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Thursday, 23 November, 2000, 15:35 GMT
The price of loyalty
loyalty cards
Both Sainsbury's and Tesco swear by loyalty cards
Safeway has just announced that its drive towards discounting has been good for trade.

The supermarket has attracted one million more customers a week since launching an aggressive price-cutting programme last year.

Our customers told us that they prefer pounds in their pockets

Zaria Pinchbeck, Asda

Yet the group scrapped its loyalty card in May, saying that shoppers were fed up with collecting points and would prefer to see cuts in prices.

That decision contradicted the prevailing view that loyalty cards are a vital weapon in the supermarket price war.

The only other big supermarket that has bucked this trend is Asda, owned by the US giant Wal-Mart.

Asda last year abandoned its own trial scheme in favour of the "rollback" price-cutting strategy.

"Quite simply our customers told us they prefer pounds in their pockets today, rather than points tomorrow," spokeswoman Zaria Pinchbeck said.

Building on loyalty

Dropping the card is inconceivable

Russell Craig, Tesco

Loyalty cards work by customers building up points on the cards relative to the amount they spend. The points can then be converted into money off purchases.

The UK's top two supermarkets, Tesco and Sainsbury's, both say they are an integral part of their retailing strategy and insist they remain committed to them.

Tesco, which was the first to launch such a card, was seen to have pulled off a masterstroke, especially when an initially sceptical Sainsbury's later launched its own version.

Tesco, the UK's largest supermarket chain, has 14 million cardholders and it says the initiative has been "hugely successful".

The store launched the latest salvo in the UK supermarket price war earlier this year, by announcing a range of price-cuts.

"Dropping the card is inconceivable at this point in time," Tesco spokesman Russell Craig told BBC News Online.

In addition to benefitting consumers, the cards offer retailers a wealth of vital information about the shopping habits of their customers.

Price cuts or points?

Sainsbury, which has issued more than 17 million cards since the scheme was launched some four years ago, is also committed to its loyalty scheme.

economy product
Sainsbury's stores offer points and discounts

"It's been very successful, customers really like it," company spokeswoman Gillian Bridger told BBC News Online.

When it was put to her that customers might prefer price cuts, she pointed out that the card is an "added benefit", on top of discounts the store has already launched.

Sainsbury, which is fighting to regain market share, is currently trying to rebrand itself, with a focus on quality and range.

On Wednesday, the group released figures that showed profits had fallen by 16.9% to 300m in the six months to the middle of October.

The end of the shelf?

So do loyalty cards work?

The market research company Mintel, which is drawing up its latest survey into shopping habits, says that there is mixed evidence that loyalty cards really do promote loyalty.

"The value is in the data that the schemes generate for the stores about what customers buy and how much they are spending," Mintel's retail consultant Richard Caines told BBC News Online.

He went on to add that although customers do benefit "to some degree", far more importance is placed on location, prices, the range of products, and their quality.

Gary Davies, professor of retailing at Manchester Business School, also believes that loyalty cards have run out of steam.

He says that the cards save customers about 0.5% on their shopping bills, whereas the cost to the retailer of sustaining the service is about 1% of turnover.

"Most of us have cards for at least two stores, so that defeats the point [of loyalty]," he added.

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See also:

23 Nov 00 | Business
Safeway gains a million shoppers
22 Nov 00 | Business
Homebase 'sold by Christmas'
02 Oct 00 | Business
Tesco restarts price war
04 May 00 | Business
Safeway scraps loyalty card
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