Trading Stamps: The Old Loyalty Cards

| By:

trading stampsThis is a cautionary tale about customer loyalty. At first you might think it doesn’t pertain to your small business because you’re not a retailer. But, no matter what business you’re in, customer loyalty is the lynchpin for success. So, trust us, and give it a read to the end.

If you’re old enough, or perhaps have heard the story of how Great-Grandma got her toaster, you’ll know something about “trading stamps.” If not, here’s a brief synopsis of how trading stamps worked:

When Grandma or Great-Grandma went grocery shopping anytime between about 1930 and 1980 along with her receipt she got a little reward: Trading stamps. If you’re old enough Grandma might even have recruited you as a child to help paste those stamps in a book. Once the book was filled, Grandma could then redeem the book for items in a special “redemption catalog.” In the 70’s Grandma typically received one stamp for every 5 or 10 cents she spent and it took about 1200 stamps to fill a redemption book. Grandma was also keen to make sure Grandpa didn’t forget to make sure he collected stamps when he filled the gas tank – and she might even have an active campaign enlisting others who didn’t harbor her love of trading stamps to give theirs to her.

And you thought loyalty cards were a “new thing.”
Trading stamps are actually perhaps the first widely utilized program to enhance customer loyalty in America. They originated as early as the 1890’s when the emphasis was to get people to pay using cash rather than credit. But we’re not talking “cash versus credit card.” While credit cards did start to appear in Europe in the 1890’s and, by the 1920’s some American oil companies and hotels were issuing their own “charge cards”, the use of credit cards as we understand them today was not the case then.

In the 1890’s merchants such as groceries and feed stores often allowed customers to “charge” a purchase and then billed the customer at the end of the month. Of course, this meant merchants had to carry that expense themselves, and there was no guarantee the bill would get paid. “Rewarding” customers when they paid cash rather than “put it on their bill” by issuing trading stamps helped to increase cash flow.

However, with the onset of “chains” (i.e. oil companies and grocery stores) trading stamps began to be used as a means to both attract customers as well as promote customer loyalty. Essentially the practice depended on the economic “law of substitution.” Simply stated the law goes something like this:

Human beings have essentially “unlimited” wants but the ability to satisfy our wants is, in fact, limited. So, when all other things are equal, we tend to “substitute” (or pick) the offering that brings us the most value when satisfying a want, filling a need, or solving a problem.

Trading stamps turned out to be a big hit. Merchants who “rewarded” customers with more stamps for less money spent by a consumer created a following of loyal customers. From a customer’s perspective, it made sense to shop at a store where, in addition to any “sales” (yes, merchants did compete on price), you could save stamps and redeem them for additional goods at no extra cost was very attractive and kept customers coming back for more.

The bottom fell out of the trading stamp as a loyalty program starting in the 70’s. Oil companies stopped issuing them during the gas crisis – and gas stations accounted or 25% of stamps distributed. It got worse when grocery stores switched from spending money to “buy” stamps from distributors (such as S&H Green Stamp, and Blue Chip Stamps) and instead spent those dollars advertising low prices.

Additionally, stamps lost the ability to generate the king of loyalty merchants were looking for because most every merchant was issuing trading stamps. On top of that, the stamps themselves had lost their value – the products you could “buy” with stamps in the past were “priced” at a discount (often very significant discounts) which meant customers really did save money by being loyal to stores that dealt in trading stamps. However, it got to the point where people started doing the math and found that they really weren’t getting enough of a “deal” worthy of their loyalty.

Pick a Card, Any Card
Open anyone’s wallet today and there’s a good chance you’ll not only find a few credit cards – but you’d most likely find an extensive collection of loyalty cards. Similar to trading stamps, when loyalty cards first hit the scene they were extremely popular with customers and served to help achieve the two main goals of marketing: attracting and retaining customers. However, loyalty cards may be starting to reach the same saturation point as trading stamps. With nearly every chain offering a loyalty card many customers no longer remain “loyal” as they know the chain down the street offers a card as well.

Here’s the Caution in our Cautionary Tale
The first lesson from our cautionary tale about trading stamps has to do with white noise. White noise is used to mask other noises – which can be really useful if you happen to live near an airport and want to get some sleep. But white noise can also refer to conditions where people become so used to the “noise” that they stop hearing it. For instance maybe you’ve got or had a friend who lived near a freeway and wondered how they could stand the noise. Simple: after a while they stopped hearing it.

The same thing can happen with a loyalty program. Like trading stamps, a loyalty program might be a big hit with customers and clients at first but, after some time goes by, that loyalty program can become akin to white noise as your customers or clients simply become so used to what they receive that they come to expect (even demand) it.

The second lesson pertains to a frog. You might have heard a tale about a frog that gets placed in a pot of cool, refreshing water. What Mr. Frog doesn’t know is that the pot of water has been placed over an, at first, low flame. As time goes by that flame is increased in very small increments – meaning that the water starts to get hotter and hotter until it comes to a boil. Mr. Frog doesn’t even notice how hot the water’s getting until it is too late. If only Mr. Frog had had the presence of mind to jump into that pot accompanied by a thermometer he might have been saved.

The same thing holds true for loyalty programs – you’ve got to continuously measure how well they are working. That frog would certainly have jumped out of the pot had he taken regular measurements as to how hot it was getting. Of course we want our loyalty programs to be “hot” as that would mean they’re working to create customer loyalty. But we also need to know when our loyalty programs are “cooling down” – how else are we going to know to turn the flame up?

Trading stamps have gone out of fashion – although there are a few companies working with small, independent grocers to attract customers away from large chains. We’re not sure if trading stamps could have been saved after they became so much white noise. But one thing you can be sure of us is the value of checking in with your loyal customers to see if they still see value in your program, as well as make darn sure you’re collecting data in order to periodically measure how hot, or how cold, your small business loyalty programs are.

Last modified: June 8, 2013
Annie Kile

This story is part of our Small Business Corner, a peek into the life and trials of small business owners.

Category: Merchant Processing, MPR Authored, Small Business, Small Business Corner, small business owners