Loyalty cards and stamps battle for consumers

Although shoppers may feel they are getting a better deal, promotions are also designed to reward retailers by attracting extra trade and persuading customers to part with more cash.

Supermarkets are big fans of loyalty: they like nothing more than to see "loyal" customers passing through their doors and, once they're in, they will do everything in their power to keep them there.

These efforts take many different forms, but the most traditional - collecting free stamps as part-payment towards products such as china or furniture - remains a winner, despite a fierce challenge from the loyalty-card corner. Almost all of the leading chains active in the Irish market regularly offer some kind of stamp or "continuity" scheme and, anecdotally at least, it seems like we can't get enough of them.

The supermarkets themselves, as befits a sector whose profits relate directly to how much money the average person spends on groceries, like to look at loyalty promotions as "rewards" for their more devoted customers. There is a flipside, however: as well as rewarding their customers for loyalty or continuing business, these promotions are also designed to reward the retailer itself by attracting extra trade and, if possible, persuading customers to part with more cash than usual in order to reach the quota of vouchers needed to "win" whatever happens to be on offer that week.

While there is absolutely nothing wrong in this - these are businesses whose aim is to achieve a healthy bottom line - it is equally justified that the consumers who are being targeted should be aware of exactly how a given loyalty promotion might affect their buying habits. If the distance between you and a new set of drill bits is an extra €10 on your grocery bill, the temptation to pick up an extra few boxes of cereal could be dangerously strong.

SuperValu, which operates 172 outlets across the Republic, has several years' experience in the area of continuity or loyalty schemes and will readily admit that the programmes generally increase trade by about 10 per cent for as long as they run. In the SuperValu case, promotions tend to last between 10 and 12 weeks, or about one-fifth of a year.

One recent promotion saw the chain sell 180,000 units of a wooden-framed laundry basket that normally retails at €100 - the promotion price was €25.38 with 250 tokens, with the price rising according to smaller token collections.

Shoppers collected a token with every €5 spend, meaning that a bill of €1,250 would be required before the basket could be bought for its lowest promotion price. Later this month, a coffee table from the same furniture range will be offered in exactly the same way.

Supervalu spokeswoman, Ms Sam Fitzpatrick, describes these schemes as "phenomenal sales drivers", and says that the company has used practically the same model for the past decade, eschewing the "loyalty card" along the way.

"Even four or five years ago, when loyalty cards were everywhere in Ireland, having done our homework, in other words some pretty in-depth consumer research, we were told loud and clear that consumer attached great value to our loyalty promotions," Ms Fitzpatrick says.

"Some of the reasons for this included the fact that shoppers actually like receiving their tokens - they fill up the collector card and feel they're achieving something. There's an immediate, visible award."

SuperValu has also found that customers enjoy the checkout "banter" that accompanies the handing over of tokens, preferring this to an "impersonal" swipe of a card.

Ms Fitzpatrick argues that no retailer has thus far made a success of loyalty cards, a claim that received some support recently when Dunnes decided to withdraw its card from the Northern Irish market.

"The ultimate proof that loyalty cards do not create loyal shoppers, comes from the fact that the people who do use these cards frequently don't just have one loyalty card, they have every single one of them," says Ms Fitzpatrick.

Tesco Ireland has chosen to pursue a two-pronged loyalty strategy, offering customers a loyalty card at the same time as promoting low-cost offers on goods such as flights or household accessories.

Tesco customers are "really, really keen" on the stamp-collecting loyalty schemes, according to Ms Sara Morris, the supermarket's spokeswoman. Last year, about 70,000 Tesco customers availed of a "two for one" Aer Lingus winter flights offer, which saw customers collect a stamp with every £10 (€12.70) they spent. With 30 stamps, they qualified for two European flights for the price of one, while with 50 stamps, they could travel further.

Tesco has also designed continuity schemes that revolve around high-quality, branded household goods such as Wedgwood china or Royal Doulton glasses. Just this week, a set of heavy-based saucepans will hit the promotional shelves. Again, Ms Morris says that the programmes are successful, but is reluctant to quantify this success in financial terms.

"Suffice to say that both Wedgwood and ourselves see huge advantages in it," she says, adding that some of the goods on offer are so attractive that she has heard of them being given as wedding presents.

Superquinn has adopted a similar strategy to Tesco, deciding to team in-store promotions with its Superclub card scheme. This can involve writing to selected customers on the supermarket chain's Superclub database and informing them that a defined spend within the next number of weeks could qualify them for a stamp-based "reward" such as a cut-price barbecue or a free trip to a hair salon.

Superquinn marketing manager, Ms Celine Newman, says that the model is "very successful".

"We're trying to make sure that they spend all their money in Superquinn as opposed to somewhere else," she says. "It makes supermarket shopping a little bit more exciting."

Voucher-based continuity and loyalty schemes can be found outside supermarkets too. Service stations are also in on the act with some, such as Esso stations, running promotions since the mid- 1980s. These have typically seen customers collect paper vouchers and, having amassed a sufficient wad, choosing a reward from a catalogue. Last year, Esso updated its scheme to an electronic version, which sees customers collect "tokens" on a smart card, but the catalogue remains.

Back in supermarket land, Tesco has also made a name for itself in the "Computers for Schools" promotion scheme, whereby customers collect a voucher for every €10 they spend and then donate these to a local school, which pools them together.

When sufficient tokens have been collected, teachers choose from a catalogue of computer- related products and Tesco arranges for their selection to be delivered for free. Over five years, 2,500 schools have benefited from the scheme, although many have done so through computer peripherals such as disks or CDs rather than actual PCs (see above).

Ms Morris says that the scheme has a public awareness of 67 per cent and believes that "it's very much seen by the general public as Tesco contributing to education."

On a legal basis, schemes such as this are very straightforward, in that they represent an immediate reward for a given expenditure. They must still obey a few rules, however, such as the Code on Sales Promotion Practice, which outlines the strict parameters within which the schemes operate.

"There's no point in the terms and conditions being 'smart'," says Ms June O'Connell, senior associate with William Fry, solicitors, who has in the past advised supermarkets on the legal aspects of promotion schemes. "It's not worth the supermarkets' time. Any promotion should have a set of rules."

Associating education with supermarket shopping does raise some additional issues, however, such as the potential that children and parents would feel undue pressure to contribute to their school's potof tokens. There are stories of parish priests calling for support for the scheme from the pulpit.

Teaching union, the INTO, is somewhat associated with the computers offer because it has participated in Tesco-funded IT training, but is quick to emphasise that a balance must be achieved between supplementing school funding and encouraging parents to spend more on their weekly shop.

"We're opposed to children and parents being exploited," says spokeswoman, Ms Maria McCarthy, adding that the INTO has prepared policy documents on the subject. "The Minister has also urged caution in relation to how schools get involved," she says.

The Consumers' Association chairman, Mr Michael Kilcoyne, takes a similar view, saying that continuity or loyalty schemes can be effective for consumers, but should also be treated "sensibly".

"These are incentives run by supermarkets to keep consumers shopping in the same store. Our view is that consumers must be careful that they're not buying an item they don't need, just to get the extra token. In that case, it would represent an extra expense rather than a saving."