Loyalty Card Scheme – Are they really loyal ?

In the modern era of retailing, when every street side retailer is providing the same goods and services at almost the same price, there is nothing to choose from. Multi brand retailers are trying very hard to pull the customers to their own store by offering discounts and other benefits but it hardly makes any difference because if on 1st January a supermarket is providing me some benefits then on 2nd January all the other supermarkets in the town will be providing me the same benefits. So, at the end of the day the companies didn’t find these new schemes any useful and they dig little further.


English: Different customer loyality cards (ai...
 Different customer loyality cards (airlines, car rental companies, hotels etc.)(Photo credit: Wikipedia)
Various researches on the subject verified the Pareto’s 80-20 principles i.e. 80% of the sales are because of the 20% of the customers. Also the fact that the cost of retaining an existing customer is much less compared to the cost of attracting a new customer made the retailers to think about it. Hence, the concept of loyalty card came into the picture. The concept of loyalty is a multifaceted phenomenon; academic research on the subject has received significant attention and has gradually advanced as a crucial marketing element.

As all the management practices, this practice also started in the western countries and is being practiced in India for quite a lot of time. These Loyalty programs have their own cost and benefits. The cost includes the free distribution of the plastic cards, maintenance of database, additional manpower for filling up and checking of the forms and the most obvious benefits which the retailers look after are the increase in sales.

Currently it works on a very simple concept; the retailer will issue a card to its customer. While issuing the card the customer is required to fill up a form. The form captures the various data about the customer like his name, age, profession, income, contact details e.t.c. Now, whenever the customer purchases anything the purchase amount is being fed into the card and in due course he will get some discount on further purchases or he will be awarded with some points which will ultimately amount to a certain sum which he can use as a discount. The data collected while the issuance of form and subsequent purchases will help the retailer to know about the habits and the preference of its customers which the retail corporations can use for targeting the customer by offering the things he may need by analysing his purchasing behaviour.


In the international market, there is a mixed response on the loyalty card scheme. On one side there are players like Tesco (launched its Clubcard in 1995 and has currently around 15 million cardholders) and Sainsbury (launched its Reward Card in 1996 and has currently around 18 million cardholders) who are focussing more and more on loyalty card schemes then on the other side we have ASDA and Safeway who have abandoned their loyalty card schemes.


Unlike U.K and U.S where this loyalty card programs is on peak. In India it is still in the growth phase. In India majority of the multi brand retailers and single brand retailers are offering loyalty card. Recently, in a move India’s biggest retailer Future Group scrapped their old loyalty card scheme and switched to the German’s most famous Payback Card scheme, where all the data compilation and calculation is done by the third party which is Payback.


There are many third party solutions like Germany’s payback are coming up in the market and in fact has been evolved as a business in the recent times. The benefit for customers and retailers in such cases is that the third party will have many clients and as a result the customer can use the same card at many outlets and the retailer can have an access to wide source of data. For example let us say Payback has its client ICICI, Future Group, Hindustan Petroleum, flipkart and many more. A customer can use his payback card to earn points and redeem points on any of the member store. Hence, he doesn’t need to carry a separate card for flipkart, ICICI, Future Group, Hindustan Petroleum. Also, the data which is collected by the payback team can be shared among its clients. So, even if a person is not using future group services but still future group can have his details to devise a strategy. 


This finally brings us up to our last and the most important question which is gripping the mind of every retailer currently of how loyal is this loyalty card scheme? Does it really help the business? Do the benefits really exceed the cost?


To put the answer in simple terms, Loyalty Cards or Programs are just the tools to devise a strategy. That is the reason it cannot be good or bad. If one knows how to use it then this tool can work wonders for them otherwise it is of no use at all provided there is a need for it.

The argument put forward by the Safeway executives was that the abandoning of loyalty card scheme would save them around £50 million which if would have been used in price cuts will attract most of the customers. However, the experts in the field say that it is not the discounts but the information and how it is used really builds up the loyalty. Marcus Evans, Carlson Marketing Group Development Director says “The card is only a part of the vehicle that allows you to observe a customer’s behaviour. It is the communication behind the programme between the store and the customer that really generates loyalty


Experts and researchers believe that till date the true potential behind the loyalty card scheme has not been realized and with the advancement in the field it is more likely that in the coming future it will generate a huge return. Another question mark which has been put on the effectiveness of these cards is the rise of e-commerce market. Some analyst believes that then these cards will be useless. Mark Runacus, MD of Relationship Marketing Group says that with the rise of e-commerce market it will be the physical plastic cards which will disappear but the fundamentals behind the scheme will remain the same.

At the end of the article I just want to mention that loyalty cards can increase your customer base but there is no substitute to the traditional marketing which says that provide the customer what they want, If the customer didn’t get the value from the products due to bad quality or high price they won’t come back whatsoever technique one applies. Walmart is the biggest retail corporation in the world and doesn’t use any sort of loyalty card program.

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