The true history of loyalty programs

Image: ‘S&H Green Stamps’ by Andy Warhol (1962)

Loyalty programs have been around for many years, but when did they first appear?

Ancient Egypt

In Ancient Egypt: Anatomy of A Civilisation[1] Professor Barry Kemp argues that ancient Egyptians practised a type of reward program similar to modern frequent flyer programs, including status tiers and the ability to redeem on a wider variety of rewards.

For much of the pharaoh’s thousands of years of rule, they didn’t have money. It simply wasn’t invented yet. Instead, they used a system quite similar to a modern loyalty program.

Citizens, conscripted workers and slaves alike were all awarded commodity tokens (similar to loyalty points or miles) for their work and temple time. The most common were beer and bread tokens. The tokens were physical things, made from wood, then plastered over and painted and shaped like a jug of beer or a loaf of bread.

The more senior people in the hierarchy were rewarded with the same tokens but received bonuses. The Rhind Mathematical Papyrus details examples and mathematical equations regarding how higher positions, such as the skipper, crew leader and doorkeeper, received double bread tokens compared to the rest of the crew. Professor Kemp theorises that this could be construed as a variant of the status tier bonus, where certain members earn bonus points for transactions to reward them for their loyalty and value to the company.

The tokens could also be exchanged for things other than bread and beer. Those high up enough to earn surplus tokens could redeem them on other goods and services, in the same way that frequent flyer members with lots of points can redeem them both on flights and on non-flight rewards such as iPads, KitchenAid mixers and Gucci handbags.

Is this really a loyalty program? Some might argue it is simply a societal exchange system developed in the absence of fiat currency. Others might contend that is exactly what a modern loyalty program design is; a non-fiat exchange system utilising tokenised currencies.

Copper Tokens

The first modern loyalty program, according to a New York Times article by Nagle (1973)[2], commenced in 1793, when a Sudbury, New Hampshire merchant began rewarding customers with copper tokens. The tokens could be accumulated and used for future purchases, thereby generating repeat visits, the core behavioural objective of loyalty program design. The idea was quickly replicated by other retailers and carried into the 18th century.

Is there evidence to support this claim? While the author has failed to locate any copper loyalty tokens from Sudbury dating back to 1793, other merchant-branded copper, brass and aluminium tokens created in the US in the 1800’s have been located. The New York Times article refers to a brass token created by Robinson & Ballou Grocers, dated 1863, and indeed, these can be found online for sale by various coin dealers worldwide for a little as US$50. At first glance this would appear to provide solid support for the existence of merchant loyalty tokens, however further investigation reveals these coins to be more accurately referred to as a ‘Civil War’ token.

During the 1861-64 US Civil War, high inflation sparked a frenzy of hoarding, with the focus on gold, silver and copper coins. With few coins left in circulation, merchants began to suffer as small denomination coins were the most commonly tendered at that point in time.  To alleviate the situation, merchants began minting their own tokens to fill the void[3]. These were typically one cent in value and made of copper or brass, and were similar in size to government issued coinage.

This was not the first time such an approach has been taken by merchants. Between 1832-1844, ‘Hard Times’ tokens were created when the United States went through an economic depression over the fate of the Second Bank of the United States and the powers of the Federal Treasury. The climax of that period was the ‘Panic of 1937’, brought on by President Andrew Jackson’s requirement that banks and receivers of public money only accept gold or silver in payment for public lands as a way to reduce speculation. As a result, gold and silver were hoarded and loans were called in, generating a run on the banks. An insight from an article by the American Numismatic Association (Mudd, 2015) [4] states, ‘The immediate reason for the issuance of the tokens was the ongoing shortage of small change in the United States – a situation that had existed ever since the Colonial period despite the best efforts of the United States Mint’.

This provides an important clue for the investigation of the Sudbury merchant from 1973. It appears that coinage shortages also existed at that time right across the US. A Quarterly Journal of Economics article (Barnard, 1917)[5] references merchants minting their own coins of brass and tin as early as 1701 after the Massachusetts mint was closed in 1697. Further examples are cited from Virginia as early as 1714, with many more coins created between 1773-74. In Connecticut, copper mine owner John Higley created the first recorded copper tokens between 1737-39, while Chalmers, a goldsmith of Annapolis, Maryland issued tokens in at least three denominations (shillings, sixpence, and threepence) just after the American Revolution in 1783. Barnard states that so many other merchants created silver and copper coins that laws were passed by Pennsylvania, Connecticut and New Jersey prohibiting the circulation of coins not expressly authorised.

