The Price Of Consumer Loyalty
Terri Gault has one rule when she shops.
"I just can't stand to pay full price, and I won't," she says.
She describes herself as the queen of cheap.
She took Early Show national correspondent Tracy Smith along to Ralph's supermarket, where she saved a bundle.
She spent $11.61 for what would normally cost $49.06.
Then at Staples, she paid 44 cents for $28 worth of office supplies.
And who says there's no such thing as a free lunch?
At Toys R Us she got a whole bike for free.
How did she do it? As the founder of an Internet shopping site called "The Grocery Game," she knows her way around coupons. But the real bang for the buck comes from joining customer loyalty and reward programs, which nowadays seem to be everywhere.
"I think that we've been programmed to expect loyalty or reward of some sort because it's a huge marketing trend right now," Gaul says. "Everybody's doing it, and if you're not doing it, you're probably not up to speed."
So holiday shoppers now expect not only to give, but to receive something in return. Three-quarters have joined loyalty programs — racking up airline miles, getting free shipping, free dog food, clothing discounts — all efforts by businesses to keep customers coming back.
Even a trip to the doctor can be rewarding. In New York, Maria Sierra stopped in for an injection of Restylane to smooth things out around her nose.
For every treatment she buys, about every 6 months, she not only gets fewer wrinkles, she gets a gift card to a store like Nordstrom's.
But why does she need a rewards program if she is happy with the treatment and would do it anyway?
"I like to save," Sierra says. "I got the card, I got wonderful savings. I like to save, I work hard, it's a good thing."
The man at the other end of the needle is Dr. Michael Kane.
Smith tells the doctor she was shocked when she first heard about a rewards program for Restylane, for something that a plastic surgeon offers.
"Right. But, I mean, plastic surgery things are becoming more and more mainstream," Kane responds. "I mean, this is a medical procedure. But more and more to people in the public, it's — it is almost like going to the mall and getting a nice gift for yourself."
You can trace it all back to programs like Gold Bond Stamps, which started in 1938. Grocery stores gave out stamps based on how much you spent. Then you redeemed the stamps for free stuff.
"I remember wanting ice skates for some reason and got ice skates from the Gold Bond Stamps," says Marilyn Carlson Nelson, the daughter of the founder of Gold Bond Stamps, Curtis Carlson.
Now she's the CEO.
And Gold Bond Stamps have turned into the Gold Points program, with 11-million members. The concept hasn't changed. Build up points — get free stuff.
"Sometimes people think that if they offer cash discounts, that that's very powerful," Nelson says. "But there's something aspirational about saving for things that you particularly want."
Do the points have more power than cash, more power than discounts?
"We actually believe they do," Nelson says.
At Petco pet stores, they believe discounts will keep the members of their P.A.L.S. program loyal. But there's something else that drew Smith there. Because if you want to understand the psychology of reward systems, you might want to take a look at… rats.
"All of these reward programs, coupons, incentives, all of these can be traced back to fundamental work that any psych 101 student will know from B.F. Skinner," says consultant Jack Aaronson, who advises companies how to set up loyalty programs.
Behavioral psychologist B.F. Skinner studied reward systems, by putting pigeons and rats in so-called "Skinner boxes." When the animals pulled levers, they got rewards, or not.
The rat who got food every time he pulled a lever is a lot like the shopper who gets free shipping every time he buys something from Amazon.com, or points every time he sits down to eat at T.G.I. Fridays — he goes back again and again, expecting a reward.
But take that reward away, and eventually the person, or the rat, changes behavior.
"What that means is that I say there's no longer free shipping Jan. 1, everybody who was attracted to your company because of free shipping is going to be alienated," Aaronson says. "Much the same way then the points systems stop, people don't want to interact with the companies any more, because you attracted them because of that offer, not because of who you were or what you did."
Aaronson thinks many programs amount to bribing customers when what shoppers really want is good merchandise and service.
Aaronson and Smith walked around the Shops at Riverside Mall in Hackensack, N.J., and checked out the offers.
How could you resist getting a Gap discount for every 75 bucks you spend?
"I think it's a great idea for the short-term because you get people to come back in again. It doesn't breed loyalty, though," Aaronson says.
But there's something else in it for businesses besides just loyalty: information.
Most plans track exactly which customers are buying what.
So, for example, the Carlson Companies, which owns Gold Points, can figure out who the serious eaters are at its T.G.I. Fridays restaurants.
"We can give them more points because we see that they would be a very valuable customers, to come twice a week to Friday's, rather than once," Nelson says. "Whereas if it's a casual customer that is out, or that happens to stop in, and whose profile is a little different, you might reward them less."
So who's winning in all this? Are businesses gaining loyalty from customers? Terri Gault, the queen of cheap, thinks so.
"And I'll go, 'oh, I'm gonna go to Staples because I have a rewards card with them,'" she says. "I don't have one from this other company, so, definitely. I'm loyal. They're loyal to me, why should I not be loyal to them?"
But even the head of Gold Points says it has to be about more than just points.
"Let's be honest that we feel, ultimately, that customers want service," Nelson says. "A loyalty program maybe can buy you a little time. But we can't replace excellent service. Service is the most important."
Aaronson agrees.
"A point that I often make is loyalty doesn't come from a program," he says. "At the end of the day, Skinner's experiments also show that if the mouse doesn't like corn, the mouse doesn't like corn."
He says the bottom line is that businesses have to pull the right lever too.
