Using a store's rewards program? You're revealing a lot

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Posted: Friday, July 5, 2013 12:00 am

Dwayne Ball, who lives in Lincoln, recently received a coupon for $10 worth of free gasoline. The only hitch? It had to be redeemed at a gas station near Harrah's Casino in Council Bluffs, some 60 miles away.

Ball, a marketing professor at the University of Nebraska-Lincoln, had recently visited the casino and signed up for its rewards program. He guesses the coupon was Harrah's testing whether it could entice him to make a return trip by helping with the gas bill.

Retailers have become increasingly dependent on data collected from customers through rewards or loyalty programs to boost their bottom line. With the right software, retailers can sift through the information and generate customized offers.

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“The more you know about an individual, the more likely you can predict what they want and when they will want it,” Ball said. Do your sales receipts show weekly diaper purchases? Here's a fistful of coupons for a jumbo pack of diapers and baby wipes.

But there's a trade-off when you furnish your name, email address, perhaps a phone number or other details in exchange for membership in a rewards program. Add a ZIP code or street address, both of which provide clues to your income level and whether you rent or own your home, and retailers can form a fairly accurate picture of your household.

What people don't always realize is how much personal information retailers are collecting through rewards programs. Loyalty cards function like tracking devices, recording each item you purchase, how much you spend, the frequency of your visits and how far you traveled, Ball said.

Public outrage erupted over the National Security Agency tracking phone calls, but there's been little or no outcry over the quantities of data retailers have been collecting for more than a decade. Retailers stress that their loyalty programs are optional, but it's hard to ignore the sometimes substantial difference between the “regular” price and the lower price that can be had with a rewards card.

Despite privacy concerns, many consumers are big fans and carry a half-dozen or more rewards cards in their wallet or on their key chain. Nationwide, more than 75 percent of consumers possess a loyalty card, and the average U.S. household has signed up for 14 programs, according to a study by Colloquy, a marketing consulting company.

Also read: Retail loyalty program can't tell a dog from his owner

“They get me rewards and I like that,” said Bill Gaughan of Omaha, who presented his Petco rewards card this week when he bought treats for his dog Frankie.

Most information gathered by retailers stays in-house and is used for internal marketing purposes, said Timothy Graeff, a marketing professor at Middle Tennessee State University who has researched loyalty programs.

But the system doesn't always work so neatly, Graeff said. “Target recently got themselves into a bit of a tricky situation when they began sending a teenage girl coupons for baby products based on her recent purchasing history,” he said.

The coupons prompted her father to complain that Target was encouraging teen pregnancy. But his rant ended in an apology when his daughter revealed she was pregnant. The case, said Graeff, “highlights the ethical issues that surround the use of such information.”

Linda Gardels said she is concerned about what retailers might do with her personal information, but that hasn't stopped the Omaha resident from joining loyalty programs, including those run by Baker's Supermarkets, Starbucks, Petco and Target.

“I guess I'm kind of trusting. I figure if I don't like the program, I can just cancel,” said Gardels, who was shopping on a recent morning at the Baker's store near Leavenworth Street and Saddle Creek Road.

Other consumers limit the number of rewards programs they join. “I have a Hy-Vee card and a Bass Pro and Cabela's card,” said Gary Faust of Omaha. “I like the coupons and discounts I get from ... Bass Pro and Cabela's.”

Retailers, from supermarkets to discount stores, have found themselves “in a highly competitive environment where mass marketing appeals” don't always work. A more fruitful approach involves offering “personalized” promotions and discounts, but that requires tracking customers' purchases, Graeff said.

And it's not just rewards programs that scoop up information, but wedding, baby and gift registries, store credit cards and warranty cards.

According to your Loft store credit card application, your birthday is in July. Happy Birthday — here's a $15 coupon good for the month of July at any Loft women's apparel store. Just moved and filed a change of address form? Expect a welcome-to-the-neighborhood discount from the local home improvement store.

“Consumers need to be aware that whenever they purchase something with anything other than cash, information about their ... transaction can be ... recorded and tracked,” Graeff said.

Retailers are also searching for a crystal ball.

Software designed to predict our “shopping behavior” is already in use, Martin Lindstrom, author of “Brandwashed,” explained in an email.

Studies show that “when people buy a house, get married, have children, they typically buy a whole new set of things,” Ball said. If a retailer can predict a consumer's next move, based on their age and purchases — think new furniture or a pregnancy test, for example — they can tailor their promotions to match a consumer's future needs. A pocketful of coupons that match your shopping list is a tempting incentive to visit that particular retailer.

Some software in use reportedly can help detect “if you're considering moving on to another retailer,” triggering a barrage of extra coupons in hopes of halting the migration, Lindstrom said.

John Breyault, vice president of public policy at the National Consumers League in Washington, D.C., said, “Loyalty programs are incredibly rich revenue sources for retailers, but there needs to be stricter controls on how that information is used.”

Consumers often find themselves pressed into filling out a rewards application at the checkstand, he said, and it's difficult to read the privacy policy “while the line is moving and the kids are screaming.”

In other cases, the privacy policy isn't on the paper application. Hy-Vee's privacy policy isn't on its paper Fuel Saver application and must be viewed online.

Breyault advises consumers to weigh the trade-off — information for discounts. He recommends choosing companies you've had a relationship with, and regularly ridding your wallet of loyalty cards you haven't used in the past six months and deleting the account.

Some consumers say signing up for any rewards program is too much trouble. They're overwhelmed by fliers, discounts and the number of retailers offering loyalty cards.

“I have too much junk mail already,” said Carrie Lutzen of La Vista. “I already get 50 emails a day, and everyone has a card.”

Jewel-Osco, a Midwest grocery chain, said this week that it's dropping its loyalty programs and instead offering “card-free savings” to everyone, the company said in a press release.

Although plastic rewards cards may become a thing of the past, data collection will not. New loyalty programs use smartphone technology to link your credit or debit card, loyalty card and coupons together — creating a mobile wallet.

“It's all there electronically in one place,” said Julie Bohn, vice president of advance solutions and innovation at First Data, a major employer in Omaha.

But just like current loyalty programs, it's up to the consumer to decide whether to participate.

“It requires the customer to opt in. Consumers have to give their consent,” Bohn said.

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