Thus, the historical record appears to show the primary driving force for the creation by merchants of branded copper (and other metal) tokens was to address a severe shortage of coinage which was inhibiting commerce.

Did a Sudbury, New Hampshire merchant invent the world’s first loyalty program when they began rewarding customers with copper tokens in 1793? It is possible that such a merchant created copper tokens with their own mark on them, however there is no evidence to support the claim made in the New York Time article (and repeated extensively across numerous books and websites) that they created the tokens in order to reward loyal customers. In fact, the likelihood is they were created to address a local coin shortage, and this was later misinterpreted as an early form of loyalty program, potentially because their company name was printed on the coins.

Irrespective, the Coinage Act of 1864 enacted by Congress made the minting and usage of non-government issued coins illegal, ending this era forever.

Trade Marks

Based on the evidence, the true godfather of the modern loyalty program would appear to be B.T Babbitt. Born in 1809, Benjamin Talbot Babbitt found his fortune in New York City in his early 30’s by designing an original and cheaper process to make saleratus, a key base ingredient of baking powder. He soon expanded his product range to include yeast, baking powder and soap powder. He became the first to sell individually wrapped bars of soap, with ‘Babbitt’s Best Soap’ becoming a household name across the US.[6]

To boost repeat sales, in 1851[7] B.T. Babbitt, Inc. launched a new (and truly revolutionary) promotional program, where they invited customers to cut-out and collect the Trade Marks from product packaging of Best Soap and 1776 Soap Powder. The Trade Marks could be redeemed for rewards from a ‘Mailing List of Premiums’ by mailing them to the company. Rewards were initially simple, being coloured lithographs, but the range soon expanded into more attractive consumer rewards. For example, the 1905 Mailing List of Premiums offers a wide range of products, including a harmonica, felt pencil case or box of school crayons for 25 Trade Marks; a buckhorn handle pocket knife (2 blades), sterling silver thimble or pair of Uncle Sam suspenders for 50 Trade Marks; all the way up to a lady’s locket chain (14k gold filled), lady’s gold ring (12 pearls) or lady’s handbag for 225 Trade Marks[8].

Red Checks

In the 1860’s, the Great Atlantic & Pacific Tea Co. (which was set to become the largest retailer in the world under the A&P brand from 1920 into the 1960s[9]) launched a comparable program to reward their customers for purchasing a selection of their products. When transacting, customers would receive a red Check detailing the amount it was worth and the terms. One 1890 stamp example states, ‘This Check (good for the amount as engraved for presents of Glass ware, China, etc) is redeemable at any of our 200 Stores. Provided it is Stamped with the Address of the Store that issued it. Managers will be particular and allow no Checks to be given out before they are stamped. This Check is of no value except Stamped as per the foregoing. ALL CHECKS MUST BE PUNCHED AFTER REDEMPTION. PUNCHED CHECKS ARE OF NO VALUE.’[10]

Checks could be accumulated and redeemed in stores for a range of consumer goods. This was incredibly popular with customers and it provided a strategic competitive advantage over smaller merchants who couldn’t afford, and didn’t have the space, to provide such a range. It also posed some challenges. According to Levinson[11], ‘the premiums not only were costly, but also took up shelf space that could have displayed merchandise for sale. Many stores of the period looked more like gift shops than groceries.’

To address this issue, in the early 1900’s the company published The Great Atlantic & Pacific Tea Co. Catalogue. This promoted a range of day-to-day homeware products including saucepans, teapots, knives, ironing boards, sugar tins, wash bowls, spoons, bread trays and more[12]. Once enough coupons had been saved, they could be sent to a central office and receive the gift by return freight[13], reducing the need for each store to range the rewards. The premiums program was soon after transferred to Sperry & Hutchinson, a stamp program, which is covered later in this chapter.

