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Retailers rushing to join the loyalty bandwagon

Discount giant Wal-Mart is launching a rewards program tied to a new credit card, the latest among retailers to rush onto the loyalty bandwagon to tempt customers back to their stores.

Chains as varied as department store retailer Hudson's Bay Co., generalist Canadian Tire Corp. and grocer Loblaw Cos. Ltd. are racing to revamp their rewards programs, intent on finding new ways to provide perks for their shoppers. Music specialist HMV rolled out its program on Monday, offering rewards of collectibles and other hard-to-find items.

Retailers are searching for ways to reward their best customers to ensure they remain loyal. Industry research has shown that 80 per cent of business is generated by just 20 per cent of customers - the ones that retailers want to ensure are treated well.

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And loyalty programs can pay off for retailers: effective ones can boost their business by 15 to 25 per cent, according to loyalty researcher Colloquy, which is owned by the same company that owns Air Miles. Rewards schemes are also important to retailers because they serve as an inventory management tool, allowing them to better track what customers are buying so that they can stock more of them.

Merchants often point to Shoppers Drug Mart Corp. and its popular Optimum program as the gold standard in the rewards field. Yet even Shoppers is discovering the risks: this month it angered many of its loyalty members with its plan to require them to make more purchases to snag discounts, starting July 1, as the retailer seeds improved profit.

Still, setbacks haven't stopped retailers from focusing on the rewards strategy. Wal-Mart, as part of its newly licensed bank, said on Tuesday it is rolling out a loyalty program tied to a MasterCard. As the discounter brings its low-cost business model to rewards schemes, it's expected to provide stiff competition to other major players.

Wal-Mart will gain an edge by offering a simple and straightforward rewards program, said Trudy Fahie, chief executive officer of Wal-Mart Canada Bank. Other programs can be confusing to figure out, she said.

Wal-Mart Rewards is a no-fee program that allows members to accumulate dollar equivalents, rather than points. Under the scheme, members earn 1.25 per cent of their purchases in rewards for almost every dollar spent at Wal-Mart. As well, they earn i per cent of their purchases when they use it virtually anywhere else where MasterCard is accepted. The rewards can be redeemed immediately on future purchases in five-dollar increments. Five Wal-Mart rewards equal five dollars in redemption value.

Other chains, including HBC-owned the Bay, are working on overhauling their loyalty program. The Bay wants to build it program more around loyalty rather than simply rewards, its chief executive officer Bonnie Brooks said recently.

"The two are very different," she said. "In a rewards program, everyone is treated the same. In a loyalty program, some people are treated differently."

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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