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Dispensing strategies: Joined At The Chip

Joined At The Chip


March 31, 2008
By Michelle Brisebois

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How many loyalty programs do you belong to as a consumer? Quick, check your wallet.

How many loyalty programs do you belong to as a consumer? Quick, check your wallet.

If you’re like most people, you’ve forgotten just how many you actually do belong to. From Indigo’s I-Rewards to the ever popular Optimum program administered by Shoppers Drug Mart – most of us are tagged for life. As marketers we get excited about jumping on the loyalty bandwagon. Everybody’s doing it, shouldn’t we?

When it comes to loyalty programs we need to ask: “What’s the purpose?”

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At its most basic level, loyalty programs are a “you scratch my back, I’ll scratch yours” sort of arrangement. A customer, who shops with us frequently, typically spends more over time and can become a fabulous missionary for our businesses.

It’s typically believed that maintaining a current customer is more profitable and less work than acquiring a new one. Loyalty programs were initially the domain of small retailers and they simply required a small card to be punched or filled out at each purchase and redeemed when the requisite number of transactions had been processed.

The anonymous nature of vending didn’t mesh easily with the manual processing needed to administer a loyalty program and larger retailers didn’t have the infrastructure to manage the detail. The advent of technological solutions has completely changed how we look at loyalty.
Vending machines using smart cards may now leverage a loyalty program and larger retailers can manage the data more easily. The key word here is “data.”

Suddenly, loyalty programs weren’t only about giving Scooby snacks to the consumer – now, we got to peek inside of the consumer’s head.

Many strategists argue that the only value in implementing a loyalty program lies in its potential for harvesting consumer data. They are cumbersome to administer and it can in many cases be successfully argued that loyalty programs reward consumers for doing what they would have done anyway.

In a “worst-case” scenario, we may end up buying the business.

After the loyalty program rush of the mid ’90s, many businesses stood back and started questioning exactly what the cost versus benefit was to these programs.

Many marketing experts felt that these programs weren’t driving new business or even retaining current customers. Instead, they began focusing on those factors known to drive consumption: convenience, value, selection and service.

If a company chooses to implement a loyalty program as a means of collecting data on its customers it then begs the question “what are you going to do with it?” Privacy legislation will only allow segmentation and analysis at an aggregate level and the information can’t (or shouldn’t) be used to mail, e-mail or phone the consumer directly with targeted offers. If the data is going to reveal that women consume certain brands more frequently then men do, can that same information be obtained in a more direct and less costly manner?

Purchasing research data from companies such as AC Neilson or Ipsos Reid can often give companies the exact information needed without all of the hoopla. The Shoppers Drug Mart Optimum card is touted as a loyalty program success.

To obtain an Optimum card, a consumer provides their name, birth date, address, the ages of their children. In return, Shoppers gets a detailed account of all of a consumer’s spending habits.

Shoppers Drug Mart feels that the program does reward the consumer for repeated purchases while providing them with marketing data that allows them to target specific messages to certain groups.

A CBC Marketplace report in October 2004 found that loyalty programs don’t actually save the consumer money. They purchased the exact same five items at several different stores and ended up paying almost eight dollars more at a retailer with a club card than at a big box store without a club card. The note at the bottom of the receipt proudly announced a $2 savings from using the card. CBC’s conclusion was that consumers are paying extra for companies to spy on their shopping habits.

One woman interviewed by CBC questioned why she’d received a coupon for hair colour – especially for brunettes, which she happened to be. Had her purchases of hair colouring for brunettes been noted and used to target an offer? Perhaps.

Those consumers more inclined towards conspiracy theories are concerned that purchase patterns can be misconstrued and used against them. If I use my Air Miles card at the liquor store for my cousin’s stag and doe, will my insurance company use my sinful habits as an excuse to jack up my rates?

Don’t laugh.

This same CBC report revealed that in Arizona, a grocery store turned over records of some of its shoppers purchasing plastic sandwich bags. The Drug Enforcement Agency in the U.S. subpoenaed those records to see if some particular people had bought a large quantity of plastic sandwich bags. The presumption was that anyone purchasing a significant quantity of plastic sandwich bags must be selling drugs.

The big question around loyalty programs is “who is being loyal to whom?”

Now that technology allows the vending industry to offer a loyalty program, it’s with significant thought and planning that we should start down that path. Do your research. What do you want to accomplish? What’s the cost in dollars?

If you’re collecting data – what are you going to do with it?

In the final analysis, we’d do well to remember that in business as in all relationships, loyalty is generally earned not bought.o


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