86% use grocery loyalty cards despite privacy issues

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By: Wise Marketer Staff |

Posted on January 3, 2005

Nearly nine out of ten adult consumers in the US (86%) say they carry a grocery store loyalty card and use it, even though cards give stores the privilege of tracking their purchases, according to new research from Boston University's College of Communication.

According to the research, grocery story loyalty cards are now more widespread than the internet or the home computer, with 86% of adults having at least one such card and most of those having more than one. However, nearly half of these consumers said they were largely unaware of any 'tracking and marketing' that would be done by the stores after they had signed up. So, could this be a kind of 'privacy timebomb' waiting to explode? The university's research says not.

Privacy not such an issue
The results of the student research team's autumn 2004 online survey of 515 adult supermarket shoppers found that even though privacy concerns are high, most cardholders agree that the benefits of using a loyalty card outweigh the possibility of infringement of their personal privacy.

When scanned at the cash register, the research paper explains, a loyalty card usually either generates special discounts just for loyal customers, or rewards them with redeemable points. In return for these savings and benefits, cardholders effectively agree to allow the grocery store to collect data about their purchases and buying habits each time they shop. Grocery stores can then use that data for a huge variety of business-building purposes (as discussed in detail in The Wise Marketer's own Loyalty Guide), such as deciding which products to carry, setting pricing policies, merchandising, and targeting specific coupons and offers to encourage the customer to try new products or increase their spend.

Data usage varies
The study found that the way this data is used by different grocery stores varies greatly; some find the data analysis so time consuming they have chosen to abandon the cards altogether as PW Supermarkets (a small chain in Northern California) recently did. Others have sophisticated systems for matching publicly available information about consumer households with the data collected at the check out (such as Tesco in the UK, which is something of a standard-setter in this regard) - a practice that tends to worry privacy advocacy groups, such as CASPIAN.

Why consumers participate
When it comes to the degree to which this data analysis and targeted marketing affects consumers' willingness to use discount-based loyalty cards, over three-quarters (76%) of card-holding consumers said that they use their grocery store loyalty card nearly every time they shop, despite the fact that 52% also are concerned about how much of their personal information is collected by companies in general.

When asked why they continue to use such cards, 69% said that the card provides them with benefits in the form of lower prices and access to special promotions. And while 70% of shoppers are now fully aware that grocery stores are often keeping track of what they spend, only 16% think about this issue each time they use their card.

Benefit pay-offs needed
"The fact that consumers - even those generally concerned about privacy - are willing to use loyalty cards shows that personal information is a commodity that people are willing to trade with the right company for the right price," explained Professor James McQuivey, who supervised the research project.

McQuivey suggests that this kind of information can only serve to embolden supermarkets as they try to find more profit in a thin-margin retailing environment. "Expect RFID (radio frequency identification) tags to be embedded in the loyalty card of the future," said McQuivey, speaking of the many possibilities for the future expansion of loyalty programmes through increasingly clever technologies. "This must all be done with your permission, of course, and in exchange for a benefit that grocery stores have yet to identify", warned McQuivey.

The online survey of 515 adults (18 years of age) and older was conducted during the last week of October 2004 (so it only represents the two-thirds of US households that have internet access). The sample was randomly drawn from a representative sub-group of participants in Survey Sampling International's US online panel, with a margin of error of +/-5%. The College of Communication at Boston University is home to the Communication Research centre where professors train undergraduate and graduate students in the science of consumer research and analysis.

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