Frequent-Shopper Programs Help Retailers Woo Customers

High-brow retailer Neiman Marcus Group Inc. would like nothing more than to send its customers on a free trip around the world.

There’s a catch: To qualify, a customer has to charge $1 million on a Neiman Marcus charge card in a year. One woman nabbed the freebie last year, the company said, although they declined to reveal the identity of the marathon shopper.

Neiman, Sears, Roebuck & Co. and others are turning to one of the oldest tricks in retailing - frequent-shopper programs that reward customers with free merchandise, trips or credit toward other purchases.

“All customers should not be treated equally,” said Frank Kardes, marketing professor at the University of Cincinnati College of Business Administration. “Some customers are better than others.”

Retailers hope that by rewarding their best customers they build store loyalty and wean consumers from their passion for the deep discounts that drain profits.

Much of the retailing industry has found itself caught in a cycle of ever-deeper price cutting, as shoppers become more accustomed to discounts of 50 percent or more below list prices. While this stimulated sales during the slow-growth 1990s, it demolished profits at many retailers and is partly responsible for the wave of bankruptcies in the industry.

Another consequence of discounting: It encourages shoppers to hop from store to store looking for the lowest prices.

Frequent-shopper programs are “a way a lot of retailers are trying to break away from the promotion cycle,” said Jaime Pereira, regional director of retail industry services at Ernest & Young.

Some consumers are taking retailers up on the offers and figure they get something of value.

“I buy a lot of books so the $10 I shelled out to join the club ends up being pretty minimal compared with the discounts I get,” said Rick Gyan, a New York computer consultant, who belongs to Barnes & Noble’s B. Dalton club.

Some retailers are finding that their new frequent-shopper programs are paying off.

Department stores with the programs say sales rise 15 percent to 25 percent among participating customers, according to Colloquy, a newsletter that follows so-called frequency marketing programs.

Same for Today’s Man, a menswear retail chain operating under bankruptcy protection. After adopting a frequent-shopper program tied to its store credit card, the retailer saw a “huge spike” in the amount of money spent on credit purchases, said spokeswoman Careen Winters.

Sears has several frequent-buyer programs and its Craftsman Club - taken from its line of Craftsman hand tools - is a “very big success,” said company spokeswoman Vaneta Rogers. She said the club has about 7 million members and is growing.

Of the many techniques retailers are using to woo shoppers, “this is working,” said Judith Zernik, director of fashion merchandising at Philadelphia College of Textiles and Science.

The programs reward shoppers in a variety of ways. At department stores, the plans usually are tied to store credit cards and give shoppers 1 point for each dollar spent in the store. For example, by spending $2,000 a year at the store, the customer gets 2,000 points. The points can be cashed in for discounts on other purchases, free trips and other giveaways.

At Saks Fifth Avenue, meanwhile, if a shopper spends $2,000 to $4,999 in a year, he gets 2 percent of that - or $40 to $100 - in a certificate toward a Saks purchase.

Other retailers offer credit toward future purchases too, including Kmart Corp., which recently rolled out a private-label credit card.

Many retailers simply offer discounts for joining frequent-shopper clubs, particularly bookstores. Both Borders’ Waldenbooks chain and Barnes & Nobles’ B.Dalton chain give customers a 10 percent discount on purchases for a $10 annual fee.

While many marketing experts say the programs work, they’re no guarantee that customers won’t head to a sale at another retailer on a moment’s notice.

“If another store is cheaper, you’d have to say ‘Wait a minute,”’ said Kurt Barnard, a retail consultant and president of Barnard’s Retail Marketing Report.

After all, consumers love discounts for a very good reason.