Millions of shoppers scan loyalty cards at checkout every day without stopping to do the math. New research suggests that when they do the math, the results may not favor the customer.
A study led by Edith Cowan University in Australia analyzed survey data from more than 800 supermarket customers to examine what drives engagement with loyalty programs and how effectively those programs build genuine loyalty to a retailer. The findings were published in the European Journal of Marketing.
According to the research, the loyalty management market is currently valued at $17.38 billion globally and is projected to reach $51.65 billion by 2034. Retailers are expanding these programs as cost-of-living pressures push households to seek discounts, vouchers, and coupons. But the study raises questions about who actually benefits.
ECU Professor of Marketing and Service Science Sanjit Roy explained that most customers do not have time to weigh what they give up against what they receive.
"Many customers don't have the time to do a mental cost-benefit analysis. What am I getting, and what am I giving up? Retailers know this, so they'll prompt you at the checkout before you pay, either at a self-service checkout or through a customer service representative asking: 'Do you want to scan your rewards card? Do you want to scan your Flybuys card?' Retailers know how to reinforce our habit," Roy said.
The trade-off, Roy argues, often tips toward the retailer. Customers hand over personal shopping data in exchange for points, but those points rarely translate into deals tailored to their actual buying habits.
"But as customers, we are losing more than we are gaining. If we earn one point for every dollar spent, and every 2,000 points we receive a $10 voucher—is it worth handing over our personal data when discounts and promotions aren't being personalized or tailored to our buying habits as a reward for our loyalty? Therefore, is it worth signing up for loyalty programs?" Roy said.
The research also found that a customer's ability to actually use loyalty benefits depends heavily on their circumstances. A shopper who knows a price drop is coming might wait a week and stock up. But not everyone can do that.
"If a customer predicts there will be a future discount on an item they frequently purchase, they may wait a week or two to buy it and buy more of the same product. But if they don't have the capacity to wait—like a parent desperately needing diapers or with too tight a budget to buy in bulk—they will miss out on the discount despite their loyalty to the retailer," said researcher Dr. Sadeque.
The study found that loyalty program engagement does lead to greater retailer engagement and customer loyalty in both attitude and behavior. But the benefits are unevenly distributed. Customers with more flexibility in time and budget are better positioned to capture the value these programs offer, while those under the most financial pressure, the very shoppers retailers target with cost-of-living messaging, are often the least able to benefit.
The researchers say the findings give retailers a clearer picture of how to design programs that actually serve customers rather than simply collect their data.
