Loyalty rewards often go untouched

April 26, 2011

New spins on loyalty programs carry risk. Supermarkets should be cautious.

Can’t buy me love. The Beatles told us this almost 50 years ago.

Yet U.S. businesses longing for relationships with consumers thought $48 billion worth of reward points and miles could do the trick.  That’s what they granted this past year, trying to grow business in a weak economy, according to a Colloquy and Swift Exchange survey.  

Trouble is, households stretching budgets in many ways still left one-third of these rewards untouched. 

Their survey attempted to document the value of rewards given out by retailers, financial services firms, and travel and hospitality companies. Retailers issued $12 billion in rewards last year – one-quarter of the value – though they account for 40% of all loyalty program members in the U.S.

We thought at The Lempert Report, where is the consumer disconnect? Perhaps in: the difficulty of redeeming awards; an inability to spend more in order to capture reward value; rewards are on items people don’t want; rewards are too small and not worth pursuing; or a feeling that rewards don’t make a relationship if the store doesn’t suit a shopper’s needs.  We think all these reasons come into play, but the latter choice is most critical, and it holds lessons for supermarkets.

So we give Big Y Foods points (not rewards points, just points) for trying something new in the supermarket channel.  But the chain’s launch of a $20 annual fee in exchange for extra rewards got us thinking about the pros and cons of their approach – particularly when shoppers pinch pennies to save and aim to conserve cash.   Supermarkets aren’t clubs, after all.

When shoppers have a dozen or more tags on a key ring, how meaningful is any food retailer’s loyalty program?   

Big Y may offer discounts on many more items to people who pay the fee, but it only matters if they want to buy those items when those discounts are available.  To us, that’s a big if.  And if shoppers don’t know in advance when those extra savings on particular items will be available, how can they plan trips effectively and leverage their $20 investment to maximize savings?

A backfire could occur unless deftly managed. If other chains come up with other spins to differentiate their loyalty programs, we caution ‘go slowly.’  We doubt loyalty can be bought on a big scale, especially with programs that make people work to save. Time is money today.