Tickets

The Grand Union Tea Company was formed in 1872 in Pennsylvania and followed the lead of the Great Atlantic & Pacific Tea Co with their rewards program. The owners chose to sidestep retailers and sell their product directly to consumers, starting with door to door sales. They rewarded customers with tickets which could be collected and redeemed for a wide selection of products from the company’s Catalog of Premiums.[14] The 1903 version of the Catalog of Premiums lists the full product range and prices (coffee, tea, spices, extracts, baking powder soap and sundries), as well as 17 pages of rewards. These include an Oak Roman Chair (100 tickets), lace curtains (120 tickets a pair), Ormolu clock (300 tickets) and dinner set Berlin 1903 (440 tickets). Customers could earn one ticket by buying a pound of coffee at 20 cents, two tickets for premium tea at 40 cents and one ticket for a packet of cloves at 10 cents. The catalogue proudly proclaims, ‘We advertise by giving presents with our goods, thus SHARING WITH OUR CUSTOMERS the profits of our business. Remember, you pay less for our goods of same quality than at other stores, and get presents in addition.’

The 1971 New York Times article by Nagle included an interview with William H. Preis, senior vice president of the Grand Union Tea Company. Preis joined the company in 1933. By the time of the interview, the company had transitioned their tickets program to a coalition-based stamps program run by Stop & Save Trading Corporation. Customers could earn Triple-S Blue Stamps which cost the company 1 ¼ per cent of sales. Preis indicated they had been providing the stamps program for 16 years.[15]

Certificates & Coupons

This period may have potentially been a boom time for the newly designed loyalty marketing, with companies big and small adopting the approach. One example from 1890 is a ‘People’s Trading Coupon’ from Hunsicker & Warmkessell Photographers, based in Allentown, Philadelphia. The coupon is a sophisticated punch card which, when completed, provides the member with ‘one dozen of our best $4 Cabinet Photographs’.  The member is reminded to ‘Tell your friends to get a ticket.’[16]

Another example is The United Cigars Store Co., founded in 1901 and sporting over 3,000 retail outlets at its peak in 1926[17]. They ran a successful certificates and coupons rewards program (where five coupons were equal to four certificates). According to a CBS article[18], United built a coalition by making deals with companies like Wrigleys and Swifts, who put United coupons in their products. Certificates and coupons were redeemable by mail or at 250 redemption centres around the country. Rewards included a men’s gold-filled watch or six place settings of Rogers silver plate flatware (900 coupons), room-size oriental style rug (4,000 coupons), a Remington automatic shotgun (5,000 coupons and a four-wheel Studebaker carriage (25,000 coupons).

Stamps

In the 1890s, companies began using physical stamps to reward loyal customers. Customers could earn stamps when making purchases and were encouraged to stick them into collecting books. The books could then be exchanged for a wide range of rewards.

The first company to introduce stamps was Schuster’s Department Store in Milwaukee in 1891. Customers earned one stamp for every 10c spent. A filled book of 500 stamps was worth $1 (a 2% return on spend). By WWII, it appears the program had expanded into a small coalition, with a stamp book dating from that era promoting ‘Valuable Schuster Stamps Are Now Also Given By Many Food Markets.’[19]

In 1896, The Sperry & Hutchinson Company introduced an entirely new concept, the coalition loyalty program. Rather than a company issuing their own loyalty currency, Sperry & Hutchinson created the entire loyalty apparatus as a service. New England retailers were provided with S&H Green Stamps, books and catalogues to provide to their customers, and customers could redeem the books directly with Sperry & Hutchinson.

While other companies replicated their model (Gold Bond, Gift House, Top Value and King Korn amongst some of their competitors[20]), Sperry & Hutchison remained the biggest. At one point, they claimed they were distributing three times as many Green Stamps as the US Postal Service was distributing postal stamps.

Every year, Sperry & Hutchinson would release a print version of their catalogue Ideabook Of Distinguished Merchandise. The 1966 70th Anniversary Edition Ideabook Of Distinguished Merchandise,[21] provides insight into the scale and complexity of their operations when at the height of their popularity. In addition to being able to order rewards via post, members could visit a vast network of redemption centres, with the entire product range priced in books of stamps. The 185 page catalogue contains over 2,000 products across 59 categories, a similar sized range to some frequent flyer program online stores. In the copy cited by the author, a young lady has worked her way through the toys’ pages, circling the items she desired and writing out the number of books she needed to claim everything on her list. It provides a sense of the process so many households around the world would have followed in deciding what rewards they wanted to aim for, with much discussion and debate ensuing.

