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Are Loyalty Cards and Customer Reward Programs Worth It?

Take out your keys right now; I bet you have at least one customer loyalty card looped on there. I have three on my keychain — CVS, Jewel and Panera Bread — and I use them whenever I spend money at those stores. After all, why not? If I chose their location over one of their competitors, then can’t I be rewarded at least a little bit?

I don’t expect to receive free groceries or free asiago cheese bagels for a month (hint, hint Panera), but I wouldn’t turn down some points for every purchase. That could rack up to one free bagel or extra discounts off of my favorite cereal! Loyalty cards seem like a no-brainer idea to me: increased business for you and a deal for me as a reward.

However, a study out of Ryerson University in Toronto suggests that some retailers may not be feeling this same love. According to the research, some loyalty programs may not be so profitable for certain brands and companies may be better off not offering this type of customer incentive at all. Saeed Zolfahari, a professor and director of the university’s industrial engineering program, was the leader of the study along with PhD candidate Amir Gandomi. They developed a mathematical model to measure loyalty programs’ effectiveness, and they found that if you have a band of loyal customers already, you don’t need to spend extra money to keep them loyal.

Discounts are another form of rewards.

Discounts are another form of rewards.

The study examined the price of a product sold in two separate periods and the amount of the loyalty reward offered at those times. Customers who made a purchase in the first time frame got a reward in the form of a discount for their purchase in the second period, like 15% off your next purchase. The study found the company had to raise the initial price at some point in order to still make a profit. This was due to the size of the discounts being offered in the second period.

Research also uncovered that a lot of marketers who suggest using loyalty programs at their businesses don’t have much to back up their claims of these programs being successful. They think that since their competitors use them, that they should as well to increase traffic into their company. Zolfahari and Gandomi’s model suggests that if average customer satisfaction increases over time, there is less incentive for the company to offer a loyalty program. Basically, if your customers are already happy then you don’t need to keep encouraging them to buy from you.

I had a professor in college tell us (repeatedly) how important it was, once we entered the business world, to consider having a customer loyalty card to improve our customer relation management. Her enthusiasm for loyalty cards was impressive, but it’s clear that not every company out there benefits from providing them.

Have you seen a company that offers a loyalty card that you really like? What about a company that surprised you by offering one? Do you agree with this new research, or are loyalty programs as beneficial as ever?

Image credit to joelogon and sdc2027.


Amy Swanson

Amy is one of Quality Logo Products’ content developers and social media coordinators. She is a self-professed newspaper nerd and thoroughly enjoys reading business and financial news and having impromptu discussions about it. Oh yeah, she’s “one of those” people! A true Midwestern girl by nature, she loves riding her bike, photography, and the Chicago Cubs. You can connect with Amy on

Comments

  1. Sally Johnson

    I have a loyalty card to a local chain of restaurants and I get 5% of purchases back. The money I get back goes onto the card and I can use it towards any future purchases. This cash back perk does not make me think, “We should go to this specific restaurant over the others regardless of what I’m hungry for” but I will say I was pleasantly surprised during my last visit to be told I had $40 on the card :) This was completely unexpected and I just may be more likely to choose restaurants within this chain once in a while due to this perk.

    • amy

      That’s an awesome way to get people coming back to your restaurant. The more you spend the more you save sort of mentality. I’d love that if some our restaurants did that too, are you listening Mr. Portillo? ;)

      Thanks for reading and commenting!

  2. Jill Tooley

    I’ve never really thought of loyalty cards from a company’s point of view, but it makes sense that they would lose money on them. The most common rewards seem to be the “save 20% off your next purchase” types (Kohl’s does this a lot with their Kohl’s Cash), which, to be honest, don’t really inspire me to come back. Don’t get me wrong, I really appreciate the effort on their part but I’m not going to make a special trip to the store just to use the discount – I’d only go if I actually needed something.

    Do you know if this study includes rewards for company credit cards? Such as Victoria’s Secret Angel Card rewards? I’m wondering if the discount amount vs the APR would even itself out in those cases. Some companies charge upwards of 20% interest on their store cards! Unless the customer paid the balance down immediately, you’d think they would still be making money off of it somehow. But maybe I’m wrong!

    Thought-provoking post as usual, Amy. Thanks for sharing your marketing wisdom once again! :)

    • amy

      I’m the same way with Kohl’s Cash, if there’s something I need to get I’ll make a second trip and use the coupon but if not I probably won’t be back before they expire.

      This particular study didn’t include company credit cards, I think those are in a separate category all to themselves. They always sound so tempting when I’m checking out and I could save an additional X amount if I open one. However, I’ve heard that having too many open credit cards can actually ding your credit rating so I kindly refuse. It also seems that they offer low introductory interest and then after 6 months it jacks up to 20%. Yikes!

