The loyalty card is an iconic symbol of a marketing strategy which is widespread within the retail industry.
Shoppers embraced retailers’ loyalty cards as a means to obtain a wide range of rewards based on their level expenditures while retailers coveted the wealth of shopper insights data generated by card usage to help develop more effective promotional strategies.
American Airlines is credited with the development of the first loyalty programs in 1981, but retailers were not far behind in recognizing the business value associated with rewarding their best customers. This was especially true of retailers operating in a consumer packaged goods marketplace, characterized by an abundance of retail outlets and intense price competition. These factors made attracting and retaining shoppers key business considerations. The loyalty card represented a way for retailers to enhance their value proposition and establish differentiation with shoppers.
Today it seems at times that virtually every retailer offers some form of a branded loyalty programs with incentive structures that vary widely to include cashback offers, reduced prices, percentage discounts, access to special promotions, free shipping of online orders or the ability to accrue points that can be redeemed for merchandise.
Although retailers and their trading partners incur costs associated with loyalty cards, the expense is justified by the wealth of purchase behavior data generated by card usage. The data allows retailers to know the intimate details of shoppers’ purchase behavior and in turn more precisely target shoppers or shopper segments with relevant offers to drive even greater loyalty. Increasingly powerful data analytics capabilities now give retailers the ability to blend loyalty card usage information with other data streams to develop an even deeper understanding of shopper behavior.
Today, retailers are combining loyalty cards with their branded credit cards, creating omichannel loyalty programs, developing more personalized rewards, offering premium awards programs, connecting awards with social media content, and forming more brand partnership offerings.
Contribution to Retail History
The loyalty card changed retailers’ approach to marketing and introduced a new competitive dynamic to the industry. Retailers sought to devise and promote branded loyalty offerings with incentive structures optimized to drive participation and shopping frequency. In the process, a new type of value proposition was created that required shoppers to assess the value of loyalty card benefits in determining where to shop.