When Customer Rewards Programs Don’t Pay

This research is interesting because it shows that sometimes, customer rewards programs aren't worth it.

Half of the ten largest U.S. retailers — including drug and grocery stores, mass merchandisers, hotels and airline companies — offer "frequent customer" loyalty programs. A new university study provides the most realistic assessment yet of such programs and warns that they may be profitable only if companies use excess capacity to provide the rewards.

Customer loyalty programs such as airlines' frequent flyer incentives are very popular among both consumers and retailers. Because of the common belief that loyal customers purchase more and pay premium prices, and the cost of selling to them is less than to the occasional buyer, companies believe loyalty programs are worth the investment. A new study by university researchers shows that firms with excess production or service capacity are most likely to profit from customer loyalty programs.

I'm not a fan of these rewards programs. I live within walking distance of a CVS drugstore. Every time I go in there, even if I am just buying a pack of gum, they ask if I have a rewards card. Every time I say no, I don't want one because I don't want to carry it around. They tell me I can get a little one to go on my key chain, but once I do that at the 15 different places that offer them, my key chain is big and heavy and I hate that. So they take a new card, scan it, and throw it in the trash. I'm going to guess that wasn't the goal of upper management.

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Here's my question. Can you care still "care" about me without the stupid card? I don't want a reward for having a card or being loyal. I want a reward simply for doing business with your company. If you are going to play favorites, don't tell us peons about it. Don't make us feel left out. Here's a radical new concept for retail…help people get want they want, not what you want them to have. Meet their needs and move on. Don't upsell, don't nag about credit cards, don't offer reward cards and everything else under the sun. Offer to help me find what I need at a good price, quickly.

Why is retail built around convincing consumers they need all these extra things they didn't come in to buy? That's not a strategy, that's a scam. Maybe retail is such a tough business because the focus isn't on doing what's best to for the customer.

via Entrepreneur Blog