      Thanks for commenting Jill :)

  3. Mandy Kilinskis

    I could go on and on (and have) about my Starbucks gold card and their rewards program. Because of my gold card and the perks from it, I go to Starbucks more often than I should, and Starbucks is making bank every time my auto-reload hits my credit card. But yet, since I’m getting free syrups, soy, and a free drink every 15 visits, I really feel like I’m being rewarded.

    • amy

      I’m surprised you haven’t named your Starbucks gold card yet ;) I sadly don’t pass a Starbucks on my way into work so they aren’t making any money off of me. Although I experience the same feeling of elation with my Dunkin’ Donuts perks card, mmmm DD coffee!

      • Mandy Kilinskis

        I don’t pass one either, and yet I still see that “Starbucks card auto-reload” on my credit card statement every month… How do they do that?!

        I’m also not a namer. All of my friends in college named their computers, and I found that weird. The only thing I own that’s named is my car. And about three polar bear stuffed animals all cleverly named “Snow.”

        Let’s see, besides my Gold Card, I have CVS, Jewel, Panera, Regal Entertainment, and Toys R Us. Jewel is fantastic because those savings are incredible. Regal is free to sign up and also has a points system — I just earned my first free movie at 150 points. :)

        • amy

          I also have a Regal Entertainment card, it’s great that any purchase counts (tickets, popcorn, soda, etc) and you can buy tickets online without paying an additional charge. I’m still working on my free movie though LOL

  4. Joseph Giorgi

    Nice topic, Amy! Honestly, I’ve never given loyalty cards too much thought, though I probably should. I have a couple in my wallet (Vitamin World and Binny’s, I think), but don’t get the chance to use them very often. I usually don’t opt for loyalty cards when they’re offered because I usually don’t frequent stores often enough to get any real use out of them.

    I appreciate that most stores put in the extra effort to reward their customers though. Loyalty cards (or whatever other incentives a store chooses to offer) are always nice to have as an option. Who knows: maybe I’ll pick up another one soon.

    • amy

      I get a lot of use out of my Jewel loyalty card and CVS one. It seems like when I use them I always walk away saving a lot of money and I do purposely go to these stores over their competitors because of my cards. Like you though, I don’t jump at every chance to sign up for a loyalty card, they take up space in a wallet and I forget about them LOL.

  5. Cybernetic SAM

    I have like a million of these on my keys!! I am a sucker for it, but I always feel like it never really benefits me. The only time I ever saw a sizable benefit was when I shopped at Borders (which is sad it is all out of business, maybe that’s why). I constantly use my rewards cards, and it is as though it is some sick inside joke among businesses (like a sociological experiment) to see how often the Homosapiens make sure they get their cards scanned. Okay, maybe it’s not that bad, but if there are rewards it must only be a fraction of a cent. Sorry, don’t mean to sound so bitter about them but I feel like I am always pressured to sign up for this crap, or every time I am in the store they badger you until you do! Any way great post – it is good to vent! :)

    • amy

      I loved my Borders reward card! Every time I walked into their stores I always had a 30% coupon :D (although, if I would’ve paid full-price for some of my books they’d probably still be around LOL).

      I feel the same way with the badgering, it seems that they ask if you’d like to join and I say ‘no’ and then they ask if I’d like to open up a credit card right after. In my head I’m always like, “what do you think?”. Ugh, it’s beyond annoying!!

      Okay, now that we’re both calmer on the topic, thanks for reading Sam!

  6. JPorretto

    I’ll sign up for any loyalty card for anywhere I frequent. There’s no reason not to…. unless its a Credit card. I’m not affecting my credit score to get 10% off of a couple purchases. But other than that, sure, I’ll take your free stuff =)

    • amy

      Way to stick it to the man Jeff!!

  7. Jen

    I have a few loyalty cards like: Panera, Jewel and Petsmart. My Panera card is probably the best of the bunch, I eat there maybe once a week and it seems like every other purchase, I get a free coffee, bakery good or $2 off my meal. Jewel is great to have, because if you don’t have the rewards card you don’t get the sale price. And I don’t think I’ve ever received any perks for having a Petsmart rewards card. I spend quite a bit of money there for grooming and toys…what the heck! I didn’t really think of that until now. Why do I have it???

    Nice post Amy!

    • amy

      I love shopping the sale prices at Jewel :D They were the first loyalty card I signed up for since, like you said, you need to have one to enjoy the lower price.

