Trends

Dubious Rewards: Trading Data for Discounts

Open up any American wallet (or logo-emblazoned purse) and you’ll doubtless find a colorful assortment of plastic cards and keyfobs. Like the invention of money itself, credit cards were first introduced as a tool to facilitate commerce. Since their inception, we have embraced those cards to the point of credit dependency and billions of dollars in debt. Credit cards, with their airline miles and “cash back” promotions, first introduced the consumer to the idea of a “membership”-based purchase rewards, and these days, traditional retailers have duplicated the model to suit their own purposes. Walgreens and CVSIMG_2230, long-standing rivals who all but openly mock each other by building stores on opposite sides of streets, are both using customer loyalty programs to solidify their proverbial bottom lines. These programs offer additional savings to the consumer, but there’s a catch – the retailers can then track every visit and every purchase.

Whenever we hand over our rewards program keychain fob or plastic card, we leave a trail of information behind. When we make a purchase, our cards are scanned, not only giving us “points” toward a gift certificate or a free tote bag, but also offering the merchant a detailed record of our purchase activity. It’s data ripe for the mining. All of this knowledge on behalf of the seller means we’re inundated with sales messages – via e-mail, direct mail, even an occasional old-fashioned phone call. “Junk” or “spam” e-mails alone account for 14.5 billion e-mails per day, or about 45% of all e-correspondence (Online Marketing Trends, 2011).

Is the privacy lost to behavior marketing worth the savings? In this weak economy, consumers don’t appear to be terribly concerned about the tradeoff.

The Drugstore Wars: Walgreens vs. CVS

Few retail battles are as overt as Walgreens vs. CVS . In fact, the two discount drug retailers often square off directly, building new outlets right across the street from each other. In September 2012, Walgreens has launched its own customer loyalty/rewards program, called Balance Rewards, in response to the popularity of CVS’s Extra Bucks program.

The inner workings at Walgreens.

Both Walgreens’ and CVS’s prices trend higher than the Target and Wal-Marts of the world, and most consumers use the drugstores as a means to “fill in” gaps between trips to major retailers, purchasing relatively few items per transaction at Walgreens. However, recently, one shopper, reluctant to face holiday crowds and yawning aisles at one of the mass merchants, spent about $70 at the checkout counter. (Yes, the aforementioned weary shopper was me. Sometimes, I just can’t deal with Target. Plus, there’s a $200 minimum just to get out the door. Seriously.) The clerk at Walgreens cheerily sold me on the benefits of a Balance Rewards membership. Signing up was simple: In my case, as in many others, Walgreens has consumer data saved from photo or pharmacy orders, so shoppers merely need to sign. There are no arduous forms to fill out or drivers’ licenses to scan.

The dollars ticked off … tick tick tick tick. My new total was just over $60. I had saved $8 just like that, and I was also handed a coupon for $10 my next $35 purchase, with the caveat that I made said purchase within the next two days. If all of that weren’t enough, she then proceeded to inform me I had earned 5,000 points by purchasing eligible items, and would get $5 off at my next visit. I left feeling almost giddy, brimming over with that euphoric winning shopping feeling.
(I used my additional $5 reward to purchase three bags of holiday-wrapped Hershey’s kisses for $5. Total. Three for $5. Unbelievable!)

With savings like this, who could blame consumers for gobbling up rewards programs like so many Thanksgiving turkeys?

The case of CVS.

In CVS’s case, here’s how the Extra Bucks program works. After signing up for the program, consumers will get additional coupons with every visit to CVS. Little red machines, scattered around the store, will print out savings when cardholders scan their rewards cards. The machines are linked to specific products, so consumers only print the offers that interest them.

The value of the coupons varies, and they are eligible to be combined with manufacturer coupons. In addition, these red machines will occasionally grant generic dollars-off coupons that aren’t product-specific, like $5 off a $30 purchase (Urbanski, 2012).

When consumers use an Extra Bucks card, they also earn 2% back on every in-store or online purchase. Quarterly, that 2% back, in the form of a savings coupon, will print out on the end of a register receipt. Customers can also generate $1 awards for filling prescriptions, and cosmetic-conscious members can sign up for Beauty Club, which awards additional points on purchases of cosmetics and accessories (krazycouponlady.com, 2012).

The Standings – How They’re Benefitting

Walgreens’ Balance Rewards program attempts to distinguish itself from CVS and other competitors with its wellness-promoting theme. For prescription, immunization and wellness product purchases, shoppers can earn an extra 500 points (krazycouponlady.com, 2012). Balance Rewards members can also earn 10 points for every mile they travel in the Walk with Walgreens program (Urbanski, 2012).

Walgreens has about two million members enrolled in the Balance Rewards program already, and it only launched in September 2012 (Urbanski, 2012). However, Walgreens has many miles to travel in order to catch up to CVS, which has an 11-year head-start. To date, CVS claims about 70 million active Extra Bucks cardholders, and the information it has collected over the past decade-plus is invaluable (Urbanski, 2012).

Data Privacy and the Futurecast

With all of the changes data mining technology has brought into our culture, government agencies and legislative bodies have been responding, both to consumer concerns as well as to business issues. Rewards programs, which rely upon collected consumer data to generate additional marketing opportunities, will need to be acutely aware of the ongoing actions involving the FTC and Congress and, of course, lawsuits pending and forthcoming. It’s very likely that as the economy begins to turn around – and as data breaches become more and more commonplace – consumers will begin to bristle at the data-for-discounts tradeoff, and may cut up their sheaf of plastic rewards cards.

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