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The History of Retail Loyalty Programs in North America

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The History of Retail Loyalty Programs in North America The History of Retail Loyalty Programs in North America Nada Elnahla Sprott School of Business, Carleton University, Ottawa, Canada ORCID# 0000-0002-2721-3570 Leighann C. Neilson Sprott School of Business, Carleton University, Ottawa, Canada ORCID# 0000-0001-9947-9899 Abstract – This paper presents a history of retail loyalty programs in North America, tracing their evolution from the late 18th century until today, including tokens, coupons, credit extension, trading stamps, proprietary currency and finally, loyalty cards. Design/methodology/approach – Secondary data sources were analyzed in order to create this historical account. Research Limitations – The research is dependent upon the historical sources that are accessible, especially during the various restrictions imposed upon travel and archival institutions due to the COVID- 19 pandemic. Keywords – Marketing history; Retail; Trading stamps, Loyalty program; Customer loyalty Paper Type – Extended abstract Introduction In North America, loyalty memberships have been on the rise. The average U.S. household belongs to multiple loyalty programs (Ferguson and Hlavinka, 2007) and in 2017, U.S. consumers held around 3.8 billion loyalty memberships in customer loyalty programs (Wollan et al., 2017; Morgan, 2020). At the same time, COLLOQUY Loyalty Censes reported 175 million memberships in Canada (which is a 35% increase from 2015) with more than half of all memberships related to retail (Canadian Marketing Association, 2017). Yet the rise in membership numbers does not tell the whole story, for while some consumers want to trust and see value in loyalty programs, others are overwhelmed by the sheer number of programs available (which means they end up either refusing to sign up for new memberships or ignoring retailers’ marketing schemes), feel pressured to join, and/or are worried by what this rise in consumption surveillance means to their privacy. To date, loyalty programs have gained considerable practical and academic attention in the context of customer retention, customer relationship management (CRM), customer satisfaction and loyalty (Duffy, 1998; Noordhoff, Pauwels and Odekerken-Schröder, 2004; Stauss, Schmidt and Schoeler, 2005; Ho et al., 2009; Thompson and Tuzovic, 2020), the program efficiency (Meyer-Waarden, Benavent and Castéran, 2013) and potential outcomes (Baker and Legendre, 2020). In view of the considerable investment required to set up and maintain loyalty programs, it is crucial, both academically and practically, to examine the impact of loyalty programs on consumers, retailers and the marketing practice in general. To better understand the history and evolution of loyalty programs, the authors provide a historical perspective that would allow a deeper understanding of the scope and impact of loyalty programs on the discipline of marketing, hence, contributing to the marketing history literature. “Philateslists!”, January 12, 1962 A single image cartoon depicting a grocery storeowner yelling at supermarket customers across the street, drawn in by the gimmick of trading stamps. Credit: Library and Archives Canada (LAC), Item ID number 2866601 Methodology and Source Material This paper was inspired by the authors’ research on the use of loyalty programs as a marketing practice and a method of surveillance in today’s world of retail. Although the history of different types of loyalty programs across the years has been researched and documented in both scholarly and mainstream sources, to date, there has been no one overview that traces the evolution of those programs. To achieve this overview, the authors reviewed primary archival material (accessed digitally due to the COVID-19 restrictions imposed on travel and in-person visiting of archival institutions) and secondary material, including scholarly research, mass media and industry reports (such as newspapers, magazines, blogs, websites, and reports). To summarize and structure the historical material and secondary data, the authors relied on the “periodization by turning points” technique (Hollander et al., 2005) in order to “make the chronological narrative more understandable” (p. 39). Drawing from the extant literature, those turning points are related to the physical form in which the loyalty program was operationalized: tokens, coupons, credit extension, trading stamps, proprietary currency, and loyalty programs. Thus, the history of the development of loyalty programs was technically divided by subject matter (i.e., different programs leading to the currently used loyalty cards) and each program was presented chronologically. Discussion Looking at the history of loyalty programs, the authors discovered six major turning points. 