Page last updated at 20:54 GMT, Monday, 8 February 2010

Who wins with supermarket loyalty cards?

By Victoria Trench
Business reporter, BBC News

Shopper with bags
Shoppers' loyalty cards bring money-off vouchers - what's in it for the store?

Fifteen years ago, Tesco launched the Clubcard - a loyalty scheme that rewarded shoppers with vouchers offering discounts if they shopped regularly at the supermarket.

A year later, Clubcard holders were spending 28% more at Tesco and 16% less at Sainsbury's.

The grocery rival responded with its own Reward card and more recently joined other retailers in the Nectar card scheme.

Although shoppers benefit from discounts on products, the supermarkets also obtain a vast amount of knowledge about their customers' preferences.

So who gets the real reward from loyalty cards?

Popular

About 85% of households in the UK have at least one loyalty card, according to the market researchers, TNS.

Tesco's Clubcard is the giant, with 15 million active members in the UK, who last year received a total of £529m in vouchers.

As well as the supermarkets, scores of other grocers and retail chains have launched similar schemes. They include Boots, WH Smith and some petrol retailers.

A considerable amount of shopping is generally required to get any meaningful discount on products, although the shops can also use the cards to offer special promotions when it suits them.

Their appearance has also all but killed off at least one other type of reward scheme - that offered by credit cards. Only about 30 such cards continue to offer rewards for spending, compared with about 140 five years ago.

Not all retailers are drawn to them. Asda, for example, has made a marketing point of not offering loyalty cards. It claims that the money that would have been spent on such a programme is spent instead on cutting prices.

Buying habits

Retailers are keen to retain their highest paying customers and closely monitor general buying habits through the information gleaned from loyalty cards.

Tesco Clubcard
Tesco has one of the oldest supermarket loyalty cards

One retailer was reported to have spotted a trend for fathers to come into stores on their way home from work on a Friday, in order to buy nappies for their children.

As a result, the store placed six-packs of beer on the adjacent shelves, and found that the sales of beer went up.

The Tesco Clubcard is operated by Dunnhumby, a private company now majority owned by Tesco.

"The evidence shows that customers love the offers they get," Edwina Dunn, chief executive of Dunnhumby, told the BBC.

But she readily admits that the retailer's aim is to get the shopper to visit more often or even just to get them to put an extra item in their basket.

The scheme is not just a UK phenomenon. There are loyalty card scheme for Tesco customers in Ireland, Poland, Malaysia, South Korea and China.

Tesco has also developed an application for iPhone users, which allows the owner to scan their phone instead of carrying a card.

'Power'

Sainsbury's has taken up the battle by pushing the Nectar card, claiming that 10.8 million households in the UK have earned points from their cards in the last 12 weeks.

It differs from Tesco's in that shoppers can use the card with a variety of companies, not just Sainsbury's.

The major links are with BP garages, EDF Energy and the travel website Expedia. Nectar also awards points from purchases made through some online retailers.

Andrew Mann, of Sainsbury's, claims that the data allows them to create the most popular promotions for customers.

But not everybody is a fan of these loyalty schemes.

David Kuo, of personal finance website The Motley Fool, says that the balance of benefit is too far on the side of the retailer. He says that the investment is great for supermarkets, but less so for their customers.

He claims that 80% of supermarkets' profits come from 20% of customers and the focus of loyalty cards is on how those specific customers are behaving.

"It puts the power back in the hands of the supermarkets," he says.



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