NO THERE THERE|
The False Economy of Shopper Cards and Why We Must Reject It
An Essay by Zelda Gordon, October, 2002
Little did I know when I began using the phrase 'false economy' to describe an economic scheme based on hype rather than substance that the ENRON debacle would come along to illustrate the principle so dramatically. Here we had a company that "traded" in "energy." Did they generate energy? No. Did they generate new customers for energy? No; we all needed it already. Did they create new providers of energy? No. Did they improve access to energy? No. Did they conduct research into alternative energy sources and means of delivery? We wish!
All ENRON generated was hype, shell corporations that existed on paper only, jobs that turned out to be temporary, profits that turned out to be faked, stocks that turned out to be worthless. There was no there there. However, the vast wealth that accrued to an unscrupulous few when all of these shenanigans were over is very real, and the rest of us are poorer for it. Money was extracted from the system and never returned either directly or in the form of product. Hence the strength of our real-goods economy is undermined. What I call a false economy, we might just as well call thievery.
Now let's look at supermarket shopper cards and count the ways in which this clever scheme depletes resources from an essential activity, the distribution of food. The purveyors of "loyalty" card programs (shopper surveillance), henceforth to be called Marketeers, do not provide the food-buying public (that's all of us, right?) with any real goods or services. Rather, they insert themselves between vendor and consumer, skimming profits from the former and raising prices for the latter.
Data is the currency of this new industry. (Remember how ENRON was originally lauded for trailblazing a new industry?) Consumers used to exchange money for food. Or coupons might substitute for dollars. Now the dollars and the coupons are not enough, certain stores require that ID be presented as well, an ID that can be scanned for the purpose of identifying the customer and tracking his/her purchases, thus providing the store with data which it claims is necessary to "serve you better."
Shopper card programs have been around long enough by now for us to test this claim, to evaluate if shopper card users really are being served better now that they've surrendered their personal information and shopping histories to their supermarkets.
Q: Is there more of a selection of products at your supermarket now that they use a card system?
Q: Is there better service at the card store?
Q: Are there more stores to shop at now that we have shopper card programs?
Q: Are prices lower at the card store?
And so we expose two great fallacies of loyalty card programs, that they lower grocery costs for card users, and that they provide better service. To these we might add other false claims:
In fact, the card programs most certainly are discriminatory and are designed to be so. That's why a single item can be sold at two different prices. The stores want to discriminate between their compliant, "loyal," card-carrying customers and those who refuse to be tracked and manipulated. And having discriminated between the two groups, the stores then want to be able to discriminate within the card-holders group, to profile the kinds of shoppers they are willing to "reward" with shopper card "specials." Mothers of young children, for instance, or people who entertain a lot -- all of this can be deduced from detailed records of grocery purchases.
As far as the cards being free -- they most certainly are not. We pay with our time, as we are inconvenienced by filling out forms, or simply waiting in line for someone else to do so; we pay with the valuable personal data which is collected when we use a card; and we pay through inflated grocery prices.
On to the word "voluntary." I believe this is only applicable when there is no punishment implied in choosing to act or not act in a certain way. In order for a confession to be voluntary, by law, there can be no coercive measures taken to get it. Threatening to beat the suspect unless he comes clean does not result in a voluntary confession. Similarly, for use of a shopper card to be truly voluntary, the stores would have to eliminate the punitive two-tiered pricing in which "choosing" not to use a card means you pay more. No one chooses to pay more. And who would voluntarily use a shopper card if they could get the same prices without one?
Which brings us to the many variations of, "People must like the cards because they use them." Yeah right, and people like being mugged, because when they feel the gun at their backs they hand over their wallets.
Okay, so we have established that shopper card programs do not serve supermarket customers in any way, but let's not be naive here. They aren't intended to. The hype is all part of the package, the package that Marketeers are selling to the retailer. Marketing strategies are not ever really intended to serve the public, but to serve the merchant who desires increased sales and profits. We all know what advertising is, right? Companies have to do it to survive. Before we declare shopper card schemes entirely useless, let's look at them in terms of a product which is sold to the merchant, for the purpose of improving the merchant's business. It must be a pretty attractive product to justify so much added expense, in an industry with notoriously low profit margins, high shrinkage, and stiff competition. What benefits does a shopper card program offer to a food retailer?
