I've been venturing out into the malls over the last few weeks to finish my Christmas shopping, and I've noticed a trend – more and more stores are pushing their loyalty programs onto consumers. To me, I feel like this is a bigger push than ever before. From signing and marketing throughout the stores, to special perks, to the hard sell at checkout, I haven't been able to venture anywhere without being pushed towards a store loyalty program.
So the real question is: do these programs make you more loyal?
Interesting Store Loyalty Programs
I've been intrigued by the wide variety of store loyalty programs out there. I feel like everyone can relate to the basics ones: grocery clubs. Grocery stores have been pushing these for a long time, usually by entering your phone number at checkout. In exchange, they offer special sales that are only available to loyalty card holders, but they make it so easy to sign up and save. Plus, there are no costs associated with it.
Then there are programs like the CVS ExtraCare Rewards program, which offers you 2% back on regular shopping and 1% back on prescriptions. This is a straightforward incentive, almost like credit card rewards, where you can earn cash back for shopping. Granted, the cash is only usable at CVS, but if you're shopping there, it can be worth it.
Finally, there are even credit card and debit card programs offered by retailers like Target and Nordstrom. Target keeps it simple – use your RedCard, save 5% off on your transaction, every time. They also offer other perks, like extended return policies for RedCard holders and free shipping from their website for online shoppers. Nordstrom has a little more complicated program, but it caters to their customers – free alterations, free shipping, and even free preview days to their semi-annual sales.
What The Research Shows
Retailers are offering these programs for a reason – they're not in business to give freebies out. They're in business for profit. That means there is big profit behind these programs.
There has been a lot of research done on loyalty programs. For reference, check out Psychology Today's The Psychology of Loyalty Programs.
The bottom line is that people who join loyalty programs do end up being more loyal IF the loyalty program is setup well. This means using psychological triggers to drive results. For example:
- People are attracted to “status” perks – early boarding, freebies, special line queue, early previews
- People have an attraction to large numbers of points, regardless of the meaning (i.e. 1,000 points could be the same as 100 points in different loyalty programs, but the 1,000 points is preferable)
- It Must be easy to use and redeem
So, if you setup an easy program that has some status perks, what type of loyalty can a company expect to see? Well, this is actually pretty impressive.
Store loyalty programs, on average, increase customer traffic by 6 times! That means, for the regular shopper, instead of visiting a store just 2 times per year, they now visit 12 times per year. That is a huge boost to sales for any retailer! Plus, individual programs, like free shipping offers, can drive even more incremental sales for retailers.
Other Incentives for Retailers
Beyond the boost in customer traffic, there are a lot of other factors that retailers love about their loyalty programs.
The first side-benefit of store loyalty programs is the goldmine of information that retailers now have about their customers. Now, beyond the basics of demographics, stores can link together purchase trends and know what customers are buying. Remember the story from earlier this year about Target predicting a girl was pregnant? That was done by analytics related to their loyalty program. Target was able to look at the girl's shopping pattern and then send her mailings about her “baby”, because it knew statistically that her shopping pattern was related to expectant moms, a trend gathered from loyalty program data.
Another big factor is expenses. For programs like Target and Nordstrom, by utilizing their own branded credit and debit cards, these retailers are able to save expenses on Swipe Fees, or the interchange fees they pay on each purchase for credit card processing. Since they are the company processing the transaction, they can cut out the middleman on their purchases, saving them about 1% on each purchase by having customers use their own branded credit and debit cards.
Are You Buying Into It?
The real question is: are you buying into these store's loyalty programs? Research shows that, in general, people are, and this is big business for retail stores.
I know that I avoid most of them, but easy ones like the grocery stores ones are inevitable. I've signed up, because I want to save, and it is so easy to do so. I've also got the Target RedCard, because it's so easy to save 5% every time. Why not? I shop there anyway.
Do you use store loyalty programs? What are your thoughts on the stats about them?