ANALYSIS: Why loyalty’s not as simple as ABC - As Safeway ditches its ABC card scheme, saying that consumers prefer lower prices, Alexandra Jardine asks whether ’loyalty’ cards are a modern-day misnomer

When Safeway announced it was scrapping its loyalty scheme last week, there was a ripple of approval from the City. Never mind the fact that Safeway’s annual results were forecast to be down on last year, its struggling share price rose by 22p on the back of the news.

When Safeway announced it was scrapping its loyalty scheme last

week, there was a ripple of approval from the City. Never mind the fact

that Safeway’s annual results were forecast to be down on last year, its

struggling share price rose by 22p on the back of the news.

It’s a marked contrast to just a few years ago, when Sainsbury’s got the

thumbs down from analysts for being slow to introduce a loyalty card,

and Tesco was hailed for its innovation in launching one.

In 1995, the loyalty card looked like the perfect marketing tool, giving

customers an incentive to spend more while at the same time gathering

precious data about spending habits. So what has gone wrong?

It could just be the retail climate - the supermarkets are waging war on

price, and ploughing money into discounts, as Safeway is doing, is

currently viewed as a smart move.

But more significantly, scepticism about loyalty schemes is


They might have worked in the beginning, but recent research has shown

that ’loyalty’ cards are a misnomer - they simply don’t make customers

more loyal.

A recent Mintel report on customer loyalty revealed some damning

statistics, including the fact that over one-third of customers would

rather settle for lower prices than points or incentives. While some

consumers were happy to collect points, they often had more than one

card - and the cards did not make them more loyal to any one shop.

Perhaps most tellingly, not having a loyalty scheme did not seem to make

any difference. Morrison’s, a retailer with no loyalty card, had the

highest proportion of loyal shoppers, according to Mintel.

Suddenly, Lord Sainsbury’s infamous description of Tesco’s loyalty

scheme as an ’electronic version of Green Shield stamps’ doesn’t seem

quite so short-sighted.

Safeway reckons it will save pounds 50m this year by scrapping its ABC

card. So are the schemes a waste of time and money?

Loyalty overkill

Opinions are still sharply divided. Asda was the first supermarket to

scrap its card last year - but its scheme was only a pilot and in any

case, price-cutting had always been higher on Asda’s priority list.

Wal-Mart, its new parent, has become the world’s most successful

retailer without a loyalty scheme and Asda just didn’t see the point of

spending pounds 60m on a roll-out.

Safeway, in contrast, had a substantial five-year-old scheme with six

million active cardholders, several ’clubs’ and a major database

marketing operation. To dump all this is a serious move.

But new chief executive Carlos Criado-Perez, the former chief operating

officer of Wal-Mart, says there are simply too many loyalty cards in the

market for them to work any more: ’People are bored by loyalty cards.

When they go shopping, they open their wallet and have three or four

cards, so it has stopped being a stimulant to visiting a store.’

Some retail industry observers believe that Sainsbury’s and Tesco would

secretly love to do likewise, despite the fact that they are both

currently staunchly defending their schemes. Both were quick to make hay

of the Safeway announcement. Tesco promised to print two million extra

cards, while Sainsbury’s is offering 500 Reward points to Safeway

customers in exchange for handing over ABC cards.

Sara Weller, Sainsbury’s marketing director, says that while focusing on

price cuts might work for the likes of Asda, which has a heritage in low

prices, its Reward Card suits the Sainsbury’s target customer.

’It is an integral part of our pricing policy,’ she says. ’It’s not just

a matter of collecting points but giving customers a better offer - such

as using the scheme for Air Miles which have twice the value of Reward


Boots the Chemist, too, is investing heavily in its loyalty scheme and

this autumn plans to launch a credit/loyalty card in a joint venture

with Egg, the Prudential’s online operation. Customers will be able to

gain points on purchases in any store, but redeem them in Boots.

Crawford Davidson, who heads Boots’ Advantage card programme, says such

cards are not so much about creating loyalty as identifying those who

are most loyal and encouraging them.

’Loyalty works when you link it to your brand initiative. Our brand

proposition is about looking and feeling good and our card plays on that

- it’s about allowing you to buy indulgent treats for yourself. It’s

more personal than a discount off the family shopping bill.’

A major argument in favour of loyalty cards is their function in

gathering invaluable customer data. ’The main pay-off of loyalty cards

has been savings in the supply chain - Tesco has saved about pounds 500m

simply by using the data it has collected,’ says Chris Davies, chairman

of Relationship Marketing International (RMI).

Analysis costs

So is Safeway losing out by dumping its database? No, it argues, because

it could not afford to analyse it properly. Mike Pearce, business

development director of direct marketing agency TSM, says this is a

valid point: ’The statistical challenge of analysing all that data is

enormous - you have to look at whether the marketing benefits outweigh

the costs.’

And Mark Price, marketing director of Waitrose, is a fierce believer

that loyalty schemes don’t work and says there are now far cheaper ways

of gathering data.

Instead of a loyalty card, Waitrose is investing in shopping via WAP

phones and the internet as a way of targeting customers. ’Sending a 50p

letter to a customer about an offer on baked beans just isn’t cost

effective,’ he says. ’But with customers shopping via WAP and the

internet, the one-to-one relationship moves into a whole new era.’

Chris Davies of RMI predicts that within two years, WAP phone users

belonging to a scheme will be able to simply point their phone at a till

to have their points recorded. ’Then later you will be walking down the

road past Boots and the phone will ring, saying, ’Come in now, Mr Smith,

we have a personalised offer just for you’.’ So loyalty schemes - even

if they come in new forms - may not be dead yet.


SCHEME                    SUBSCRIBERS         HOW IT WORKS

Boots Advantage Card      Over 10 million     4% return on spend

Users can save up points for ’treats’, such as a day at health club

Tesco Clubcard            Over 12 million     1% return on spend

Customers can save up for ’keys’ toward travel-related discounts

Sainsbury’s Reward Card   17 million          1% return on spend

Also includes third-party offers at other high street chains; Air Miles


75% of UK adults have at least one loyalty card

Over 45 million cards are actively used in the UK’s top seven schemes

Tesco Clubcard has the highest penetration - 37% of all UK adults

Boots Advantage has the highest number of regular users - 9.5 million

42% of Tesco card holders have a Sainsbury’s card, while 52% of

Sainsbury’s card holders have a Tesco card

48% of those with grocery cards participate in more than one scheme

Source: Mintel, Customer Loyalty in Retailing, October 1999


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