Theoretically, merchants gain inventory control and predictability of sales by having more data on customers' purchasing habits, collected through their use of shopper cards. Theoretically, profits are increased through weeding out the "cherry pickers" by limiting specials to cardholders who, once they have a card, are motivated to shop regularly at the stores issuing them. Theoretically, corporate market value increases through the sheer ability to gather statistics showing how many and what kind of customers are shopping at the stores and how much they are spending.
Still, selling food is an inherently low profit proposition, and card programs can cost tens of millions to implement and more millions annually to maintain. And not everyone likes them (as far as I know, hardly anyone likes them), a store could lose customers as fast as it gains them. Can the card program even pay for itself, let alone increase profits, in a timely manner? Realistically, how much and how fast can the cards increase sales?
Not to worry. Selling more food to more people never was the primary objective of shopper cards. The Marketeers have other techniques to make their schemes turn a profit. "You don't need increased sales," they might instruct their retailer, "just increased prices, and the data provided by those shopper cards will tell us exactly which prices to raise." Another version of this goes, "You don't need more customers, just better customers." In fact it is an avowed goal of loyalty marketing to reduce the customer base -- to make more sales on less traffic by targeting the high-volume, high-ticket buyers and not (not!) catering to the wider population. It must sound like a great deal to the stores -- making better sales while putting less wear-and-tear on the facilities. All they have to do is track their customers' purchases, crunch the numbers, and like a divining rod the data will lead them to gold.
But there's even more. There's the data itself. Once we surrender reason and plunge into the false economy, once we are swimming along in that imaginary world of promises and hype, the data itself is gold. It has real monetary value. It doesn't feed, shelter or power anyone or anything, yet it is sold and traded in pennies per factoid that add up to a multi-billion dollar industry. Lettuce may wilt and crackers might go stale, but data is forever (as anyone knows who has ever tried to get an incorrect billing record or other computerized file updated). Data is a nice clean product that can travel across the Internet instead of the highways. Paired with complementary factoids (grocery buying and video rentals, for instance), the value of our personal data increases exponentially. Is your supermarket card program falling short in generating food revenues? Not to worry, the Marketeers can come up with a whole range of businesses willing to subsidize the program through various "partnerships" for the sake of gaining access to the information gathered through the cards.
Whether or not the shopper card data is made immediately available for purchase and use by other vendors, the long-term effect is to habituate consumers to the use of ID cards and the gathering of personal information. The beauty part is, prices can be manipulated so that all of that valuable data doesn't cost anything -- the retailers can make the consumers pay to give it to them!
These are the claims. Working our way up the retail food chain, we now see that the shopper card phenomenon is a come-on directed at the retailer. Just as the retailers dangle their hooks to catch individual consumers, so we have a variety of other businesses who dangle their hooks to capture retail trade. Unfortunately, their bait is our personal data!
Clearly the Marketeers have much to gain by selling their card programs and loyalty marketing schemes and collecting our shopping records in the process. The fact that there is a huge pool of captive consumers (everyone who buys food), has made the grocery industry a prime target for a sub-industry that siphons capital away from trade in real goods and diverts it to an assortment of non-essential activities. The Agribusiness Examiner reports that farmers are receiving the lowest share of the consumer food dollar in history, while consumers are paying record high prices (Issue #195, 10/4/02). Where are our dollars going? Signs, brochures, applications, cards and keytags, computer hardware and software, programmers, system administrators, and don't forget the geniuses who think these schemes up -- shopper cards have brought a seemingly endless list of expenses which must now be added to the retailer's budget.
"While general advertising tries to change the way the market thinks, the goal of direct marketing is to change the way the individual acts." Bob Hacker, president, The Hacker Group (as quoted in Target Marketing magazine, July 2002)
Creepy, huh? I guess this means that it doesn't matter anymore whether we like a product or not, we'll be programmed to buy whatever the merchants decide to make available to us. On the other hand, it's a retailer's dream -- total control, one hundred percent predictabilty. Who wouldn't plunk down a few mil for that?
