If a retailer degrades a loyalty card down to the level of a discount card, it shouldn’t expect higher revenues and customer loyalty. And it certainly can’t expect to know them any better.

The floodgates of loyalty cards have opened as of late. Ten years ago I had just one in my wallet, now I don’t even know how many I have. Loyalty cards are everywhere: at the petrol station, restaurants, book stores, and even shopping centers. I was recently asked if I wanted one at a shoe store and a pharmacy! Those currently not offering them to customers are often planning to do so in the near future.

Companies should take note that I am not the only one who no longer has room for more loyalty cards in my wallet. Of course, the problem of space is simple to resolve and cards can now be scanned into a mobile app; but few of us can actually remember the benefits of the specific loyalty programs because of the sheer quantities involved. This severely limits their effectiveness.

Costs are easy to calculate but what impact do loyalty cards actually have on revenues? Retailers can only hope that customers come to them for that tiny little discount and don’t flock to competitors. Few companies can actually quantify the benefits delivered by a loyalty program – did it help them retain a customer? Did it increase the frequency and volume of purchases?

Many retailers have degraded their loyalty cards by reducing the benefits to the point that they essentially function as discount cards. They have tens and even hundreds of thousands of customers in their database, but they fail to aggregate the data or use it in any form or fashion. A retailer won’t even notice if a customer loses their card. This is ultimately a waste of the potential of a loyalty program.

I’m not saying that loyalty cards are a silver bullet guaranteed to change customer behavior and permanently hitch a customer to a brand. Loyalty is hard to develop, affected by many things, and tends to be fleeting. Some companies can win over the hearts of customers without loyalty programs. However, one thing is clear to me, if loyalty cards are to serve a retailer any purpose at all in a saturated market, they need to use such cards to aggregate data and pay them the attention they deserve.

Data is key for companies to learn about their customers. Indeed, they can learn a surprising amount in some cases. For instance, a retail chain can sometimes determine when a customer is pregnant. It can even determine if the customer is a parent and the ages of their children, identify who eats at home and who eats out, who consumes ready-to-eat meals and who prefers organic groceries.

A good loyalty program allows a retailer to perfectly segment their customers, better target offers, and send individual customers direct mail with relevant discount coupons. It can move customers from one campaign to another, where, for example, if I haven’t been shopping for a longer time I find myself in a retention campaign with discounts on my favorite items. If I start to make purchases, I am then moved to a cross-sell campaign where a retailer tries to motivate me to purchase goods that I have never previously purchased from them.

In short, loyalty cards are the same as any other benefit, meaning they only work until every retailer offers the same thing or until a company knows how to differentiate their loyalty program and provide customers with something truly valuable – a customized benefit. That’s why, in my opinion, active exploitation of loyalty data and personalized loyalty program offers are soon to become the foundation for building competitive advantage in the retail sector.