• by Sarah Mahoney , March 31, 2011

Regional grocer Big Y is unleashing what it says is a big idea: A new loyalty card system that will charge members a $20 annual fee in order to qualify for deeper discounts than offered by its long-standing loyalty programs.

"We were intrigued by a premium card and the whole Costco notion of paying for membership," Harry Kimball, director of database marketing for the Springfield, Mass.-based chain, tells Marketing Daily. "So we thought, 'What would happen if we found a way to expand our employee-only rewards program to customers?'" The "Silver Savings Club" concept did so well in initial testing in six stores that the chain is now offering it in all 58, via its weekly flier, which also includes a $5 off coupon for the first year's membership.

Kimball says the chain thinks that the idea of consumers paying to save will work, because it won't change its already well-established rewards program, which includes a conventional rewards card, as well as a system of gold and silver coins that shoppers earn and then can redeem for additional savings.

But the new card sweetens the deal by adding discount pricing on many more items throughout the store, even deeper discounts on up to five items, and discounts at more than 70 area gas stations and movie tickets.

Still, experts think the plan could easily backfire. "It's certainly a bold move," Ted Zittell, a Toronto-based consultant for McMillan/Doolittle, which specializes in retail, tells Marketing Daily, adding that Big Y's program is the first of its kind in U.S. supermarkets. "A supermarket is different than a warehouse club, and you're asking shoppers to make a big change in orientation. They have to be shown how many baskets of groceries they're going to have to buy in order to justify a $20 membership, and that's a big challenge."

In fact, he says, many grocers, including HEB, avoid using any loyalty programs at all, because it enables them to make the more Walmart-esque marketing promise of low prices all the time -- no cards, no gimmicks. "This card is kind of a new animal, sort of a hybrid between a rewards card and a membership," he says. "They're going to have to come up with a name for it and a way to care for it that really resonates with shoppers."

Perhaps an even bigger risk, says Keith Colbourn, VP/global loyalty practice leader for DunnhumbyUSA, whose clients include brands like Tesco, Kroger, Macy's and Best Buy, is that it upends the emotional equation shoppers expect. "You're asking people to shift from a reward, which is given as a thank you, to prepaying for a discount. It's different."

And while the old rewards systems will remain in place, the new tiered program may create a certain class-based antagonism in the aisles -- even among people who don't sign up for it. "Every time they see the lower, members-only price advertised, it may grate on them," he says. "They think, 'If I don't buy into it, then I feel like an idiot.'" Rather than feeling valued, the usual goal of such programs, customers may end up feeling dissed.

Still, Big Y thinks it can pull it off. "As popular as they've been, we've heard from people over time that they wanted something easier to use than the coins. So now they can have all three options," Kimball says, which he says fits in with the store's reputation as being a little quirky. "We've got people right now in silver wigs, handing out silver beads to people as they sign up. It's given our people a great opportunity to have some fun with it."