Loyalty Cards; The new toy!

I went to a supermarket a few days ago and was informed by a staff member that they have launched a loyalty card. Later while billing, the cashier thrust an envelope at me and said that it is a loyalty card and I can become a member. I politely declined and after another half hearted suggestion to enroll in the loyalty program the cashier gave up.

The following thoughts ran through my mind in a flash –  

• The typical cost of any loyalty program averages at 3% of sales. So, this supermarket chain is now going to incur an additional cost and that is going to put pressure on its other operational parameters. 
• Any event or activity that is to be implemented in Retail needs simplicity and clear cut directions to the store staff. The impression I got was one of a standard briefing email about the new loyalty program and a courier with all the application packs. That could be a key reason why the cashier was not able to highlight the benefits and make me interested in the loyalty card. If the store staff are not sold about a program, how can they sell it to the customer?
• There are a few more supermarkets on the same road and a few of them also have loyalty cards. As a customer if I do not get what I want in shop A, I will go to shop B without being bothered about the loyalty card. Here lies the issue with regard to Indian Retail. When availability of many products is still a common problem faced by supermarket customers, why should the business waste time, effort and money to run a loyalty program. Customer loyalty can be gained by simply addressing the stock out issues, as a first step! The usual argument to justify such loyalty cards is the possibility of targeted data and therefore better decision making. Frankly, this is a myth. Indian Retail can generate enough data from the POS sales to manage adequate stocks. In fact, the reality is that the POS data itself might have an accuracy of anywhere upwards of 65% to 70%. So, how does data from one more source help?

I have faced many situations when someone suggests that we should run a loyalty program and I have some very strong views about it.

Loyalty programs per se are not bad or wrong. It is like a sharp instrument. In the hands of a doctor the instrument saves a life and in the hands of a murderer it takes a life. Similarly, if loyalty programs are run without adequate thought, preparation, briefing and very good execution, it will only take the life of that Retail business. The funny thing is that most enabling businesses like the loyalty program implementer, card supplier, etc. will all strongly endorse loyalty programs because it ensures revenue. Whereas the Retailer who gets influenced and implements the program will spend and spend, while a long wait awaits them to realize the fruits of such an initiative, if at all there are any.

There is a common saying about easy ways to lose money. It is said that the two easiest ways are to get into gambling or get into Retail without knowing Retailing. A faster and surefire way to lose money is to start a loyalty program as if it were a new toy and play with it!