Showing Loyalty to Whom?

I was on the Consumerist website the other day when I ran across a story about the AMC Theater chain discontinuing its previous loyalty program (a free smartcard deal, where every time you buy tickets you swipe the card, and after so many visits you start to earn free items) and replacing it with similar program where you have to buy in each year. We’ve seen more and more companies going to this approach – the idea being that casual users either won’t buy into the program or won’t use the card more than once or twice a year, so the rewards program will only reward people who use it often enough to cover the cost of having the rewards card in the first place. However, according to the Consumerist poster, the AMC people were also aggressively trying to sell membership in the program – to the point of asking eight times during a single visit to the theater complex. I thought it raised an interesting point about these programs, and was worth a closer look…

The basic idea of a loyalty or frequent customer rewards program has been around for decades, predating most of the current technologies used to facilitate such things. Each time a customer spends money at your business (whatever that might entail) they receive a marker – such as a punch made in a small paper card – that acknowledges the purchase; once a specific number of markers have been accumulated the customer earns a specified reward. This sort of punch card system has been used for everything from food and beverage to dry cleaning and car washes over the past five decades, but it has a few problems. In addition to the obvious issues of fraud (how do you keep customers from just punching their own holes at home?) and loss (how to you handle someone who claims to have lost a filled card, or to have not received their “punch” the last five times they came in?), there’s the additional problems that a punch card does not tell you which of your locations all of these purchases were made at, or anything else about the customer except that they come to visit you often…

For all of these reasons, many companies have introduced an electronic version of the rewards card. Just by swiping your card you can qualify for any number of specific benefits, and the company gets to track your purchasing habits – and movement patterns, if you frequent more than one of their locations. If the card application includes basic demographic data about you (and most of them do) the company can harvest its own sales survey data without the bother or expense of taking actual surveys, and improve their product mix to suit you (or your demo group, at least) better. It’s also possible for the company to provide you with special offers that are tailored specifically to you. This is a major savings to the company, and can be a revenue center in its own right (if they can find someone who wants to buy their demographic information). It can be difficult to get people to give you detailed demographic information, and some people will be averse to carrying extra cards around in their wallets, but for the most part these programs are a huge win-win for the company and the consumer…

Unfortunately, such programs still aren’t free. There are still costs associated with collecting, processing and analyzing the data, not to mention the actual discounted (or free) merchandise or services offered to participating customers. Hence some companies will try to recoup the costs, either by charging a fee to use the program or by offering “rewards” that don’t actually cost them anything. This can work, of course, assuming that the benefits to the customer outweigh the cost of having the card; our purchase at Barnes and Noble was actually cheaper with the charge for a year of their loyalty program than it would have been without the card, so even if we don’t buy anything else from that company this year, it was already worthwhile. But if you’re charging too much, selling too hard, or making too many attempts to close, you’re likely to annoy the customers and ultimately lose their business outright…

I can’t help wondering if some of these companies have lost sight of the original purpose of such programs. It they’re using these cards as a profit center and ignoring their primary function as a marketing tool, they’re going to lose customers; it they do it too often they’re going to destroy whatever profitability these programs might have had left – and eventually the company…