product you buy to the same level as the non-discounted price in a store without a loyalty card. The studies have found that on average this excess pricing costs the customer an additional 50 percent on their bill. Since even with a loyalty card, most of the items in the store are not discounted, the total expense can be quite high even for customers with a loyalty card.

Other studies have also found that customers using store loyalty cards tend to spend more than those without them. This means that customers are purchasing products that they would not otherwise purchase. This could be to take advantage of offers, to accumulate reward points, or because of the perceived savings they have obtained by using the card.

Advantages

While store loyalty cards have many disadvantages, they can be used to the advantage of the customer if they are willing to make the additional effort.

Customers should only sign up for loyalty cards in stores they already visit on a regular basis. Additionally, customers should never pay for obtaining a loyalty card as this can negate the savings. By using a loyalty card in a store you frequent, you can take advantage of the discounts offered without succumbing to the pressure to make additional purchases.

Moreover, customers should compare prices at the various stores in their neighborhood at regular intervals to ensure that they are paying the lowest possible price for products they consume regularly. For instance, a customer who regularly buys a particular brand of breakfast cereal and milk should compare the prices of these products across the stores and opt to make the purchases in the store that offers them at the lowest price. Even an additional one percent discount on regular purchases can build to a greater savings than a four percent discount on something a customer purchases once a year.

Shopping Strategies

You can do this via word of mouth and listening to what your friends say or when you are in one store write down the cost of the price of milk, a bottle of honey, and the price of cherries, for instance. When you are in another store a few days later, bring that piece of paper with you or that file on your smart phone where you saved this information and make the comparison. If you do this every once in a while, you will realize which store consistently wins on prices. But this should not be the sole determining factor. You may not want to shop in a poor neighborhood and the Super Wal-Mart may have the lowest prices but you may not like some of the people it attracts.

Privacy Control

Customers should also be wary of the real loss of privacy possible when using loyalty cards. One way of overcoming this challenge is to make any purchase you would not like recorded using cash and without the loyalty card. A customer could make their regular purchases of groceries and personal care products using the loyalty card and opt to pay for medicine using cash to control their privacy.

Prudent Solutions

The intense completion in the retail space means that store loyalty cards are likely to be offered in increasingly more places. However, a customer who wants to increase their savings while protecting their privacy can do so by comparing prices periodically and using cash to pay for certain purchases. While stores are willing to reward shoppers who spend more, customers should only make use of offers that truly benefit them. This means that customers should select what they choose to buy based on their needs and use the loyalty card only to obtain discounts and rewards.

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About Author

Benjamin is from Sacramento, CA. He has 2 master’s degrees and served 4 years in the U.S. Navy. He has worked at Wells Fargo Financial and has been investing in equities since 1995. He is a constant reader of finance articles and books related to business.


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