This article is part of Next, The Globe's five-day series examining the people, places, things and ideas that will shape 2013.
It will be the year of the loyalty card in Canadian retail as the entry of U.S. discounter Target Corp. raises the ante for rivals – and the payout to consumers.
Even as it prepares to shake up the retail landscape with its cheap chic, Target also is poised to stir up the merchant loyalty-program terrain with its 5-per-cent rewards plan. Its REDcard, which it will start issuing in February – a month before it begins opening its first Canadian stores – gives customers a flat 5-per-cent discount on almost all purchases made with the chain's credit or debit card. Domestic retailer cards reward an average of about 1 to 2 per cent of spending.
Now, Canadian players ranging from grocery giant Loblaw Cos. to generalist Canadian Tire Corp. are sprinting to upgrade their own loyalty programs, develop new ones or test would-be plans.
In an increasingly crowded loyalty field, they are aiming to draw back customers and, perhaps more importantly, collect valuable information about their shopping behaviour. In 2013, incumbents will face off with mighty Target and its savvy for tracking purchasing habits so that it can even pinpoint when young women are pregnant and likely to appreciate baby crib promotions.
Customers who rack up REDcard points "do see the 5 per cent as significant value and something that does add up," said Livia Zufferli, marketing director at Target Canada. "Adding to that sense of value is the simplicity that comes with the program."
Already in the U.S., Target customers who begin paying with a REDcard spend an average of 50-per-cent more than non-card holders, according to company data. Target is betting it can win new loyalty customers, putting pressure on other chains to keep their own best customers from switching to the newcomer.
"I do think there's going to be a ripple effect," said Kelly Hlavinka, managing partner at Colloquy, the global research group for LoyaltyOne, which runs Air Miles. "On the surface, a proposition like Target's 5-per-cent offer seems extremely generous."
Most domestic retailers' loyalty programs provide rewards between about 1 and 2 per cent of purchases, she said. Customers can sometimes double-dip by combining those savings with their separate credit card's rewards.
Already retailers here seem to be responding to the upcoming 5-per-cent threat: for the first time, Canadian Tire and Hudson's Bay Co. ran promotions this month offering 5 per cent back on purchases with their respective credit cards (HBC required a minimum $75 purchase.)
Merchants are courting loyalty-friendly consumers. Canadians are among the most avid points-collectors in the world, Ms. Hlavinka said.
Nevertheless, loyalty fatigue is starting to set in amid a proliferation of programs. In Canada, consumers' participation rate in a rewards plan fell to 90 per cent in 2011 from 94 per cent two years earlier, according to Colloquy. In the U.S., where retailers have lagged in offering loyalty schemes, rates rose to 74 per cent last year from 68 per cent in 2009.
Next year, shopkeepers will feel the need to find new ways to entice customers beyond just touting rewards' discounts, particularly by adding personalized, on-the-spot digital offers based on prior purchases and geographical location, said Manu Sarna, retail general manager at Aeroplan. "2013 is really the year of loyalty transformation. You can think of it as loyalty 2.0."
But a key to retailers offering meaningful rewards is being able to mine customers' data to learn more about their shopping preferences, he said. Canadian Tire is working on reinventing its pioneering paper currency loyalty program – which fails to generate customer information – with a test in Nova Scotia which offers cardholders more than seven times higher rewards than the 0.4-per-cent returns from its "funny money."
The chain has discovered, for instance, that its top customers make two trips a month to its stores, or six times more trips each year than the average customer, said Allan MacDonald, senior vice-president of marketing.
These "high-value" customers spend more money, purchasing a more balanced array of discounted and regular-priced goods, rather than mostly markdowns, he said. "We're finding that the breadth of purchases they're making is very encouraging."
Shoppers Drug Mart Corp. is now piloting customized offers to its Optimum loyalty card holders, based on feedback from its customer purchasing habits. For example, if a customer has bought a lipstick in the past, she could be e-mailed an offer of bonus points for a new lip gloss and mascara along with reminders of weekly cosmetics specials.
"Optimum as a database and an ability to tailor offers to customers – and an ability to be very specific and more productive with our offers – is really the largest value of Optimum," Domenic Pilla, chief executive officer at Shoppers, told analysts this year. "It's very early days … We have a long ways to go to be much more targeted."
The initiative is important to Shoppers because Optimum cardholders are its most valuable customers, spending almost twice as much as non-cardholders, the company says. Loblaw's PC World MasterCard holders are its most loyal customers, shelling out on average more than double its typical PC Financial MasterCard holder, a spokeswoman said.
Retailers also are beginning to re-brand their loyalty efforts to focus on paybacks, borrowing a page from the Target playbook. It touts its REDcard with the pointed message: "5 per cent off every day."
Shoppers started this year to trumpet its Optimum card with the slogan "free feels good." HBC promotes its MasterCard with: "now earn double everywhere" from the gas pump to the grocery store. It highlights a change it made in the fall when it introduced the same level of rewards as when using its plastic in HBC and other stores. (Other retailers often offer fewer points when the credit card is used elsewhere; Target offers 5-per-cent savings, redeemed in Target gift cards.)
Loblaw and HBC are gearing up to re-launch their loyalty programs in 2013. HBC will introduce a multitiered plan, rewarding its best customers more lavishly. For Loblaw president Vicente Trius, its new program will mean "I can reach those consumers directly in the right manner, understanding their needs, communicating to them … what they really want," he told a recent conference.
And Target's REDcard has drawbacks. As a credit card, it appeals to a narrower audience than a separate loyalty card because consumers often don't want to carry yet another piece of plastic in their wallet, Ms. Hlavinka said.
About 20 per cent of Target's customers participate in the program in Kansas City, Mo., where the card was rolled out in 2009, one year earlier than in the rest of the United States, the retailer says. The rate isn't as high as broader-based loyalty programs but the rewards scheme is still relatively new. Already more than 30,000 Canadians have a card. Generally, customers are opting for debit cards at triple the rate as credit. "It's still a rapidly growing program," Target's Ms. Zufferli said.