The (pre-computer and internet) logistics for claiming an S&H Green Stamps reward were extensive; the member needed to fill books with stamps, choose the reward products, fill out a separate order form for each reward, then send the books and order forms (plus applicable sales taxes) via first class mail to their nearest distribution centre. Alternatively the could visit one of hundreds of retail outlets and spend the books directly. The overheads running such a massive operation must have been enormous.

The demand for stamps appears to have gone through several phases during the 1900’s. According to the US National Commission on Food Marketing[22], by 1914 around 7 per cent of retail trade involved the awarding of stamps. This dropped to 2 per cent during World War 1, stabilised at 2 to 3 per cent during the 1920’s, and dropped substantially during the Great Depression and al the way through World War 2. During World War 1, The Great Atlantic & Pacific Tea Co dropped S&H Green Stamps altogether, which would have been a major blow to Sperry & Hutchison, as they lost the largest grocery chain in the country[23].

Post-war, interest in stamps increased substantially. $30m of industry stamps sales were recorded in 1950 in the US, and this grew to $754m by 1963, accounting for 16 per cent of total retail trade, and a whopping 47 per cent of grocery trade.  Research from the period by Benson and Benson Consumer Studies indicated 83 percent of all families in the US were saving stamps[24].

In the US alone there were an estimated 250 to 500 stamp companies operating at the peak of the period[25]. Stamps expanded globally, with Green Shield and Co-Op stamps in the UK, and Green Coupon and Aussie Blue in Australia, as four examples from countries including Sweden, Germany, Poland, Switzerland, Canada, Austria, Germany and many more.

Of particular interest is two case studies documented by the US National Commission on Food Marketing which measured whether stamps were successfully in helping companies grow revenue[26]. The first related to a business which introduced stamps in a market which didn’t previously have stamps. The second related to a business which introduced stamps in a market where stamps were already used extensively by their main competitors. While the circumstances for the two studies were different, in both instances within two years gross margins increased by an amount exceeding the cost of the stamps, demonstrating the programs were a success.

Betty Crocker Coupons

Stamps were not the only major loyalty currency during this period. In 1921, The Washburn Crosby Company, a flour-milling company and largest predecessor of General Mills, Inc., invented Betty Crocker to personalise responses to consumer inquiries generated by a promotion for Gold Medal flour[27]. In 1931, the company included a coupon for a silver-plated spoon into Wheaties cereal boxes and bags of Gold Medal flour[28]. The promotion was so successful, the company followed up the next year with a coupon program which allowed customers to access an entire set of flatware. Starting from 1937, the coupons were printed on the outside of the box, enabling customers to see how many they could earn with the purchase. In 1962, the Betty Crocker Coupon Catalog was released, an annual publication ‘Featuring over 300 items tested and checked for quality in the Betty Crocker kitchens of the world.’[29]

A study of the history of Betty Crocker coupons introduces the concept of emotional engagement generated by a loyalty program. Mark Bergen, marketing department chair at the University of Minnesota’s Carlson School of Management, said the Betty Crocker program was remarkable for two characteristics — its longevity and the depth of emotion it inspired among its devotees. It became more than a coupon redemption program, Bergen said, by working its way into the fabric of family life.[30]

The 1970-80s marked the beginning of the end for stamps and coupons. A series of recessions and the 1970’s oil shock created hardship for most stamp coalition operators as retail partners sought any way they could to cut costs. Large-scale rejection of stamps by retailers led to a sudden drop in revenue, and combined with the large cost overheads, ongoing operations became very challenging.

Miles & Points

In 1981, American Airlines launched the world’s first currency based frequent flyer program using a new currency (miles) which corresponded to how many miles a member had flown[31]. Members could earn miles at a set value for free flights allowing them to easily identify what they could redeem their miles for. Brought on by increasing competition with the deregulation of the US airline industry in 1978, the American Airlines AAdvantage program was soon followed by similar schemes from United Airlines, TWA and Delta Airlines[32].