      Some companies require you spend an ungodly amount of money in order to rack up any points on their loyalty cards. Maybe that’s what Petsmart is doing, it’s personally a huge pet peeve for me (couldn’t resist the opportunity ;))

    • Amanda

      Yeah, the Petsmart card just gives you the special sales pricing like the Jewel ones, and access to their online information. There aren’t prizes or anything like that. Still worth it for the discounts though, I think. ;-)

  8. Donovon

    Ok so…I… do not have one on my keychain, but I do have a few in my wallet…Kmart, Eddie Bauer, Red Robin, and my personal favorite, Safeway, in which I got a gallon of milk for $1.69, not bad huh? Take up a little space but save a lot of money!

    • amy

      That’s a great deal on milk! Wow, they would make my day too! My parents have an Eddie Bauer loyalty card that it seems like they’re always getting cash back on. I don’t know how much you have to spend in order to ‘cash in’ but it can’t be too much.

      Thanks for reading and commenting! :)

  9. Kyle

    The only rewards program I frequently use is Jewel’s, but I haven’t given them much thought other than that. I’m surprised to hear that they aren’t that profitable considering how many companies offer some form of loyalty reward. Hmmm maybe I should consider signing up for a couple to save a few bucks here and there.

    Great stuff, Amy.

    • amy

      Thanks Kyle :) I suggest signing up for loyalty cards at places that you’re “loyal” to. Like Mandy with her Starbucks gold card and Jen with Panera, go with what you’ll use the most to get the maximum enjoyment from redeeming points. Saving a few bucks is always a good thing, especially when it’s at places you already enjoy.

    • Amanda

      That’s what I’m thinking too Kyle. Jewel’s savings card is awesome! I’ve often wondered, does anyone not have one? It saves you a lot of money!

  10. Amanda

    Nice post Amy! I have: PetSmart, Jewel, Hilander, Maurices, and PetCo rewards cards. I like having them–most of them guarantee you get the special sales pricing in the stores…which is awesome! The Maurices card gives you paper punches for each $10 you spend, so every once in a while, you fill up a whole card and get $10 off your purchase….it’s not a huge discount, but it’s worth it! Might as well take advantage of it if I’m going to shop there anyway, right? I should work on getting more of these things…..might as well if I go there often enough.

    • amy

      That’s been my philosophy concerning loyalty cards, I go with where I already enjoy going to :) Every little bit helps at the end of the order, even if it just covers the tax!

  11. Maximizing The Benefits Of Reward Credit Cards — Best Rate Credit Cards

    [...] Purchase products and services from the company who issued you the card. Some companies offer loyalty bonuses and rewards for patronizing their own [...]

  12. James Ray

    There are no absolutes in marketing and customer relationship management! Loyalty marketing doesn’t always work, nothing is guaranteed! The most common reasons for failure are a flawed value proposition and/or poor execution! I can assure you though that more programs are successful than not. Think about how many loyalty programs you have joined that disappeared; most loyalty programs survive if the business survives. They may change, but seldom do they go away entirely. The key to measuring success for a loyalty program is taking into consideration all business benefits, e.g. new customer acquisition, sales lift, shift (or purchase consolidation), existing customer retention and win back, plus reduced marketing costs by using the loyalty customer file and segmenting the known customers to deliver targeted offers and promotions.

    • Amy Swanson

      Thanks so much for stopping by, James!

      You’re exactly right that nothing is guaranteed in marketing, just because it works for company ‘a’ doesn’t mean it will also be a success for company ‘b’. Before someone decides to implement a loyalty program there’s a lot of factors to take into account, just as you mentioned. And even though it may seem like a great idea, you can’t ignore the facts. Great insight, James! Thanks!

  13. Nik Mody

    I recently joined the Lyoness cash back card program. It started in Austraia 7 years ago, Its now world wide. I can purchase gift cards for gas, groceries. etc. their website is Lyoness.net receive cash back for every purchase. You can also go their website as a portal to shop online at your favorite stores. I am very happy using this loyalty card. We are going to buy gas and groceries every week anyway. Why not get cash back in the process.

    • amy

      I couldn’t agree more with your statement, Nik; “We are going to buy gas and groceries every week anyway. Why not get cash back in the process.” It’s those little bonuses that keep customers coming through the door :)

      Thanks so much for checking out our blog and commenting! Hope you have a great week!!

  14. NurSharina

    Gaining a new customer is a lot more costly than to retain an existing customer. For business it is beneficial if they rely on walk-in-customers to run some sort of loyalty program.

    I read this post and comments and hear a few business names over and over – word of mouth – this is for businesses a very good way to market their brand. A simple and easy to use customer loyalty program with a low threshold is one way to make customers talk and refer directly or indirectly new customers.

    For small businesses it is difficult to keep up with sophisticated and expensive programs – most cant afford them. If a small businesses especially those with walk-in-customers would be able to contact their existing customers that are registered with a loyalty program – that would enable them to drive business with deals and offers whenever the dreaded slow business days come along.

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