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Media Release

February 2 2010

No “points” for consumers or retailers in Loyalty Programs

Prof Sharp says loyalty points schemes hold little or no return for retailersMarketing professionals putting a great deal of effort into developing loyalty programs may well be wasting their time and their client’s money.

In the latest report from Australia’s Choice magazine an examination of loyalty programs found they give only tiny returns to consumers (less than one cent for a dollar spent) and warned consumers if they changed their behaviour to chase loyalty points they may miss other price bargains. The report also said the loyalty card system had benefits mainly for the retailer; by providing data on customers that could be used for further marketing campaigns.

But Director of UniSA’s Ehrenberg-Bass Institute and Professor of Marketing Science, Byron Sharp says neither consumers nor retailers had much to gain from loyalty programs.

“Consumers seldom change their behaviour because of loyalty programs, they just get the points for buying what they were going to buy anyway,” Prof Sharp says.

“Marketing scientists have been studying the effects of loyalty programs for more than a decade now and study after study, conducted in Australia and around the world, shows trivial effects.

“Consumers choose a supermarket based on a few dominant factors - store location, parking, product range, familiarity with lay-out, adjacent stores, and pricing, with loyalty programs only ever trailing along behind as a very tiny influence.”

Prof Sharp says consumers are all too often underestimated by marketers and marketers themselves tend to latch on to an easy pitch with their clients - blindly committing them to establishing expensive loyalty programs for little or no return.

“Marketers have tended to use the loyalty program concept as an all-purpose marketing initiative, when in fact loyalty programs attract the least desirable consumer for a supermarket wanting to increase its business - the ones who already are loyal and do most of their shopping in your store,” he said.

“These shoppers actually have the most to gain – something for nothing. They are more likely to learn about the loyalty program and put in the effort to sign up – because they are already shopping there and most consumers join a program in-store.

“Infrequent shoppers – the customers a supermarket would like to have change their behaviour and shop at an outlet more often – are actually less likely to get around to joining up.”

Prof Sharp says this is what researchers call a ‘selection effect’ and it trips up unwitting marketers.

“If you take a store like Myer for example - they boast that loyalty program members spend an average of $822 a year in-store compared to $795 for their other customers – but this does not reflect any change in buying behaviour, it is just that heavier customers tend to join loyalty programs,” he said.

“Giving away money to already loyal customers destroys the rationale behind most loyalty programs.

“To get a real advantage, supermarkets or stores need to attract consumers who buy from their category a lot, but don’t yet regularly shop at their stores.

“Unfortunately these turn out to be the least likely to join a loyalty program.”

He says marketers are fooling themselves if they believe loyalty programs will drive changes in consumers’ behavior and the cost of that deception is significant for the companies who employ them to market their brand.

“But then again, maybe marketers aren’t entirely silly - loyalty programs do create a lot of employment for marketers,” Prof Sharp said.

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