Why Pay Full Price?

It’s starting to feel like you should almost never have to pay full price.

With retailers’ rewards programs getting increasingly sophisticated, preferred customers can get discounts: points they can turn into store credit, coupons printed on sales receipts, the opportunity to buy merchandise before the general public—even secret password and birthday sales.

At Talbots, Black Card customers—anyone with a store-branded credit card who spends $1,000 annually—were given a sneak peek and chance to order the spring collection early. Old Navy, the bargain-priced division of Gap Inc., had a secret sale last year, with its $8.50 camisoles for $2. To receive the discount, shoppers had to flash a coupon or say to a sales associate “Cami for me.” The clothing store Anthropologie offers discounts to Anthro card members on their birthdays. DSW does as well, along with another coupon on shoppers’ half-birthdays.

What began as a barcode fob for grocery store coupons in the 1990s has evolved into a high-tech way for retailers to track the every move of their biggest, most-frequent spenders. Stores can market to shoppers directly based on the products they buy, aiming to win an even greater share of their wallets, in retailer parlance. Of course, to reap rewards, shoppers must first establish themselves as frequent customers. About three out of four Americans belong to a retail loyalty card program, according to ACI Worldwide, which handles electronics payment for hundreds of retailers and financial institutions.

This discounts are worth it to stores in order to keep the most loyal customers happy. Fifteen percent of a retailer’s most loyal customers can account for as much as half of its sales, says Keith Jelinek, director in the retail division of consulting firm AlixPartners. It takes between 12 and 20 new customers to replace a lost loyal customer, says Keith Colbourn, vice president, global loyalty practice leader at Dunnhumby, an analytics firm that works with retail giants Tesco PLC and Macy’s Inc.

CVS/Pharmacy connected its rewards program with its social media efforts. Just before Easter, CVS/Pharmacy asked its Facebook fans to vote on whether they liked Cadbury Creme Eggs or marshmallow Peeps. Coupons for the winning item—$1 off two eggs—were loaded into the in-store coupon center for one day. “We delivered real value, instantaneously, on the basis of their interests,” says Rob Price, chief marketing officer for CVS/Pharmacy, the retail division of CVS Caremark Corp.

To get discounts, shoppers must hand over personal data. Often, the more details given, the more discounts received, which brings up the issue of data privacy and the corresponding pitfalls.

Floor staff at J.Crew, Ann Taylor and other retailers routinely ask shoppers for their email addresses and nearly every chain store, from Walgreens to Wet Seal, has a spot on its website for consumers to sign up to receive store emails. It’s a quick, cheap way for a retailer to tell shoppers about deals and discounts—and arguably the least invasive piece of information a shopper can give a retailer.

In order to receive their emails, many retailers also will require a name and, in some cases a ZIP code or a date of birth. Some take it a step further and ask users to set up an online account that requires a login, allowing a retailer to track how often they visit the site, as well as what items draw their attention.

At J.C. Penney, shoppers can give a cellphone number to receive as many as eight mobile coupons a month. Old Navy shoppers can receive text messages with details on the featured item of the week.

To sign up for a retailer’s loyalty program usually requires name, mailing address and telephone number. These programs assign shoppers a number, often a barcode or a phone number, essentially applying a digital tracking number to each customer.

DSW uses this barcode-generated purchase data to make its marketing more relevant. “If someone is only interested in buying hiking boots, there’s probably not a lot of point in talking to them about the latest high heels that have come in,” says Derek Ungless, chief marketing officer.

Supermarket chain Kroger Co. sends individualized mailings to millions of its rewards program members several times a year. The packets of coupons from the store as well as its suppliers are based on each shopper’s habits. “Like snowflakes, no two are alike,” says Ted Sarosy, vice president of loyalty for Kroger.

Now, retailers are devising ways to track barcode holders outside the store. CVS, which has 67 million loyalty card members, recently offered fans of its Beauty Club Facebook page a free antibacterial product. For the voucher, shoppers had to enter their ExtraCare number and email address. “That’s another way for us to fingerprint the customer to give them more personalized value,” said CVS’s Mr. Price.

More than 7,100 CVS locations have in-store coupon centers, computerized columns that, when shoppers swipe a rewards card, spit out personalized coupons. The center is designed to “influence their shopping visit that day,” says Mr. Price. The deals attached to a receipt are meant to encourage another visit.

The most details a consumer gives are through a branded credit card, which provides detailed financial information. To encourage use of its credit card, Target Corp. began last fall offering shoppers 5% off every purchase with its branded credit card, the only loyalty program offered by the big box chain.

With Gap Inc.’s credit card program, shoppers get advance notice of sales, exclusive offers and 10% off all Tuesday purchases. Shoppers receive five points for each dollar spent at one of the company’s brands.

Neiman Marcus Group Inc.’s loyalty program, InCircle, is a credit card that can only be used at Neiman Marcus’s five divisions, which include Bergdorf Goodman and Last Call. The card allows the retailer to keep track of purchases, as well as shopping frequency and any cross-shopping among its brands. The loyalty program “can retain customers, it can get new customers, it could win back anybody who has lapsed,” says Maggie Lucas, director of marketing.

Although the majority of apparel and accessories retailers tie their loyalty program to a credit card, some companies have begun to unbundle the two as skittish customers have shunned credit in favor of cash or debit payments.

By adding a non-credit-card loyalty program with free enrollment, retailers widen the appeal of the rewards program. Chains with non-credit card loyalty programs include Sears Holdings Corp., which includes Kmart, Modell’s Sporting Goods and teen retailer American Eagle Outfitters Inc.

Women’s clothing chain Talbots Inc. split its rewards program into three parts in 2009 as part of a brand overhaul. Along with its existing charge card, the company added a non-credit card, allowing it to capture information about its in-store shoppers similar to that of online shoppers. If someone makes a purchase online or through the catalogue, “we instantly capture her information,” says Lori Wagner, chief marketing officer.

Most systems dole out points based on the amount spent. Members of the DSW Rewards program earn a $10 certificate for every 1,500 points earned. (Points differ based on full price or clearance items, but equate to roughly 10 points per $1 spent.) Customers who rack up more than 6,000 points each year achieve Premiere Rewards status. That top tier of customers can receive triple points on purchases two days a year of their choosing.

The company mails out certificates to its 16 million rewards members because customers have said they prefer that method. “It’s not a bill,” says Kelly Cook, vice president of customer strategy and engagement. “It is happiness.”

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