1. Tokens The idea behind premiums was rewarding customers for their patronage using tokens. The first premium was possibly the “baker’s dozen” as early as 1793, when a merchant in Sudbury, New Hampshire, gave away copper tokens with purchases that could be later redeemed for goods in his store (Nagle, 1971). 2. Coupons After the idea of accumulating and redeeming discount tokens caught on, companies (such as the B. A. Habbit Company in 1851 and the Grand Union Tea Company in 1872) started issuing certificates and cardboard tickets to their customers which the latter could later redeem for merchandise. Later, retailers would use “box tops,” coupons that were printed directly onto product packages and that could be redeemed for premiums or rewards, for example, the Betty Crocker program (that lasted between 1929 and 2006). Another iconic coupon program is the Bed Bath & Beyond’s Big Blue coupon (that is still getting printed though facing an uncertain future). 3. Credit extension In the late 19th century, when merchants wanted to find ways to encourage their consumers’ loyalty, one major method was extending credit for their patrons who had exhibited the tendency to buy impulsively and in large quantities and who showed more loyalty to their stores; of course, this offer meant that stores had to profile the consumers to ensure they would pay their bills (Turow, McGuigan, et al., 2015). 4. Trading stamps Trading stamps was a controversial retail marketing program that started in 1891 (when it was first introduced at Schuster’s Department Store in the U.S. Midwest). After the peak years of stamp distribution (1962-64), the trend amongst shoppers was going back to the basics of “merchandising of groceries at the lowest possible cost” (Allvine, 1969, pp. 50–51). The distribution of stamps also faced legal challenges, for example, stamps were banned by the Canadian government in 1905, and they made their way to the U.S. Supreme Court in 1916. In 2008, the last operating trading stamp company in the U.S., Eagle Stamps, closed. 5. Proprietary currency Proprietary currency was a cash bonus coupon program first introduced in Canada by Canadian Tire in 1958, becoming the most successful loyalty program in Canadian retail history and a collector phenomenon (Allen, 2006). 6. Loyalty programs Starting in the early 1980s (when American Airlines launched their AAdvantage flyer program), loyalty programs have represented a period of transition from seeing consumers through a broad demographic lens to monitoring them as individuals who give off streams of data, often in real time (Turow et al., 2015). Nowadays, loyalty programs have become a means by which corporations are able to tie transactional data directly to each customer, and those programs range from frequent flyer programs and supermarket discount cards to retail points cards. Concluding Remarks This research adds to marketing history literature by tracing the evolution of loyalty programs in North America from the late 18th century and until the present time. The research, however, is not without limitation, for it is dependent upon the historical sources that are accessible, especially during the various restrictions imposed upon travel and archival institutions due to the COVID-19 pandemic. References Baker, M. A. and Legendre, T. S. (2020), "Unintended negative consequences of loyalty programs: Endowed vs earned loyalty", Journal of Services Marketing, Vol. 35 No. 2, pp. 210-221. Canadian Marketing Association (2017), "And the winner in Canadian loyalty is ... everyone?", available at: https://the-cma.org/about/blog/the-winner-in-canadian-loyalty (accessed 24 November 2020). Duffy, D. L. (1998), "Customer Loyalty Strategies", Journal of Consumer Marketing, Vol. 15 No.5, pp. 435–448. Ferguson, R. and Hlavinka, K. (2007), "The COLLOQUY loyalty marketing census: Sizing up the US loyalty marketing industry," Journal of Consumer Marketing, Vol. 24 No. 5, pp. 313–321. Ho, R., Huang, L., Huang, S., Lee, T., Rosten, A. and Tang, C. S. (2009), "An approach to develop effective customer loyalty programs: The VIP program at T&T Supermarkets Inc.", Managing Service Quality, Vol. 19 No. 6, pp. 702–720. Hollander, S. C., Rassuli, K. M., Jones, D. G. B. and Farlox Dix, L. (2005), "Periodization in marketing history", Journal of Macromarketing, Vol. 25 No. 1, pp. 32–41. Meyer-Waarden, L., Benavent, C. and Castéran, H. (2013). "The effects of purchase orientations on perceived loyalty programmes’ benefits and loyalty", International Journal of Retail and Distribution Management, Vol. 41 No. 3, pp. 201–225. Morgan, B. (2020) ‘50 stats that show the importance of good loyalty programs, even during a crisis’, Forbes, 7 May. Noordhoff, C., Pauwels, P. and Odekerken-Schröder, G. (2004), "The effect of customer card programs: A comparative
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