• by Adam Holyk , August 6, 2010

More than any other country, Canada's customer loyalty programs have proven to be effective, reporting the highest participation rates in the world. According to Colloquy, it is estimated that between 75 and 85% of Canadian households participate in at least one loyalty program compared to under 60% in the United States. What factors have contributed to this success and what lessons can we learn from the most loyalty-saturated market in the world?

While many countries have witnessed the shift of the retail landscape to discounters and mass retailers, this trend has been exaggerated in the Canadian market. The department store model is on life support, with many traditional food grocers becoming mass merchants, reducing costs to defend and compete as Wal-Mart expands aggressively.

On the opposite end of the spectrum, specialty retailers have swooped in to capture the high-end area of the market, leaving a large gap in the middle. The retailers left in the mid-market have been forced to explore alternative methods to provide value to customers and compete with discounters -- this has resulted in an increase in customer loyalty programs. Non-discount retailers that have introduced successful loyalty programs are growing and outperforming the market, winning even in a price-competitive market.

Compared to Americans, Canadians are more cost-conscious consumers. According to economic data collected by the United Nations, Canadians own fewer cars -- 56 out of 100 people compared to 77 in the United States, and the best-selling car in Canada has a base price of $16,000 compared to almost $20,000 in the United States.

This more conservative approach to finances was also recently evidenced with a muted housing bubble and limited sub-prime mortgages in Canada. The focus on value translates into how consumers shop, with Canadians responding to loyalty programs that offer additional discounts and money back.

The retail market in Canada is more concentrated than other markets, including the United States. The largest grocery store, Loblaws, reported annual revenues of $31 billion in 2009. Grossing up for the difference in population between Canada and the U.S. (about 1/10th the size) it would be 4.5 times larger than the biggest traditional grocer, Kroger, in the United States and would also have even higher revenues than Wal-Mart.

Similarly, the leading drug store chain, Shoppers Drug Mart, reported sales in excess of $10 billion, almost twice the size of Walgreens in the U.S. Canada is the second-largest country by land mass; however, it ranks only 36th in population, meaning there is room for new real estate. As consumers spread their share of wallet among fewer retailers, the appeal of joining the retailer loyalty programs increases and consumers want to earn rewards on that spend.

The conditions of the market have enabled Canada to lead innovation in customer loyalty programs, including one of the first coalition loyalty programs, with over a third of the entire population being or having been Air Miles collectors. The ability to earn the same currency across industries with high frequency of purchase (grocery, gasoline, and financial services) increased enrollment and participation.

Many programs also pioneered less formal coalitions with points exchanges, that allow a member of one program to swap points and consolidate earnings with a preferred program. Some of the most effective innovations have been the simplest.

Instead of trying to trick consumers into participating with the intention of changing their shopping behaviors, the most successful programs follow a simple, yet innovative approach: high value, few limitations, points without expiration, instant rewards and customer choice.