A number of people have recently mentioned Discount Cards to me and have asked my opinion of their effectiveness. Quite simply I don’t think they are really effective for most businesses – the only exceptions being those who rely almost totally on tourism. Most businesses however would prefer to have returning customers rather than have to find new ones every day and Discount Cards do little to help in this regard.
There are 5 main reasons why Discount Cards are not an effective business tool but before we take a look at these we need to define what the card is:
A Reward or Loyalty Card allows a business to issue points according to set criteria such as Euro spent, number of visits etc. They are distributed for free and the customer typically needs to register the card by providing their contact details.
Discount usually cards provide a simple set discount per purchase (though they can work on a tiered basis) to all customers. The user typically pays for the card and does not need to prove the business with any personal details.
So what are the 5 reasons why Discount Cards are not an effective business tool?
1. Regular Customers Are Alienated
Discount Cards force you to give the same discount to discount to all cardholders. Since there is no way to target the discounts to give loyal customers greater benefits they can be alienated by seeing first-time customers get a discount which they themselves cannot avail of – especially when they know the cardholder has paid someone for that privilege. Understandably regular customers think they deserve something for their loyalty and ideally would like to see the rewards increase with the number of visits.
2. There Is No Information Collected
Discount cards provide no way to track their usage. A business might see high usage of the card but there is no way to see if this is the same card being shared between different people or if it is a large number of individuals, no way to identify if customers use the card more than once or if they visit the one time and never return, and no way to gather information for marketing campaigns. This lack of information prevents the business form using it to help in developing their business.
3. Focus On Single Transactions
Discount Cards require you to provide a set discount on single purchases and to do so for all holders. This does not provide the business with a way to encourage repeat visits. A Reward Card allows customers to build up points over time and so not only rewards the regular customer but also provides encouragement to return.
4. Uncertainty About Distribution
Because discount cards are usually sold to the public there is no way to guarantee the number distributed. It is not possible for participating businesses to know how many cards will be distributed or how long it will take to do so.
5. High Cancellation Rate
Because they are required to pay for the card there is typically a very high percentage of customers who will not renew for the second year. As a result it can provide an initial false indication to businesses of the ongoing success of the program and does not provide a foundation on which to plan the future.
Discount cards are useful for businesses which rely highly on new customers because they provide a reason for someone to visit once. What they do not do is encourage repeat business or provide the information a business needs to plan their future.