Retailers' loyalty programs popular with consumers

It seems that virtually every retailer tries to reward loyal customers these days. The number of such programs at places like Target, Cub Foods and Best Buy has soared over the past decade. And most shoppers eagerly sign up for the programs, looking to save money wherever and whenever they can.

One of those customers is Layne Lavandowska. He was at the Best Buy store in Eagan recently, cashing in certificates he received for all the shopping he does with the retailer.

"It does help keep you coming here," he said.

Lavandowska has achieved silver status in Best Buys' Reward Zone program, by spending at least $2,500 a year.

"I come here a lot," he said. "They give you cash rewards every so often. It helps fund my game habit."

Some 40 million people are members of Best Buy's Reward Zone program, which basically gives shoppers rebates equal to 2 percent of their spending.

Richfield-based Best Buy treasures those customers.

"Well over half of Best Buy's revenue is attached to our Reward Zone customers," said Bob Soukup, who oversees Best Buy's reward program, which is in its 10th year.

"They need to consistently deliver on the quality and value that they probably promised in the initial signup."

"We do a lot of analysis on the program, and we can definitely report that the program is beneficial to Best Buy," he added. "And our customers tell us they find it beneficial as well."

From 2006 to 2010, the number of signups for retailers' shopper loyalty plans soared 73 percent to about 850 million.

According to Colloquy, an Ohio-based consulting firm focused on loyalty marketing, the average U.S. household is signed up for 18 programs overall -- counting those offered by retailers, airlines, credit card companies, hotels and other businesses.

Households participate actively in an average of eight of those program.

Carlos Dunlap, editorial director at Colloquy, says the benefit to consumers every year amounts to about $48 billion. Many consumers expect an extra reward for giving business to a retailer, he says.

"Loyalty programs have retained customers," he said. "It's a way of recognizing valuable consumers, and providing them with more value and greater benefit for shopping with your store."

Companies certainly covet the data they can harvest from loyalty programs, using it to better understand customers and refine marketing and sales efforts.

"The whole point is to connect with your customers, and make you the first choice and top of mind," said Dave Hopkins, a business professor at the University of Minnesota.

For those efforts to succeed, Hopkins says retailers can't take customers in loyalty programs for granted.

"They need to consistently deliver on the quality and value that they probably promised in the initial signup," Hopkins said. "A lot of companies will place a big emphasis on signing people up, and then they don't necessarily get a return on their investment or loyalty program because they're not providing the relevant offers or right benefits to the consumer."

Cub Foods figures the right reward is gas. David Yakes, Cubs' brand director, says most customers have signed up for the grocery chain's rewards program, which allows them to use a plastic card to store and redeem discounts off the price of gas at Holiday stations.

"Gas is one of those things that, like food, people need on a week-to-week basis. So, we thought it was a good fit," said Yakes. "We put a lot of effort into making sure that this program is easy for customers to understand and to use, and that there was a good value they were getting out of it."

Over the past year, Cubs' reward program has saved customers $6 million at the gas pump.

About two years ago, Target started giving 5 percent discounts to customers using Target debit or credit cards to pay for purchases. It's paid off well, according to Target spokeswoman Jenna Reck.

"Retail rewards programs are about engaging guests," said Reck. "Current guests using a REDCard shop much more often, generating an average sales increase of more than 50 percent in households that begin using a Target RedCard."

In Target's most recent quarter, the cards accounted for about 14 percent, or $2.3 billion, of the retailer's sales and provided tens of millions of dollars in savings to loyal shoppers.

Is there a downside to these program? Some people who worry about how retailers might mine their purchase records for marketing purposes might want to pass on them.

Target for instance, has tried to use purchase records to divine if a customer is pregnant.

But Todd Marks, a senior editor at Consumer Reports, says loyalty programs seem to be benign for the most part.

"If I'm there anyway and I'm frequenting these businesses, then they're certainly worth it because there's nothing to lose," he said.

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