Card loyalty. A new emerging issue in grocery retailing

Abstract

In the 1990s all the largest European grocery retailers introduced loyalty cards with the aim of acquiring consumer knowledge. The use of loyalty cards as a knowledge tool has become so critical that retailers offer customers substantial rewards in return for card subscription and continuous use, being aware that knowledge accumulates only if consumers keep on using the cards they subscribe to. This paper focuses on the issue of consumer loyalty to the card, a prerequisite of knowledge accumulation. To be an effective instrument for retailers to obtain customer knowledge, loyalty cards must have value for their holders. Consumers will use the card every time they shop only if they perceive it as worthwhile to do so. Although the value of using a card may seem self-evident, this is not actually the case for many cardholders. Empirical evidence shows that not all subscribers to a loyalty card are, in fact, card-loyal. The fundamental questions related to card loyalty then are: 1. How are card ownership and use tangible evidence of consumer loyalty to the card? 2. Who are the cardholders loyal to the card? 3. Is their shopping behavior different from that of non-loyal users? 4. Who are the key cardholders? An empirical analysis of the loyalty card database of an Italian supermarket is conducted to answer these questions. This is performed using the Answer Tree technique (SPSS package). The main conclusions reached are that: (i) a very high percentage of the consumers who subscribe to a loyalty card are not in fact card-loyal; (ii) the more cardholders use promotional inducements the higher the likelihood that they remain loyal to the card. Therefore promotional inducements appear to be the engine which gives power to the card scheme, and thus to the generation of consumer knowledge; (iii) since promotional incentives expressed in absolute terms seem much more important than their percentage of the total shopping basket, it could be more effective and efficient to tie the rewards of a card scheme to consumers’ shopping frequency and to new card acquisition rather than to the value of consumers’ baskets.