In 1982, American Airlines upped the ante by introducing a Gold tier to recognise their most loyal members. The same year they launched earn partnerships with Hertz, Holland American Line and British Airways, developing a new coalition program.

Over the next five years, a boom in miles and points-based loyalty programs ensued, including new programs from Holiday Inn (the first hotel program), Japan Airlines, Marriott, Alaska Airlines, Aeroplan, Korean Air, Pan Am, Diners Club, Northwest Airlines, Continental Airlines (which, in conjunction with the Bank of Main Midland, launched the world’s first co-branded credit card program), Hilton, Hyatt, National Car Rental, Holiday Inn, Southwest Airlines (which introduced ‘points’ for the first time) and Qantas.

As happened with American Airlines, soon after the launch of these large programs, hotel and car rental companies began partnering with the airlines, and started offering miles and points as a strategy to grow their share of the lucrative business traveller and high-value leisure traveller markets.

With the rapid expansion of the frequent flyer and hotel coalition models and their new currencies, banks and retailers soon replicated their approach. Points and miles loyalty programs quickly became the dominant loyalty program currency globally, ending the ninety year reign of stamps.

A new world

General Mills tried to revitalise the Betty Crocker program by changing coupons to points in 1989. [33] The program was eventually retired in 2006, with Bergen of the Carlson School arguing the decline in engagement was due to shopping pattern changes. [34] Households had given up the habit of saving for a future purchase and started buying on credit, while the idea of cutting out box top coupons and sending them in the mail had become old-fashioned in the age of plastic membership cards and ever-evolving reward ranges.

Sperry & Hutchinson also tried to reinvent themselves in 1989, launching a plastic member card which could be swiped at cash registers to earn points. This was evolved into S&H Greenpoints in 1999, an attempt to weave the 104 year old company into the dotcom boom. By 2000, they had attracted 88 participating retailers, including OfficeMax.com, Borders.com and LandsEnd.com.[35] It was not enough to save them. Their demise should be listed alongside such companies as Kodak, such was the scale of their operation, not to mention their penetration of mainstream retail and households.

Increasing competition, combined with the birth of the digital age, led to a loyalty program innovation boom from the 1990’s onwards. Coalition programs launched online reward stores with thousands of consumer products and gift cards, expanded into insurance products, branded credit cards, financial services, food and wine clubs, insurance, massive partner networks and digital marketing agencies. In addition, they developed specialised capabilities in data capture, usage and monetisation, something which will be explored in later chapters.

In 2017, a number of start-ups launched new coalition programs rewarding members with tradeable cryptocurrencies, such as Bitcoin.

___

From a loyalty program design perspective, the most fascinating aspect of the historical review is that the core design of a program has remained consistent throughout. The currencies have changed constantly; Trade Marks, Checks, Tickets, Coupons, Certificates, Stamps, Miles, Points and cryptocurrencies have all been used, and many other variations. But the program design has not changed. All the companies included in the historical research followed the exact same approach; providing a tokenised currency to a customer when they spent, and allowing the customer to redeem the accumulated currency for a desirable reward.

It is a consumer-engagement model which has stood the test of time.

 

Philip Shelper is a loyalty management consultant based in Sydney, who obsesses about everything to do with loyalty and member engagement. His company, Loyalty & Reward Co are Australia’s leading loyalty consulting agency.

Phil and his team regularly write highly-opinionated articles about loyalty, which they post on www.rewardco.com.au

Phil is an Advisory Board member of the Australian Loyalty Association. In conjunction with the founder and chairperson, he teaches their Customer Engagement & Loyalty course, Australia’s leading course on loyalty strategy.

Let’s connect!

