Bill Hanifin
view more articles
My Dad taught me the value of money. Cash is King and all that.
A dollar is a dollar, that can’t be denied. And, those dollars are increasingly hard to come by with the demands of business pressing harder on most over the past two years.
With my mind on cash and flipping through the latest issue of Costco Connection at home the other day, I couldn’t miss the half page announcement that at Costco, February is 
REWARD TIME. For holders of the True Earnings Card® from American Express and Costco, shoppers can earn 1% on all Costco purchases and up to 3% back on other purchases including travel, dining out, and gasoline purchased at the Costco store. Business cardholders enjoy a similar offer, topping out at 4% for gas purchases.
Rewards accumulate all year long and, just as folks are thinking of flowers in the spring, the annual disbursement of rewards checks is made each February. The certificates are able to be used for in-store purchases only and expire in about 6 months on August 31.
Costco, in their partnership with American Express, reinforces that a dollar is in fact a dollar. But does it have to be so?
The Costco cash back rewards model has weakness on two levels. First, with consumers interested ever more in redeeming early and often, are they willing to wait one entire year to enjoy their rewards? Actually, the real question is not if they are willing, but if they will consistently alter shopping behavior over this extended period of time. Second, the once a year model is less likely to encourage an extra shopping trip to Costco as it becomes a way to make a regular trip “cheaper” when the coupon is redeemed.
Can Costco do better? You only have to look at far as Target and Tescos to find an answer.
Tescos is the undisputed king of grocery loyalty and may be the undisputed heavyweight champ of leveraging the customer data it collects to drive value for customers and results for the business. Tescos Clubcard is based on cash back rewards, but manages to turns a dollar (Pound Sterling) into two as it offers Tesco Clubcard holders double the value of their vouchers when applied to purchase of a range of popular items in-stores and online. They even have a nifty rewards calculator to help customers build excitement.
Even before the latest announcement, customers could spend their Clubcard vouchers at face value in-store and online or increase the value up to four times by selecting rewards offered by Tesco Clubcard partners including restaurants and entertainment venues.
Target announced they are testing new offer combinations with their private label and cobranded credit cards. Instead of the usual “10% off today’s purchase” incentive to take a store charge card, Target is testing everyday rebates between 3-5% on all store purchases made with the card. To me this means they are testing incentives to drive repeat purchase and retention rather than simply acquisition.
While it is not different in structure from the Costco program and there is no leverage on specific items purchased like Tescos offers its members, the test does create an incentive to increase visit frequency and the rebate is higher than the industry norm.
Focus group members may have spoken that “cash back is king” for years, but a closer look reveals that the pure model doesn’t breed stickiness to the brand.
Target is experimenting with changes and Tesco has already shared a partial answer key to the test faced by all retailers – how to keep customers coming back for more.
