With a swipe of the smartphone, loyalty punch cards becoming obsolete

The days of the "buy-10-get-one-free" loyalty punch card are as numbered as the paper punch itself.

Mom-and-pop restaurants, convenience stores and pet groomers are joining national programs that equip them with an iPad at the register where a customer either swipes a loyalty card or waves a smartphone to record the purchase and any reward. National programs such as Belly, ­SpotOn, Perkville and FiveStars use cloud and mobile technology to enable retailers to offer programs that reward the customer faster and with more creativity than a punch card.

"Within five to 10 years, we'll move away from punch cards and key fobs and even apps and go to smartphones," said Rik Reppe, director of PricewaterhouseCoopers' customer experience practice in Minneapolis.

D. Brian's, which has six fast-casual restaurants in Minneapolis and suburbs, switched to the Belly system recently. The company manages loyalty for 7,000 merchants in 20 U.S. markets with 2.5 million users. Customers use a key fob, card or smartphone at the register to get a free beverage, chips or a buy-one-get-one entree.

"Two years ago, we had a buy-an-entree-get-a-coffee punch card, but it seemed so 1980s and dated," said Paul Fournier, vice president of D. Brian's. "The customer always fumbled for it at the register, or they couldn't find it at all."

The Belly program is free for customers, who get access to nearly 200 small businesses in the Twin Cities and many more nationally. Businesses pay $79 to $149 a month for the service, but they don't have to run the program themselves.

Anita Birmingham of Minneapolis uses her Belly card by waving her smartphone in front of an iPad to get a free cup of coffee every two weeks. "It's a good savings," she said. "I like being able to use my ­smartphone instead of looking for a card."

Rob Wilson of Minneapolis has 15 cards but mostly uses his cards from SuperAmerica, Game Stop, Mystic Lake and a couple of restaurants. "I don't use the ones with rotten rewards," he said. "It's not worth it to me if I have to wait a long time."

The number of loyalty memberships in the U.S. has more than doubled from 973 million in 2000 to 2.09 billion in 2011, according to Colloquy. But signing up for a loyalty program doesn't mean consumers are actively using it.

Consumers want to be rewarded faster, said Hal Stinchfield, founder and CEO of Promotional Marketing Insights in Orono. "If I eat out at a place maybe once every two weeks, you can't make me wait six months before I get a reward. That's ridiculous."

Many consumers are perfectly content with accrue, accrue, accrue, but millennials and those behind them are intensely loyal for shorter periods of time. If they're not rewarded quickly, they lose interest.

Reward programs have to be front-loaded to give rewards sooner, said Marcin Michalek, customer service engagement manager at Caribou Coffee. "Otherwise, the customer loses interest and goes elsewhere."

Stinchfield said that newer smartphone technology won't help a stingy program. And not everyone thinks the smartphone will be embraced as the new loyalty device. It has the potential to know a lot more about its users than an online card, causing some consumers to fear being overmarketed.

Paula Berge of Woodbury said her smartphone pinged when she was in a Walgreens recently because she's a Walgreens Balance Rewards member. She wasn't impressed by the text. "It was the same deal they had on a sign in the store. I was hoping for something I didn't already know about," she said.

Michalek said Caribou is taking steps to be careful about non-reward e-mails or texts so customers don't feel bombarded. "We let guests pick their level of engagement."

But sometimes technology itself is a deterrent. Wilson, 21, has had trouble using his smartphone to collect loyalty points at some businesses. "Either the app won't open or the scanning doesn't work. I prefer the card," he said.

Experts say smartphone-based loyalty programs will work out the kinks and offer a lot more than an online card or punch card and offer customized rewards faster. With a mobile loyalty program a merchant can shift the incentive to a new product that needs traction and buzz, Reppe said. "A smartphone lets a business make the leap from 'come on in and buy anything' to 'buy this specific thing because we sent you a reward.' "

With smartphones and apps, there will be more offers and more rewards, which has the potential to be good for businesses and consumers. Businesses want to break the long-term accrual process too. They want loyalty programs that are stickier, where people use up the rewards more quickly, according to Reppe.

While many businesses feel pressure to offer a loyalty program, Reppe said every business shouldn't feel obligated to have one. "Three out of five companies that have intense customer loyalty have no ­loyalty program," he said. "A loyalty program can be extremely powerful, but you often get greater loyalty just delivering an awesome ­customer ­experience."