When the retailer bites, sinking millions into a card program, the pay-offs may materialize or not. It doesn't matter much to the Marketeers who collect their fees up front and are adept at manipulating sales statistics and public perception so that more and more merchants are "sold" on their programs. Once the ploy has become status quo (which it very nearly has), then the stores have to get on board simply to "keep up." And once they've made their investments, they will likely buy into other grandiose schemes in an effort to protect them. What happens when the shopper card data fails to provide sufficient returns? The Marketeers demand more data, more analysis, more discriminatory pricing levels. The investment escalates. But the more data which is collected, the greater the likelihood it will be contradictory, out of date, riddled with errors and ultimately too abundant to process and analyze affordably. Only the biggest fish will be able to digest it, and digest it they will -- along with the moderate-to-large companies which impoverished themselves amassing it. This is how shopper surveillance programs serve the stores they promised to save.
And this is where the economics of loyalty card programs are unsound. Both the retailer and the consumer are being scammed. Capital is being removed from a system which was formerly focused on providing groceries to the public, and pocketed by unnecessary middlemen who have nothing to lose. The customers cough up the data, the stores pay for the process -- the Marketeers walk away with both fees and data. Some supermarkets appear to benefit -- they gobble up the smaller stores. But their budgets are swollen by marketing and public relations costs, plus the operating expenses of all those additional stores. The big fish is always hungry, its fight for survival is ever more desperate, and the pressure on consumers ever greater.
Over and over again we have seen local supermarket chains implement loyalty card programs only to be sold within months to larger regional or national (or global) corporations. And once the number of competing stores in an area is reduced, what do we see happening? Is the pressure on the customers to be "loyal" lessened? Without adequate shopping alternatives, aren't we loyal by default? But now the bloated system must be sustained. The card program is not only retained but milked for data that will allow surviving retailers to maximize profits, so they can keep buying more marketing services. The customer is not "rewarded" but is made to pay for every "special" through overall price inflation. Further, there is growing anecdotal evidence that the stores actually rip off customers at the cash register through computer "errors" -- errors which are not corrected even after being brought to management's attention. Now that's playing dirty. In the kinder, gentler days of retail neither merchant nor customer would stand for it.
The customer-vendor relationship has been turned on its head. It is time to admit that card programs are not intended to serve consumers, they are intended to create conditions in which consumers will serve the stores, and the stores will serve the Marketeers. None of the dollars and none of the data exchanged through loyalty programs will be returned to the real-goods economy in the form of cheaper, better or more varied food products, or more stores, or more services. It is gone. It is out of the system, and it drains more out of the system every day. It is costing the consumers and food producers alike. Why are these programs tolerated?
In the technological age, this little game called Marketing reaches far beyond retailer insecurity and corporate greed. The false economy and the data which is its currency provide tools of control which are of tremendous value to law enforcement, the insurance industry, banking and the media, not to mention the politicians who covet our votes. There are many in the public sector who feel it imperative to be able to predict -- and control -- our behavior. They are willing to work with the Marketeers -- if not overtly then by tacit agreement -- to retain the means to do so through techniques as apparently benign as grocery shopper cards. As a result, we get proposed legislation that would limit what information a company can collect about us, but not their right to use coercive pricing to collect it; or that would regulate how such information is shared in the private sector, while giving the government greater access to it. From the media we get shallow, sensationalistic reportage of the most extreme instances of privacy invasion, little if any investigation of price hikes and cash register rip-offs, and zero discussion of the parasitic nature of the marketing industry itself and who profits from it.
Is it a conspiracy? I don't think so. It is human nature -- fear, desire, need for control -- the simple impulse to follow the pack. Let us take heart that it is also human nature to strive for fairness, freedom and choice. We can challenge this new model of doing business in which the consumer is slave to the vendor who is a slave to the Marketeers and their empty promises. We can reject manipulative, hype-crazed merchants and support businesses which reward our patronage with fair pricing, selection and service. The time has come to restore the delicate balance of power between buyers and sellers. There is a place for advertising and related industries in a real economy, in honest, respectful transactions between vendors and buyers. But we must recognize that advanced data collection technologies threaten privacy, liberty, choice and competition. We still have the power to choose, so as they say: "Use it or lose it."
A free people does not show identity papers to buy bread!
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