Welcome to Wealth Informatics! If this is your first time visiting the site, please start here.

Loyalty cards : Providing rewards or threats?

“Frozen caramel, no whip for Suuuubbaa” – Manager of the Panera Bread I usually go to on Monday told the person who makes the drinks. The thing is I hadn’t ordered it yet, there were 5 people before me in line. I smiled and said “yes”. He gave me a quick one hand hug and went about delivering the food to someone. The person before me was surprised and asked if he was a friend of mine. Before I could answer saying that I came there every Monday, her companion, an older lady answered her – you know all these cards they make you sign up… they are recording what people buy… that is why I never give them my information. I was taken aback because as I said, that is not how he found out what I usually order. But at the same time, I could not deny the truth in her statement. We talk about privacy in so many different shapes and sizes, but when it comes to discounts we are willing give it away.

After I got back from lunch I did a quick check on how many loyalty cards I carry – more than 10! And I know I have, may be another 10 cards, that I don’t carry around because I don’t use those stores frequently. If they can be pooled together with a little bit of data mining, they can figure out almost everything about me – name, age, where I graduated from (there was only one grocery store near my school and with the time period I shopped there they can figure out I was there for school), where I work (approx. as I do shop in stores that are either close to work or home), what route I take to work (remember the Shell rewards that combines the Ralphs grocery points?), whether I have kids, what kind of wine I like… Yes, we are getting the discounts but what are we giving up in terms of privacy?

Loyalty cards : What do they know?

Loyalty card programs collect and store different types of data. It includes direct information that we give (name, address), data collected during the transaction (name of the product) and some inferred (frequency of purchase).

  • Customer demographics : When we sign up for loyalty cards, we willingly give them certain information including – name, address, age/birthday, gender, email & telephone number.
  • Customer location : Even if you move and don’t change the address, they can figure that out (approx) by the most commonly visited stores.
  • Products purchased : Information about what we buy (name & type of product, price, location of the retail store, coupons used)
  • Frequency of purchase : How frequently we buy a product – whether you buy singles or by carton.
  • Value of your purchases : By category or by visits.
  • Customer responsiveness : How each customer responds to the mailers they get (by tracking the coupon that was targeted to you), how responsive they are to surveys conducted.
  • Redemption information : How you redeem you loyalty rewards (product, gift cards, to which store or product)
  • Segment/basket analysis : This is the marketing gold mine. This is not individually attached to you but more like if people in this demographic (gender/age/mother) bought “X” what other products did they also buy, so that those products can be cross promoted to you if you are not already buying them.
  • Credit card information : Yes, they do store information about the credit card you use.
The only thing they don’t have is your Social Security Number. Oh no, wait, if you have a credit card that is doubling as a loyalty card or a club card that will let you “attach” your checking account or credit card, they have that too! So there really is nothing that they don’t know about us.

Rewards vs threats

  • How a consumer sees the loyalty card : Discounts!
  • How the company sees the loyalty card : Marketing/Information gold mine. The information can be converted into commercially valuable insights for generating more revenue.

Collecting the information alone doesn’t matter as much as the company that is handling the information. Lot of the store rewards card systems are outsourced.  So even if you trust CVS or Kroger or whatever-store-you-frequent, you have no idea who is actually handling the information. If this outsourced company is hacked, you information goes along with it.


And the next potential threat is sharing of information. Honestly, how many of us actually read the privacy notice before signing anything starting from the free rewards card to a $20000 limit credit card? I would guess very few people do that. Just in case you didn’t know, your information is shared with a lot of people “other” than the company itself.

For example  –

  • The company may share your name/address/shopping activity to other companies they “believe in”.
  • The company may disclose your information to law enforcement, court or other fraud investigation units.
  • They can share the information among their other brands and partner companies.
  • If the company merges or was bought out they transfer the information among other business assets.
  • They can sell the information[after removing the name & address]

So if you start buying from one clothing store and started receiving offers for a shoe company or accessories you know how your information got there.

From privacy to shopping carts

And coming back to the discount part… The whole point for us, the consumers, willing to share this information is for one purpose – getting the discounts. But without realizing it we might be paying more. How?

  • They will send coupons for related products. This is very convenient but if it is an item we wouldn’t have bought if we didn’t have a coupon, that is not saving. It is just spending more. Simple. And they will make sure the related product would be a tempting product. You might not have studied your habits, but they have.
  • NOT sending coupons for products you buy anyway. People think signing up for loyalty cards might get them coupons for products they generally shop for. But this is not always true. If you buy a certain name brand product all the time, you might not get a coupon for that product. You are going to buy that anyway, why waste a coupon on you? At that same time, they would have sent that coupon to someone who never tried that product before. So you are going to be paying more than that guy.

Everything is studied. Mostly it is not studied on a micro/individual basis, but you are going to be categorized in a bucket and you are going to be studied.

Should I willingly give up discounts and pay a higher price?

That makes me look like a moron compared to the next customer who bought the exact same thing for $2 less because of “club pricing”. This is not a scare tactic post. All I wanted to convey here is – being aware of what you are giving up goes a long way. If you are aware of how your information is used and how you are being studied you can –

  • Choose not to give your information. Yes, this is possible. You can sign up for cards without giving your name, address, birthday, favorite color and the number of teeth… when I signed up for my first card, I was in a hurry. And I was not buying a huge amount of stuff so I told the cashier that I will sign up later. She gave me the card saying I can fill out the information and mail it out. Life happened and 8 yrs later, I still have not done that. That card works perfectly well. The only thing I can’t do is use my phone number if I forget my card. I am ok with that. Ever since then I have asked the cashiers if I “have” to fill out everything. Most often they just ask for email. If they insist on the name and address, I don’t know what they will do if you write “Mickey Mouse”, 1000 Imaginary street, Middle of nowhere, CA :) .
  • Create a separate email for this purpose : And give that when you sign up. Just one note of warning here – if their database is breached the only way they have to notify is through this email. So you might want to create a filter with “security, breach” as keywords and forward just those emails to your regular email account.
  • Opt out of the communication sharing : There is always a check box that says if you don’t want to share information or receive communications from us, check this box. They know that people won’t notice or even if they do, they won’t do anything. Because we are good at not doing something. If the box said “click here to receive communication” they know that no one will click that either.
  • Shop elsewhere : There are plenty of stores that don’t have a rewards program. Rewards programs cost money and it is built into the prices. For groceries check if your farmers market or local grocers have cheaper prices. A lot of mom and pop stores have better pricing and customer service.

Be an informed shopper and know what you are buying and its worth.


{ 38 comments… read them below or add one }

Leave a Comment

{ 4 trackbacks }

Previous post:

Next post: