I was struck by this question when I was shopping at Dick’s Sporting Goods the other day and was offered the chance to sign up for their ScoreCard Rewards program. My first concern was what was the cost to join? Given that the answer was no, I signed up. My second concern was would I be inundated with special offers, but when the cashier pointed out some boxes for me to check to avoid getting special offers from them and having my information sold to third parties I decided to sign up.

The program is pretty typical: you get a point for every dollar you spend and when you accumulate 300 points, you get a $10 reward. You also get to be a member of a special club (read: everyone who takes the 1 minute to fill out the application) and get a special newsletter, automatic entry in sweepstakes and contests, product reviews, and periodic friends and family discounts. Great value for the time and money spent!

But will this program impact my loyalty to Dick’s? The short answer is no. The reason for this is that I already considered myself a loyal Dick’s customer based on the difference in product quality and selection at Dicks’ as compared to the Sports Authority and the indifference of the service reps I encountered at the Sports Authority. I had already decided that Dick’s was going to be my first choice and I would only go to the Sports Authority if Dick’s didn’t have what I was looking for.

Typically loyal customers are willing to pay a premium to do business with a preferred supplier because of their product quality, excellent service, and the ease of doing business with someone who knows your preferences. These factors build the customer’s trust in the business and make them less likely to switch suppliers even in the face of lower cost options. Most frequent customer card programs, however, are built on the premise of offering a discount in the form of miles, points, gift certificates, etc. to get the customer to buy again.

Think about the last time you went out to dinner. Are you willing to go back to that restaurant if they don’t offer a discount? If the answer is yes, they are giving away profits by offering the discount. If the answer is no, is price the really the reason you won’t return or was it something about the quality of the food and service? And if the restaurant has a quality problem, how big a discount will it take to get you to go back?

So what is Dick’s getting out of this program if customer loyalty isn’t it? They are maintaining customer mindshare with the program, stimulating repeat purchases through permission based advertising, and increasing word of mouth advertising by frequent customers to their friends and family in return for effectively offering a 3.3% discount on their merchandise. The program may build customer volume, but that is not the same thing as building customer loyalty!

If your business competes in a crowded market where it is difficult to differentiate yourselves from the competition, you may want to create a frequent customer program, but do not automatically link price discounts to the program. Discounts should be related to your operating costs, so if the incremental customer volume makes it cheaper for you to serve your customers, then discounting through frequent customer programs makes sense.