LinkedIn: https://au.linkedin.com/in/philipshelper

Twitter: @phil_shelper

 

[1] Barry J. Kemp, ‘Ancient Egypt: Anatomy of a Civilization, 2nd Edition’. 2005

[2] Nagle, J, ‘”Trading Stamps: A Long History”, New York Times, December 26, 1971

[3] Fuld, G. and M., ‘U.S. Civil War Store Cards’, Quarterman Publishing, Inc., 1975

[4]  Mudd, D, ‘Hard Times Tokens’,  https://www.money.org/ana-blog/TalesHardTimesTokens, September 2015

[5] Barnard, B. W. ‘The Use of Private Tokens for Money in the United States’ The Quarterly Journal of Economics, Vol. 31, No. 4 (Aug., 1917), pp. 600-634

[6] Ingam, J.N., ‘Biographical dictionary of American business leaders,’ Greenwood Press, 1983

[7] National Commission on Food Marketing ‘Organization and competition in food retailing. Technical study No.7,’ June, 1966

[8] B.T. Babbitt, Incorporated, ‘Mailing List of Premiums,’ 1905

[9] Levinson, M., ‘Don’t Grieve for the Great A&P,’ Harvard Business Review, January, 2012

[10] 1890 Great Atlantic & Pacific Tea Co. Coupon Premium – Handstamp of Big Bleecker

[11] Levison, M., ‘The Great A&P and the Struggle for Small Business in America,’ Hill & Wang, 2011

[12] Great Atlantic & Pacific Tea Co, ‘Great Atlantic & Pacific Tea Co Catalogue,’ 1908.

[13] Levison, M., ‘The Great A&P and the Struggle for Small Business in America,’ Hill & Wang, 2011

[14] Grand Union Tea Company, ‘Catalogue Of Premiums,’ 1903

[15] Nagle, J, ‘”Trading Stamps: A Long History”, New York Times, December 26, 1971

[16] 1890 Cabinet Card Premium – Hunsicker & Warmkessell, Photographers Allentown, PA

[17] Company website http://www.imascoltd.com/united-cigar-stores/ . Accessed 7th April 2020

[18] CBSNews.Com Staff, ‘Really old coupons,’ https://www.cbsnews.com/news/really-old-coupons/ CBS News, June 1999

[19] Deanna, Untitled. http://www.inherited-values.com/2013/09/meet-me-down-by-schusters-vintage-department-store-memories-collectibles/, September 2013

[20] Lonto, J. R. ‘The Trading Stamp Story,’ http://www.studioz7.com/stamps.html 2000, 2013

[21] S&H Green Stamps, ‘Ideabook Of Distinguished Merchandise 70th Anniversary Edition,’ 1966

[22] National Commission on Food Marketing ‘Organization and competition in food retailing. Technical study No.7,’ June, 1966

[23] Lonto, J. R. ‘The Trading Stamp Story,’ http://www.studioz7.com/stamps.html 2000, 2013

[24] National Commission on Food Marketing ‘Organization and competition in food retailing. Technical study No.7,’ June, 1966

[25] National Commission on Food Marketing ‘Organization and competition in food retailing. Technical study No.7,’ June, 1966

[26] National Commission on Food Marketing ‘Organization and competition in food retailing. Technical study No.7,’ June, 1966 pp 458-459

[27] Betty Crocker Kitchens, ‘The story of Betty Crocker,’ https://www.bettycrocker.com/menus-holidays-parties/mhplibrary/parties-and-get-togethers/vintage-betty/the-story-of-betty-crocker, January, 2017

[28] McKinney, M. ‘Betty Crocker closing the book on its catalog sales,’ Minneapolis Star Tribune, April 2006

[29] Author unknown, ‘Betty Crocker Coupon Catalog,’ https://generalmillshistory.tumblr.com/post/62407867827/betty-crocker-coupon-catalog-betty-has-been September 2013

[30] Wilcoxen, W. ‘Betty Crocker retires her catalog’, https://www.mprnews.org/story/2006/11/28/bettycrocker, MPR News, December 2006

[31] Everett, M. R., “Diffusion of Innovations (4th Edition),’ The Free Press, 1995

[32] De Boer, E.R, ‘Strategy in Airline Loyalty: Frequent Flyer Programs,’ Palgrave Macmillan, 2018

[33] McKinney, M. ‘Betty Crocker closing the book on its catalog sales,’ Minneapolis Star Tribune, April 2006

[34] Wilcoxen, W. ‘Betty Crocker retires her catalog’, https://www.mprnews.org/story/2006/11/28/bettycrocker, MPR News, December 2006

[35] Slatalla, M. “Clicks, Not Licks, as Green Stamps Go Digital” https://www.nytimes.com/2000/03/09/technology/online-shopper-clicks-not-licks-as-green-stamps-go-digital.html New York Times, March, 2000

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