How loyalty cards are used to gather market research data

According to The Economist you have spies in your wallet if you make use of one of the many ‘loyalty’ cards that are promoted by retailers.

According to the article, although they are often called “loyalty” cards, these rewards cards are not about winning the loyalty of customers. “The real value-added is the data,” explains the firm which runs Britain’s Nectar card scheme. By cleverly using the information collected when customers’ cards are swiped at checkouts, the companies can offer them well-targeted discounts. Even small shifts in buying habits, multiplied by very large numbers of customers, can provide a welcome boost to profits.

Nectar is Britain’s biggest loyalty programme, with 18m subscribers. Set up in 2002, it has hundreds of member companies, ranging from Sainsbury’s to Expedia (an online travel portal). You can spend your “Nectar points” on everything from food and drink to gadgets and cinema tickets. Tesco and Boots have each set up their own loyalty schemes. Tesco’s Clubcard, launched in 1995, now has 15m members.

At first the expense of setting up and running rewards programmes meant they were affordable only for the largest retailers, or groups of retailers. But as IT costs have fallen, such schemes have multiplied, while becoming an ever more central part of retail firms’ marketing strategies, according to one consultancy.

The success of Clubcard and Nectar in Britain seems to have persuaded several companies to rethink their opposition. Waitrose used to say that loyalty schemes were expensive and intrusive. But it has just started sending out its new “myWaitrose” card to shoppers on its mailing list (while claiming that it is “not another loyalty scheme”). Asda is still resisting however. The firm experimented with reward cards but since being bought by Walmart in 1999 it has stuck to its American owner’s belief that a focus on low prices across the board makes it unnecessary to lure shoppers with discounts. Taking a stab at its big rival, Asda proclaims: “No Clubcard. No gimmicks. Just lower prices every day”.

(In an interesting twist, The Economist also cites some undercover research by a group of students at the London School of Economics. Although Tesco keeps secret how it uses its clubcard, the students carried out a class project in which they made several applications for Tesco car insurance. When they gave the number of an unused Clubcard it earned a 1% discount. When they gave the same personal details but quoted the numbers of heavily used Clubcards, the discounts varied greatly, reaching 18%. This suggests that either the Clubcard truly rewards loyalty, or it provides Tesco with enough background data to judge whether the customer poses a low enough risk to justify a discount on their insurance).