Tuesday, June 12, 2012

The Customer Loyalty Conundrum

First came the "Daily Deal".  You probably remember my blog post on the considerations around committing to one (or more) of these programs.  While these programs still seem to be going strong, anecdotal feedback from businesses is not positive.  Customers use the daily deals but then don't come back again.  Or they use them right after purchase or just before they expire which ends up overwhelming a business.  Unhappy business.  Unhappy customers.  Who wins? (Besides the deal company).

The latest trend seems to be customer loyalty programs.  Customer loyalty programs have been around for a long time and were always traditionally administered by an individual store itself.  Who doesn't remember getting your card stamped at Subway to earn a free Sub?  Or your hosiery card stamped at Ann Taylor or Nordstrom to earn a free pair of panty hose (back when women wore hose!)

As technology became more sophisticated, stores took their loyalty programs digital.  The grocery stores seemed to lead the trend with their discounts linked to customer loyalty cards.  Stores like CVS and Hallmark offered coupons for dollars off after you had spent a certain level in their stores each quarter.  Restaurants like Panera offered a dual gift card/rewards card option in which they place certain rewards on your card at different intervals.  Starbucks allows you to use your gift card/rewards card to earn free drinks and customer status.  The examples are endless.

Perhaps realizing the voids in the "Daily Deal" space, a number of companies are now targeting small businesses with loyalty card offers.  Billed as information gold mines, these programs require a consumer to link their credit card(s) to a particular loyalty program.  The merchant determines what sort of rewards will be given to the consumer and the loyalty card company captures the data and administers the program.  The rewards can be anything from cash back for purchases over a certain level, rewards after x number of visits, a "best customer" reward, or a discount percentage.  The big sell for the loyalty card companies is that they take the administration part out of the hands of the small business and can then provide significant data on a business's customers to that business.

As you can imagine, I have been asking A LOT of questions!  (I know...you are shocked.)  As a merchant, I have to consider what other things the loyalty card company is going to do with all this data.  How vulnerable is it to a data breach?  Will it be sold to a third party(s)?  As a customer, how comfortable can I feel with something that asks me to sign in to/register my account via Facebook and other social media applications?  What might they do with my customer data (much less what sort of hacking vulnerabilities do I create for myself)?  And besides all the privacy concerns, do the merchants and customers end up with a positive experience?  And do the benefits to the merchant outweigh the cost?

I don't have any answers yet that make me feel comfortable!  But I'll continue to share what I find!

Next up:  The Scout Guide Is Here!

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