Loyalty card schemes: an expensive waste of time?

Asda took the brave decision two weeks ago to abandon a four-year pilot trial of its Loyalty Club. It decided the money would be better spent cutting prices. Or, as the official line goes, customers would rather have pounds in their pocket today than points for tomorrow.

Braver still, the company won't be adapting those IT systems for anything else, which means millions of pounds of lost investment. "They were bespoke systems for loyalty. There are no plans to use them for anything else. We'll just remove the systems from all our platforms and archive them," said John Beaumont, Asda's project manager for customer loyalty.

This rather drastic move begs the question: if Asda's loyalty club experience was so bad, why then are Tesco, Safeway and Sainsbury's still pursuing theirs?

It's not as if the cards have been hugely successful. A Demos study found last year that UK consumers trusted supermarkets less than any other institutions - because they think the stores don't respect personal privacy. And we've heard nothing about any profits reaped from this so-called loyalty boost, perhaps because there's nothing to stop customers from using a separate discount card in every shop on the high street.

This month is make or break for loyalty cards. Asda has bowed out. Sainsbury's is being ominously quiet about the future. But Tesco and Safeway are on the verge of announcing their next-generation loyalty systems. Their answer to the question, 'why pursue the loyalty card?' is to make it the crux of their retail strategy.

No matter how profitable the plastic cards are - or aren't - leading supermarkets are adapting the underlying IT systems to differentiate themselves from their rivals.

Tesco is to expand its ClubCard to include special offers from other retailers, via First Call International. Holidays, tickets and entertainment are all on the card. "This will re-establish Tesco as the number one loyalty scheme - it ups the ante for our rivals," said internal IT business consultant, John McIntyre.

He said: "We'll be using our existing systems in a slightly different way. We've set up a subset of the main database, which holds information on who is eligible for new offers - based on how many keys they collect."

Safeway is going in a different direction. It's using loyalty card data to conduct remote ordering trials in Basingstoke. The Easy Order trials will be expanded this autumn to Hayes where 500 more people will be offered personalised discounts on their 3Com PalmPilots, as they order their shopping from home.

Tesco hasn't looked into uniting its home shopping service with its data on customer preferences. And Safeway is ridiculing Tesco's efforts, claiming it's partnered with retailers like Philips and Royal Dalton since launch.

Whatever the future of the cards themselves, the leading supermarkets have secured their underlying IT investment, and are using it to boost competition. "Easy Order is our first step in taking customer management to the next stage of development. We've got a commitment to roll this out to stores in the not too distant future," said Roderick Anguin, director of Safeway's business IT development.

Both Tesco and Safeway insist their second-generation systems will not make any of the original investment redundant.

"We're making the changes because our customers want more excitement from their loyalty cards," said Tesco club card manager, Dean Brown.

But Perri 6, who commissioned the Demos study, 'The Future of Privacy', commented: "I'm not surprised supermarkets are having to move on from basic loyalty card systems. For all the effort they've put into marketing the cards, they just haven't won customer confidence."