The loyalty card is the single most effective way of influencing and evaluating today's consumer behaviour - of getting to know the customer as personally as possible. Those retailers that limit its application to a pricing instrument alone are missing a trick. It can be used in far more sophisticated ways to increase consumer loyalty, thereby ensuring a much higher return on investment.
Elsevier Food International, Vol. 4, Number 2, May 2001
Vincent Hentzepeter 

When it comes to loyalty programmes, supermarket retailers employ many different strategies. A common denominator, though, is that most have added loyalty card systems to their range of conventional marketing tools. Thanks to the speed of progress in the area of information and communication technology, the marketing potential of cards grows by the day. When used in connection with data warehousing, loyalty cards enable the gathering, analysis and application of detailed customer information. With just one press of a computer button, evaluation of complex consumer behavioural patterns is within reach. Within this context, cards are of increasing value when it comes to the process of strategic decision making.
However, in many cases a loyalty card is nothing more than a plastic alternative to conventional paper-based vouchers and coupons - gimmicks that have long been a part of frequent shopper or loyalty programmes. But even here, a more sophisticated approach to,say, rebating can add value for both the consumer and the retailer.

Card strategies
There are several ways to reward consumers for their loyalty. At the moment, three card strategies dominate the global food retail arena. Gary Hawkins of DataWorks Marketing mentions the price model, the points model and the point and partners model. The price model - meaning price reductions/special offers for card holders only - is very common throughout the US. It provides a strong incentive for customers to use their cards each time they shop. Consequently it provides the retailer with a great deal of customer data. Moreover, it allows the retailer to truly measure the cost of its markdowns or price reductions. "Indeed, many retailers are now capturing over 85 per cent of all turnover through such programmes," says Hawkins. "This model is very cost effective for retailers. They were already incurring the cost of their price reductions. Now they simply require the loyalty cards to see exactly what those costs are." Points-based loyalty programmes are very common throughout Europe and Asia. Customers earn points based upon their spending and typically earn a rebate of some sort. An example of this is Tesco's programme -customers receive a £2.50 savings voucher for every £250 pounds they accumulate in spending. So they get one point for each pound. In Germany, customers at Caleria/Kaufhof-outlets can take part in the Payback point saving card system, where one hundred points equal one Euro. At 1,500 points or more, customers can spend the equivalent money they've saved on daily shopping either in the stores or in sister organisations, such as at petrol stations and travel agencies. Regular updates as to their point savings are sent directly to the card holder, or can be obtained through the Internet. According to Hawkins, points programmes are very costly for retailers. "You're essentially speaking about a one per cent rebate. Thus the retailer must generate a substantial increase in total turnover or gross margin, simply to offset the cost of their programme."
Points and partners programmes involve a number of non-competing retail 'merchants working under one loyalty programme. Customers can earn points based on their purchasing at every member retailer, and these points can be redeemed for gifts, savings vouchers, air miles and so on. A typical example is the SuperQuinn's SuperClub programme in Ireland.
Another growing trend in the field of customer loyalty is for electronic stored value/gift cards.
These replace paper-based gift certificate programmes and avoid the refunding of cash on the unused gift certificate balance. At the moment it is mainly used in the non-supermarket sector in the US, but with food retailers increasingly operating in the non-food area, it may contribute to the total loyalty programme. According to card vendor ValueLink, 29 of the US top 100 retailers offer an electronic-gift-card programme of some kind. Last summer, the company predicted an explosive rise in the use of this typical card solution. Other card vendors also make similar forecasts - between 60 and 70 per cent industry acceptance within the next five or six years, according to Standard Register and the Los Angeles-based Paypoint Electronic Payment Systems. That growth is fuelled by two major benefits of plastic. Most plastic cards keep the money on the card and do not refund cash to the customer. In other words, the money remains within the store. Secondly, plastic cards are less susceptible to abuse on both sides of the counter, either by cheating employees or by colour-copying customers. According to Value Link the philosophy is working. Retailers that implemented the ValueLink gift card programme in the last quarter of 1999 recorded 15 to 46 per cent growth in volume over paper gift certificates for the same period in 1998.

Customers who make regular use of their loyalty cards, should at least see the benefits reflected in their final shopping bill. For the retailer however, a vital part of the process - and one that thus far seems to have been neglected - is the importance of actually analysing the data that such cards provide. Experts say that this aspect of the loyalty programme initiative still has tremendous potential for growth.

Financial services
Combining payment and banking facilities with loyalty cards may be a new phenomenon, but it is part of a growing trend for extending financial services to the supermarket floor. From this perspective, exploiting the financial world is a logical next step for food retailers. The question, however, is whether or not it's a smart one. After all, several retailers have reported a dramatic raise in sales upon launching conventional loyalty card programmes without needing to offer additional financial services. On the other hand, if a loyalty/debit card can offer additional added value to the customer and transactions can be made on a cost effective basis, why shouldn't they give it a try? With multi-channelling on the rise, supermarkets that offer financial services within their existing environments may attract extra customers. This is the reasoning behind Royal Ahold introduction of an easy-to-use customer savings account for its Netherlands based Albert Heijn stores. Over 3.7 million of the chain's customers can open a savings account to cover several transactions. These include depositing the discounts they've earned with the bonus card loyalty programme. To further stimulate customer participation, shoppers can also put money earned via bottle return, upwardly rounded off shopping bills and direct money transfer straight into the Albert Heijn account. In fact, the savings option is a modern alternative to the highly popular customer savings stamps. Albert Heijn has developed this new service in conjunction with insurance company Aegon. The food retailer says that market research indicates a strong customer preference for in-store services that complement the one-stop shopping experience.

Biometric challenge
Now that most food retailers have implemented a loyalty card programme, uniqueness is a thing of the past. All stores offer more or less similar benefits to the consumer, so where is the added value for the customer? At this moment nine out of ten retailers use loyalty cards primarily as a marketing instrument. Once the loyalty programme has been put in place, nothing is done to interpret the complex data that's gathered. Using a loyalty card as a tool for evaluating customer profile and for business management is still in its infancy. In this area, there's still a tremendous potential for communicating on a one-to-one basis with the customer, and several food retailers are already making strides in this direction. According to Gary Hawkins, there are some retailers that have made the gathering, understanding and use of customer data central to the way in which they operate."As such, they launch their programmes very strongly and continue to provide value to their customers. We are already seeing the technologies and systems being put in place to enable retailers to communicate cost effectively with their individual customers. I know of at least one retailer experimenting with biometric identification. Rather than the customer using a loyalty card, they scan their finger or thumb at the point of sale."
Now that really is getting personal.