Loyalty cards let businesses help their towns, charities

At the Country Loft gift shop, customers buying homemade fudge or a porcelain doll leave with something more: cash back on a card to use for more shopping and a good feeling about supporting a charity and their local economy.

The store is part of SmartTown Alliance, a network of small businesses aimed at helping towns keep shoppers close to home rather than traveling to bigger nearby cities. Since its beginning three years ago, it has expanded to three Minnesota towns, and it is in the works in about a dozen other places.

“I looked at it as maybe it's a shot in the arm for a small community,” said Country Loft owner Nancy Kokesch. “Small-town America is slowly dying.”

Some retailers in the program are reporting higher customer traffic, while others say it needs more of a push. For it to succeed, consumers have to start shopping with their hearts and not only their wallets – something experts said isn't automatic.

A swipe of the card at the register sends a portion of the sale price to a charity the customer has chosen. Shoppers also get a bit of money back on their cards for future purchases within the network. Unlike some other loyalty credit or debit cards, the SmartTown card can be used even if a customer pays by cash or check.

Programs like Target Corp.'s REDcard – which lets shoppers give up to 1 percent of their store spending to local schools – show that loyalty cards can work, said Michael Bouchey, chief executive of Alliance Card Inc., which runs the program in New Ulm, Winona and Red Wing.

New Ulm – a southern Minnesota town of 13,000 that wears its German heritage proudly – has a rival in Mankato, which is about twice New Ulm's size and just a half-hour away, with more shopping choices. About 60 businesses are in the New Ulm program, with about 2,500 active card users, program manager Sheila Howk said.

Businesses choose what percentage of each sale will go toward the program, mostly ranging from 1 percent to 7 percent, though several go as high as 10-15 percent. ACI takes a slice of each transaction, from under 1 percent up to 6 percent.

At Kokesch's store, the normal rebate is 3.5 percent. So if a customer buys a gift for $20 before sales tax, 35 cents would go to the customer's selected charity and 35 cents would go back on the card to spend later. Kokesch says can't say the project has increased her profit, but more customers are coming through the door.

The biggest discounts in town come at Otto's Feierhaus, where general manager Marti Bennett offers 15 percent back on traditional German food and pizza, and that goes up to 30 percent during promotions. He's put his faith in SmartTown to the point that he's cut back on advertising.

“It's a high discount, but I think it evens out,” Bennett said.

While there's very little to show that such programs increase loyalty, the charity aspect of the SmartTown program could persuade consumers to splurge a little more on something like dinner in a restaurant if they know part of it is going to a good cause, said Ravi Dahr, director of the Center for Customer Insights at Yale University.

“Anything that can reduce the guilt helps,” he said. “Consumers aren't consciously aware of this, but we've found that it works.”