Knowledge @ WPCarey has a good article on how it is not so easy to maintain Loyalty Programs. US citizens are now holding 1.3 billion loyalty program memberships today, up from 973 million in 2000 which roughly means dozen cards per household. Loyalty programs can be very successful in attracting and retaining users but their real strength lies in analyzing the customer's spending habit and utilizing the same to provide services which drive consumers to spend more. For example:

Your purchase is stored in a database which records everything you buy and have previously bought. With the resultant mountains of data that accrue over time, a company can bring data mining and analytics to bear to isolate trends and patterns. That data may be applied at a macro level where a store will, for example, see that people buying upscale bread also like fine cheeses and may, thus, conveniently place the two next to each other. On a micro level, stores send coupons to individuals for specific products based on their own personal shopping history.

In addition, tracking sales per individual lets a company see who's profitable and who isn't. Casino loyalty programs look for high-spending customers who are good losers; not surprisingly, more effort is put into attracting and retaining them versus gamblers who know when to hold and when to fold.

But Loyalty programs comes at a price. The Technology behind effectively running the same involves storing a lot of data and analyzing the same which is something not every retailer can afford. [Emphasis mine] 

Creating and administering the technology behind the loyalty program likely amounts to millions of dollars in costs which need to be offset by significant gains to justify the investment.

"In IT, we're always looking at whether the investment you're making in the technology is worth what you're getting out of it in the end," says Goul who notes that Albertsons will not suddenly be in the dark with respect to data gathering. It's true that abandoning the loyalty program precludes the ability to track individuals, but every time an item is scanned at the checkout and a receipt is created, it's logged into the system. It may not create as much data as the loyalty program but it still produces an awful lot.

To sum up, the article states the bottom line as:

• Loyalty programs may seem to be just about saving a few cents, but for companies they are they key that lets them gather valuable data about customers' buying habits.
• Implementing and running a loyalty program is largely about setting up hardware and software. However, deriving true value from it means that the larger organization must be involved and adapt to insights obtained from the program's data.
• Even without individual loyalty programs, stores can draw on lots of data from transactions that still provide fertile ground for analysis.
• Many loyalty programs don't give customers a real reason to be loyal because companies do not make prizes or rewards significant enough to keep customers' interest.
• Unless a company truly commits to using and exploiting its loyalty program, it can be a costly and time-consuming waste of resources.