Capital Ideas Blog

Small Data: Why Jewel is dumping loyalty cards

By Pradeep K. Chintagunta
July 15, 2013

From: Blog

This post originally appeared on the Kilts Center Faculty Blog.

In the movie Enemy of the State, Brill, the character played by Gene Hackman, describes what he views as the extent of data gathering by the government: “The government’s been in bed with the entire telecommunications industry since the forties. They’ve infected everything. They get into your bank statements, computer files, email, listen to your phone calls … Every wire, every airwave. The more technology used, the easier it is for them to keep tabs on you. It’s a brave new world out there. At least it’d better be.”

Organizations, both public and private, have been gathering information on individuals for a very long time. Retailers, in particular, have been interested in understanding their customers’ needs and behaviors, and many have loyalty card programs in place to gather such information.

Jewel, and other affiliated chains such as Shaw’s, Star, Acme and Albertsons, recently announced that they were discontinuing their loyalty card programs. Participants in the programs were provided with scannable cards, known as Preferred Customer Cards, that entitled the holders to special prices on a subset of products that were advertised in the store and in newspaper features. In return, Jewel collected the data about the purchasing patterns of these customers, with the possible aims of better understanding its customers and providing appropriate products and prices. In reality, most customers had loyalty cards and could therefore avail themselves of the lower prices—those that did not have the cards could sign up for them on the spot.

After having the program in place for so many years, what could be some possible reasons for discontinuing it, at a time when data and analytics are increasingly being viewed as critical to a firm’s ability to negotiate the vagaries of the marketplace?

One possible reason could be simply to change perceptions. Walmart has been waging an aggressive advertising campaign against Jewel; the ad shows how much a customer would save by shopping at Walmart vis-à-vis shopping at Jewel (click here to see this ad in the Chicago Tribune). By discontinuing the loyalty card and proclaiming that “all customers deserve low prices,” Jewel might be attempting to change perceptions without actually changing prices or its pricing strategy. After all, most customers got the loyalty card prices anyway. In other words, consumers might now perceive prices to be lower, even if Jewel ran the same promotions before and gave consumers the same discounts.

A second possibility is that Jewel has figured out another way to access the same information. If a majority of the bigger-ticket baskets are paid for using credit or debit cards, Jewel may be able to extract information on purchases by obtaining the corresponding data from the card companies. Collating all purchases of a household at the Jewel store would produce data very similar to the corresponding data from the loyalty card. Another possible benefit of these data is that Jewel may be able to get a measure of its “share of wallet” – how much its customers are spending at Jewel relative to their spending at other grocery stores. This information is not available with store-specific loyalty cards and may therefore be more useful.

Third, Jewel may be able to get at consumer preferences and sensitivities to prices and promotions at a more aggregated level than it currently gets just at the individual household level. How can they do this? By treating the entire store as the unit of observation, Jewel can vary prices and promotional activities in the store across categories, across stores and over time to understand the impact of these prices and promotions. Of course, conclusions can be drawn only at the store level, but if that is the relevant level for decision making (i.e., if the store does not provide personalized coupons like other retailers do), then the loyalty card data would not provide any incremental information for purposes of such decision making.

Finally, there is the possibility that the company truly believes that the data are not useful. This seems unlikely since the core function of marketing is to better understand your customer. At the same time, for retailers who collect data, it is always important to keep in mind privacy concerns that consumers might have with data collection.

In Enemy of the State, Congressman Sam Albert, the character played by the actor Stuart Wilson, says, “We knew that we had to monitor our enemies. We’ve also come to realize that we need to monitor the people who are monitoring them.” Carla Dean, the character played by Regina King, asks, “Well, who’s gonna monitor the monitors of the monitors?” Marketers need to exercise care when they gather information about their customers and then use that information for their decision making.