Do loyalty cards pay for consumers?

By UK CreditCards.com

Are loyalty cards worth it?The 15th anniversary of the Tesco Clubcard offers an ideal opportunity to assess the impact of loyalty cards in the UK. As the first loyalty card to be introduced by a British supermarket, the Clubcard had a significant impact on the grocery industry. Figures cited by the BBC show that by rewarding loyal customers with points which could be exchanged for discounts, Tesco was able to increase its Clubcard holders' expenditure at their own stores by 28% and reduce spending at rival Sainsbury's by 16%. However, after 15 years are consumers still seeing the benefit of remaining loyal to certain stores? Or are the real winners the companies that run the loyalty schemes?

What are the benefits of loyalty cards to consumers?
The most obvious advantage of loyalty cards to consumers is price discounts. With the Clubcard, cardholders get two points for every £1 spent in-store or online, with 100 points earning a £1 voucher. Special offers are also available, whereby the number of points available is increased on certain products. Meanwhile, the Nectar loyalty card, which can be used at Sainsbury's, also allows users to earn two points for every £1 spent, with 500 points guaranteeing customers a £2.50 discount. In an interview with the BBC, Edwina Dunn, chief executive of Dunnhumby, the company that operates the Clubcard, said customers "love the offers they get."

What do supermarkets get in return?
That said, Ms Dunn went on to admit that the flip-side of loyalty cards is that they aim to prompt customers into buying more than they originally intended. This is particularly worrying at a time when consumer finances are under intense pressure as a result of the economic downturn. With this in mind, critics of loyalty cards, including Asda, which has not jumped on the bandwagon, say the money set aside to run the schemes would be better used to cut prices.

Are loyalty cards worth the hassle?
A review of consumers conducted by pigsback.com and Reward in 2008 found that, in the context of recession, the value of loyalty card schemes was being brought into question by shoppers. Specifically, 56% said they were concerned about the time it took to earn a meaningful discount, while 25% said the rewards offered by some schemes were not worth saving up for. That said, the fact that research from TMS found 85% of households in the UK have one or more loyalty card suggests most consumers are happy to continue to pursue the discounts available to them, and that the products are here to stay.

 

Published: 22 February 2010