Introduction

Increased competition in the retail and service industries has led to the introduction of creative marketing techniques. Since a company’s most loyal customers are also its profitable ones, the goal of this technique is to build loyalty by retaining existing customers. In the U.S., membership in loyalty programs reached a staggering 3.3 billion in 2014, which was an increase of 26% from 2012 [15]. It is estimated that the total value of loyalty currency issued to U.S. consumers in 2010 created a $48 billion industry that spans the financial, travel and hospitality, and retail sectors.

With the advent of computerized data mining with American Airlines’ AAdvantage air miles reward program in the 1980s, loyalty programs have increased in importance over the past few decades [1]. Today, loyalty programs are a fundamental part of business operations for giant retailers such as Walmart and Tesco. For example, Walmart customers submit their receipts through a smartphone app called ‘Savings Catcher’ and in return, receive credit in their account if the product was available for a lower price elsewhere. Tesco, a major British retailer, used its Clubcard loyalty program to provide insight into its customers’ purchasing behaviors. It used the data to segment customers into appropriate groups that resulted in increased redemption of its vouchers and coupons after it boosted targeted mailings.

Information and knowledge gathered from data mining is used to design and market products and services. The aim is to encourage customer patronage by motivating customers to make frequent purchases and shun competition, leading to an increase in revenue; in short, loyal customers are indispensable. According to the Chartered Institute of Marketing, it can cost between four and ten times as much to acquire a new customer (primarily through marketing costs) than it does to retain an existing one [1].

Reward or loyalty programs are based on data collected about a customer’s buying patterns and preferences. Therefore, companies have incentive to collect as much personal and purchasing information as possible. With this in mind, it is important to understand the business and social impact of the technology behind this phenomenal growth.