Loyalty programs are everywhere. But do they work?
To pay for lunch, Robert Harper places his tan-coloured CIBC Aerogold Visa card alongside the bill on the restaurant's black tray.
Like many aficionados of the Aerogold Visa, he uses the card for groceries, drugstore bills, fitness-club fees and, when he travels, health insurance. In 1996, he used the airline points earned with the card to fly to Hong Kong. Now, he’s accumulated another 120,000 points —enough to visit Australia.
“Anything that can be charged with a Visa card,” he says of himself and his wife, “we use it.” Harper, a 70-year-old Toronto-based public relations consultant, is one of more than 500,000 Canadians with CIBC’s Aerogold Visa card in their wallets—making it No. 1 among premium credit cards (gold, platinum et al) in the country, according to its vendor,
Canadian Imperial Bank of Commerce. Ernie Johannson, who is in charge of marketing for the bank’s credit card division, says Aerogold cardholders charge twice as much to their Visas as the average consumer puts on a regular credit card. “We call them ‘point maximizers,’" she says.
Like CIBC’s Aerogold card, loyalty programs are everywhere. Gas stations, drugstores, mutual fund companies, department stores, coffee shops, even liquor stores (in Ontario and Manitoba) either have a points-type system or participate in one, such as Air Miles. Companies launch loyalty programs for the obvious reason of keeping customers coming back, and for the controversial objective of collecting information about what customers buy and how much they spend. Retail research consultant Rod Skinkle says there’s a third motive: many retailers have loyalty programs simply because the competition does. “In retail, there’s a real lemming mentality,” he says. Yet both consumers and experts question whether the points come-ons really do create loyalty—or value.
As the programs proliferate, they have become increasingly complex—much more intricate and detailed than the granddaddy of them all, Canadian Tire money. Take Club Z at Zellers. Since 1986, as members spent money at Zellers, they racked up points, which in turn could be used to “buy” items offered in a special Club Z catalogue. Now, not only are the items in the catalogue way beyond what is available in the stores—for example, a Volkswagen Beetle, going for 32 million points, or a Yamaha digital baby grand piano, at 14 million points—Zellers has hooked up with others, such as banks and florists, to expand the ways consumers can add to their tally. It now offers a Club Z Visa card and a Club Z mortgage through CIBC, and Club Z Long Distance through a small telephone company.
Such alliances offer customers “the edge” and keep them coming back, says senior marketing manager Curtis Khan. They also put money back into the company’s coffers. As customers pay for the phone service, for instance, a small portion of the fee (“less than 10 per cent”) goes to Zellers’ parent, Hudson’s Bay Co., and covers ad costs, Khan says.
But some consumers are put off by loyalty programs. Dan Watson, a 37-year-old Montreal scientist, takes a dim view of the Petro-Canada reward program. “I think it’s an insult,” he says, noting how he gets a reward point for every 10 cents of gasoline purchased. Recently, he says, PetroCanada offered a special. By redeeming 45,000 points, he would have been eligible for $20 in free gas.
“That’s not loyalty,” says Watson. “Give me $4,500 worth of business and I’ll throw you a bone.” Watson fears the main objective for retailers is to gather information about customers, and “I don’t think we’re getting adequately reimbursed.”
Ross Griffin, 40, who lives on a 40-foot 1969 Chris Craft in the Richmond Marina, south of Vancouver, also has contempt for some loyalty cards. An electrician and self-professed “value hunter,” Griffin sips coffee (“Look, this was on sale with my Safeway card,” he points out) on the deck of his boat. He has an Air Miles card he no longer uses (too few points), the Safeway card, a Save-On grocery card and a Blockbuster card that tracks his eligibility for free movie rentals. “I hate those cards they make you carry,” Griffin says. “It’s just a big hassle. It takes a huge amount of time—and think about the poor cashiers.”
Frequent user Harper has some advice for the loyalty program detractors: pick one and stick with it. “I don’t want another card,” he says. Is he worried about the data about him being collected every time he uses his CIBC Visa? Not at all. “You give me $2,500 and I’ll tell you everything,” says Harper. “They can send me junk mail. I just don’t open it.”
One of the latest entries to the marketplace, a program called Equity Retirement Rewards, adds a new twist to the loyalty game. It deposits money into a retirement fund. Buy from participating vendors, such as moving services from Atlas Van Lines, and a portion of the cost—1.6 per cent from Atlas—will be deposited in a trust fund. Each time the fund reaches $100, the money goes into an RRSP or a similar account. Terry Zuk, whose former job as marketing boss for the Toronto Blue Jays was to attract fans to the SkyDome, is CEO of Equity. Consumers today have come to expect a loyalty program, he says. For businesses, “it’s almost the price of admission.”
As more and more programs emerge, the burning question is, do they work? Skinkle, whose firm conducted an extensive survey on what drives customer loyalty, says people don’t go looking for points programs. Only four per cent of Canadians say rewards are essential to hold their allegiance, his survey found. Points can attract customers and may create repeat business, he says, but “it’s a misnomer to call them loyalty programs.” Companies tend to be cagey about the true purpose of their programs, with most saying they provide “added value” to their customers. Skinkle says data mining—compiling information about a customer’s profile and spending habits—is important for many retailers, who use the results to sell more to that client. “It’s not necessarily an evil thing,” he says, but he concedes there is widespread public cynicism about it.
Certainly the programs are expensive to maintain— although companies refuse to say how costly they are. Much of the expense is in sophisticated data-management systems and staff. Another big outlay is advertising and promotion, Skinkle says. Robert Kerton, spokesman for the Consumers’ Association of Canada, says the programs obviously work for the vendor, or they would not exist. But do they work for the consumer? Not really, argues Kerton, as they limit the options a consumer has. He calls loyalty programs “psychological commitment devices.” At best, he believes, consumers break even: if they receive a reward they wanted in the first place, they’ve done OK, but they lose if they end up with something they wouldn’t otherwise have chosen. Ultimately, Kerton fears, the cost of the program is passed on to the customer, although companies insist the programs pay for themselves. Break even or better, consumers know there’s a price tag on their loyalty.
With Brenda Branswell in Montreal and Ruth Atherley in Vancouver
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