Both big supermarket retailers offer programs to entice you to start – and keep – shopping with them. Coles, owned by Wesfarmers Limited (ASX: WES), offers the FlyBuys card and Woolworths Limited (ASX: WOW) has the Everyday Rewards card.
Coles has upped the ante and its war with Woolworths on this front, announcing on 19th April 2012, a massive FlyBuys campaign and sending a card to almost every household in Australia. You can read the press release yourself here.
The benefits touted for customers are big. Coles estimates that a typical family could save almost $200 per year, and combined with points from its partners, could easily exceed $400.
The offer is for customers to save 10 per cent off any 5 products of their choice – whatever the price. Customers will also now earn 1 point for every $1 they spend. Previously, customers received 2 points for every $5 spent at Coles.
Three new companies have joined Coles' FlyBuys program including Webjet Limited (ASX: WEB), AGL Energy Limited (ASX: AGK) and Telstra Limited (ASX: TLS), to add to current partners, Jetset Travelworld Limited (ASX: JET), National Australia Bank (ASX: NAB) and Coles' siblings in the Wesfarmers stable, Kmart, Kmart Tyre and Auto, Coles Express, Liquorland and 1st Choice Liquor.
Coles partnership with Webjet offers customers points on any flight, any seat, anywhere and any time. Customers can also use their FlyBuys points to pay or part pay for flights and hotels.
Lastly, customers with a Coles MasterCard or a NAB FlyBuys rewards card will earn even more points when they shop. If customers take out home or car insurance through Coles, they will also receive 1 point per $1 spent on the policy. According to Coles, by stacking points in this way, customers can earn five or more points per $1 spent in Coles.
While Woolworths' Everyday Rewards card points can only be used to redeem points for Qantas Limited (ASX: QAN) flights, or be converted into a Woolworths' gift card every three months, Coles' FlyBuys card arguably has more flexibility, with accumulated points being able to be used for shopping, on travel through travel agents, re-charging your Telstra Pre-paid mobile as well as theatre shows and movies.
Of course, this type of centralised program is much easier for Coles and Woolworths than it is for Metcash (ASX: MTS) and other banner managers such as Sigma Pharmaceutical (ASX: SIP) and Australian Pharmaceutical Industries (ASX: API), but the latter's Priceline Club Card is one of the biggest and best loyalty card programs in the country.
For retailers who are trying to capture new customers, but importantly garner a greater share of the spending of their current customers, the loyalty factor can be very important.
What's in it for Coles
So why is Coles going to all this trouble and expense, for something that might cost them millions per year?
While the obvious answer is 'sales', the less obvious one is ….. data.
Customer spending habits are becoming very important to retailers. With such fierce competition for your spending dollar, retailers, especially supermarket retailers need as much information about their customers spending habits as possible. One of the best ways of gaining this intelligence is to track what each customer buys – hence the loyalty cards.
Retailers can then fairly accurately predict what we are going to buy and when, organise their supplies to match and target their marketing to each customer, rather than a large group as a whole.
An interesting article by Charles Duhigg in the New York Times here, talks about how companies learn your secrets and in one example, how Target (NYSE: TGT) in the US works out if a customer is pregnant and estimates the due date to within a small window, which allows Target to send the customer targeted coupons and offers long before other rivals.
Once customers apply for a card and then start using them, Coles and Woolworths gain valuable intelligence about each customer's shopping habits. To register for a card usually requires the customer to fill in a form that contains the usual information like your name, address, age, gender and contact information such as email address and phone numbers.
Add to that your shopping information each time the cashier swipes your loyalty card, gives the retailers plenty of data about you. How often and what time you shop, what products you buy all the time, what products you had never bought before but in-store marketing tempted you to buy. You know the type – you never buy sausages, but one day there's someone cooking sausages for customers to try, and it just happens to be around a meal time. You end up walking out with 3 packs of snags.
Now the company collected data can then be linked to other data the companies can purchase, such as your job history, schooling, the number of cars you own, your brand preferences, such as which coffee or cereal you like and what books or magazines you read.
Pretty soon, companies will be able to do all sorts of wonderful things with this data, and so far it's legal. Remember that it's your choice whether you use these loyalty cards or not.
One one hand, this data allows retailers to send targetted offers to people who are interested – making it more cost effective for them, and more appropriate for the customer. Less junk mail to wade through is a win for both parties. On the other hand, of course, some people may be uncomfortable with being targetted in such a specific way.
One thing is for sure – retailers are going to keep doing it because it helps them do business better. Good news for shareholders – good or bad news for shoppers, depending on your world view.
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Motley Fool contributor Mike King owns shares in Woolworths. Take Stock is The Motley Fool Australia's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).