Rewards Programs Adapt to the Recession

Tough economic times are remaking the landscape of customer-loyalty programs.

Consumer participation in loyalty programs – or incremental incentives that reward repeat business – is up nearly 20% from 2007, according to July research from Colloquy, a market research firm that studies loyalty marketing. A third of shoppers say they’re relying more on such programs to find value in during the recession.

That interest hasn’t necessarily translated into increased sales among businesses. Loyalty only draws customers to the store when they have money to spend, but as the unemployment and personal savings rates have risen, the American wallet has grown tighter. “Upping the rewards isn’t going to entice them to spend more money,” says Randy Allen, associate dean of marketing and corporate relations for Cornell University’s Johnson School. “Lowering the price might.”

As a result, retailers struggling amid the economic downturn are tweaking their customer-loyalty rewards programs — resulting in both new and lost savings opportunities for shoppers.

Like credit-card issuers, retailers are weighing the costs and benefits of loyalty programs against their bottom line. For example, Bed Bath & Beyond (BBY) stopped offering in-store rebates for the Upromise.com college rewards program on July 1. (A spokeswoman for the company said the firm does not publicly comment on its business strategy.) However, Sephora expanded its Beauty Insider program this month to allow shoppers to save up points (one earned per dollar spent) for full-sized beauty products instead of just samples. (For more details on both deals, see the chart below.)

Here are a few changes to watch out for in your favorite retailers’ loyalty programs:

Retailers are giving consumers more control over how they access discounts. CVS (CVS) began allowing customers to print ExtraCare reward certificates from home last year, instead of just printing them at the bottom of receipts. And Safeway (SWY) rolled out a program this summer that allows shoppers to load digital manufacturers' coupons onto their club card for automatic redemption at the checkout counter.

Stores looking to protect their profits are adding concierge-type rewards like early access to concert tickets or sporting events via ticket brokers, says Kelly Hlavinka, a partner with Colloquy. It costs the retailer very little to provide such perks, but they may resonate with consumers.

If you’re not a big spender, chances are you’re getting a very different loyalty club experience than someone who is. “Retailers are focusing on the customers that spend money,” Allen says. Best Buy (BBY) recently announced that as of Oct. 31, members in its standard Reward Zone program must redeem points in the year they are earned. Premier Silver members have no such restriction. (Best Buy did not respond to a request for comment.)

Cross-marketing — giving rewards on one thing when you shop for another — can be extremely effective, says Hlavinka. Look for partnerships among retailers, like Gulf Oil’s Override.com, which offers discounts on gas when you buy coffee and groceries at partner companies Shaw’s Supermarkets and Dunkin’ Donuts.