Let’s all take a deep breath and take a look at what loyalty cards do.
- They identify us and our spending habits to companies who want us to spend more money at their stores.
- They lure us into believing that if we spend more, we will get some sort of freebie or another. A bit like taxation — the more you surrender, the more services you get in return.
If you take a look at most loyalty programs, what you are getting are one — or perhaps both — of two things.
- A discount on an advertised price.
- An aspirational reward after you’ve spent some arbitrary amount of money.
In the first case, loyalty cards make lots of sense. Until you step back and wonder why anyone would pay $2 for a product when, with a card, he could pay $1.80. Is the $2 price real? Or is it just part of the total marketing package that makes loyalty cards so attractive.
Think about it. If 100% of buyers owned and used loyalty cards and bought 10,000 units of a product advertised as $2, then the retailer would make only $18,000. The loss of an additional $2,000 might be considered — by shareholders — a particularly damning risk. But marketers will turn around and tell you that customers — addicted to this sort of perpetual savings scheme — will eventually spend far more than the the $2,000 that was originally lost. If, of course, there was any loss to begin with. In short, are prices slightly inflated to convince us that we are saving through loyalty?
In the second case (aspirational reward), the bunk of loyalty is much more evident. I have a card that gives me 1 point for every x dollars spent. Once I have 5,000 points, I “earn” a toaster oven. Let’s say that a toaster oven costs $100. It would make beautiful sense if, after spending $100 dollars, I earned a free toaster oven. But that’s not how the aspirational reward works. I may receive 1 point for every $50 spent, which means that my $5,000 worth of products purchased earns me a $100 toaster. Is that a reward? Or a poignant love letter to my gullibility?
People love to believe that they are saving money. It’s an obsession. But loyalty cards, in addition to waving their hands about their worth, are largely useless. Unless you want 20 cents off of an overpriced product, or believe that some device you already have or don’t need is worth “earning,” or are comfortable with corporate databases — and the IRD — knowing precisely where your money goes.