What can loyalty cards tell us about inflation?
When I was young my father made a big thing of collecting GreenShield stamps. For those around in the mid-70’s, you’ll remember that a number of participating retailers issued coupon books and then issued stamps when you purchased groceries or petrol. You had to stick 40 stamps on a page and when the book was full [1280 stamps], you could exchange it for tatty goods in the catalogue showrooms, that eventually became Argos. You could even redeem books for a speedboat (without outboard motor) by spending the equivalent of a new house on petrol, booze & fags.
I don’t think we ever did redeem the books but it was the 1970’s. And for a little boy, sticking the stamps in the book probably got me into the fantastically popular football sticker albums that came along shortly after. But that’s another story.
Green Shield Stamps weren’t the first incentive scheme and we’ve had a series of others since. Airmiles, Nectar and retailer’s own schemes. But what’s focusing my mind is they all seem to fade away after a while. And they all fade away when their value becomes debased, which tells us a little bit about the causes & effects of inflation, which I am convinced is round the corner.
The debasement normally follows a familiar pattern. The loyalty scheme builds-up a customer base. Then there’s a promotion that offers extra stamps/points for a given spend. And suddenly the stamps/points that have been accumulated can’t buy as much as they used to. Or, in a cynical twist, you can maintain the previous spending-power but only redeeming for stuff you wouldn’t want anyway. In any event, as ‘a store of value’ they’re not worth that much anymore. And then a new much larger denomination stamp comes along….
Now substitute the words "stamp" or “point” for “pound” and it all sounds a bit like inflation to me. Which is why I am perplexed by the decision by Tesco to give double points on their loyalty scheme and to publicise it so widely as a Good Thing this week.
The other day we had a mailing from Tesco in the bunnco household. We shop there occasionally and when we do it’s normally for a couple of hundred quid. The company proudly informed us that we had spent enough to qualify for a £3.50 voucher to spend on-the-house. Thanks Tesco!
I suppose that by sending the voucher, they’ve now redeemed and cancelled the old points so that in future new vouchers will effectively consist of ‘new’ double-points, rather like the Zimbabwean’s knocking a few zeros off the trillion-dollar banknotes. But you’re still only going to be able to get a free can of beans for every £100 you spend! We all know that… no matter how much you spend.
And you'll save more than you'll ever get in vouchers by shopping elsewhere, which is why Lidl, Aldi & new own-brand 'Value' ranges are now more popular.
But I suppose that Tesco’s decision is meant to make people feel richer even if the points produced aren’t worth as much as they used to be.
Which is why I think Tesco is making a big mistake whilst doing us all a favour: So many people participate in the Tesco scheme that they can now see for themselves in the comfort of their own homes how inflation happens when traditional stores of value are debased and what the consequences are. But with points, not pounds.
I’m not an economist but I do understand economics. And the parallels between the Bank of England’s Quantitative Easing [QE] policy and Tesco’s decision to print-points seem clear to me. There’ll be a lot more points/pounds in circulation which will make people feel richer but they won’t be able to buy as much as before because inflation will fill the gap. It’s what happens. And the extra £50bn QE splurge announced two weeks ago is going to make it worse.
So it means getting out of cash and into assets, which is why the estate agents suddenly don’t have a lot of houses to sell but at least the Tesco Loyalty Card manager can apply for the Nobel Prize for Economics for making it clear to everyone at a level they can understand how increasing the money supply excessively is the road to ruin.