What are the benefits of a company that uses a "points model" depending on your overall payments?

I recently signed up for a membership card in my local supermarket. This membership card has a point system based on the amount you have paid on that store. For example if you 10 Euro of items you get 10 points.

Also, I think all the banks do the same when you purchase items using their Credit Cards. They signed some co-operations with stores, restaurants, hotels and you can give some of your points to buy things cheaper with a discount, or offers.

Despite the fact that they increase their chances the buyers to buy using their credit card, or buy from that special supermarket, because there is a reward for it, what other benefits are for them and for the buyer?

Despite the great answer JonnyBoats gave to me, I am starting this
bounty because I am looking for

• What are some more methods on how companies and
  buyers benefit from this model.
• What data can be extracted and what
  may sold to other companies, like marketing or advertising firms?
• How can anyone make a profit from such a business?

One major benefit for the merchant/ card issuer is that they get tracking data on what you purchase and can identify it with you personally. This helps them with targeted advertising etc.

EXPANDED ETC: As a further example of the targeted advertising, suppose that a chain finds that customers in a particular store buy more than the normal share of ethnic foods. They then go to an ethnic food distributor or manufacturer and suggest a joint marketing effort for additional ethnic items in that store with the distributor offering free samples, special incentives etc during the first month (which they do since the store has the data to show it will make them money). Then the chain emails or snail mails every customer that has purchased ethnic foods in that store announcing the grand opening of the expanded ethnic section and including "exclusive" coupons and special offers to bring in additional traffic during the first month.

Now consider a mistake by a chain. They decide they are going to sell Lutefisk in every store and make a big purchase. The ship it to stores all over the country and it flops; except in Minnesota. So rather than dump it they ship it to the stores in Minn. (remember they have lots of it) and email all the customers there with a special promotion: "As a special thank you for being such a loyal customer we want to give you 10 lbs of lutefisk with a purchase of $100 or more." The customers in Minn. love the store while the customers in Texas love them even more now that the fish is no longer on the shelves there.

Think chains don't make mistakes? Have you heard of New Coke? The point is that somebody, somewhere wants the mistake and if you know who they are... Consider the poor manufacturer who made the mistake and can't get rid of the product for love nor money. If you, the chain, know who wants it, even if it is only one store in Saskatoon, then you buy it for pennies on the dollar, ship it to Saskatoon, mark it up and run a big ad:

"Mega-chain store, the only store that caters to your desires, listens to your requests. Now the exclusive source for your favorite product. Or competitors may have decided you can't have it simply because people in the US don't want it but not us. We go out of our way to scour the world to find and offer what you, the people of Saskatoon, want."

As they say, information is king. Gather and analyze it properly, capitalize on it. In no time you too can be selling refrigerators to Eskimos!

For example many supermarkets will print coupons on the back or bottom of your register receipt. When you use the card the can instantly personalize the coupons they print on your receipt.

As an example of the benefit to the merchant of coupons based upon your history; suppose they find, for you in particular, that every time a pound of bratwurst goes on sale for $2.99 or less you buy two pounds and at the same time you also buy sauerkraut and a six pack of beer with a probability of 90 percent. Now they know that even if bratwurst costs them $3.10 a pound they will still make money overall because of the beer. For you they might print a coupon for one pound of bratwurst at $2.95. Now consider some other customer who buys bratwurst whenever it is less that $3.50 per pound. For him they might print a coupon for bratwurst at $3.45 per pound.

Taking this one step further, the store now has excellent demographic data that they can sell to the beer and bratwurst manufacturers.

This ability to price the same item differently for each individual customer can be a great way to maximize profits. Without the card it would be virtually impossible.

Benefits for buyers? Well one local drugstore offers 20% off for the year after you have spent so many dollars. They keep track based upon use of the card.

An example:

I just heard a piece on NPR (radio) about how Walmart can tell from buying patterns when a person is pregnant. Retailers LOVE the pregnant "track" because people change buying habits the most when pregnant/new baby and when moving to a new home. It is a chance to hook new customers for life. Apparently the buying patterns are accurate and very valuable.

I think it is scary how much people can learn from our buying habits and I am against allowing people that much information into my personal life.

targeted ads may sound nice - but it is a slippery slope

The advantage to buyers is that it looks like you are getting something for free just for being a regular shopper there or by using their credit card. In practice they are businesses and you are paying for that free reward in one way or another.

With credit cards, they get compensated in a couple of ways with their rewards cards:

• The terms on the rewards cards are worse than their "low interest" cards which are basically just cards without rewards. Generally the rewards cards have higher annual fees and also higher interest rates. This means they make more money off those that don't pay off their cards every month (which many don't) and they also generally make more money from the annual fees.
• The credit card companies charge vendors extra when they accept these premium reward cards for purchases. For example a shop that you buy something from may pay a 1% surcharge for you using your credit card, but a 2% surcharge if it's a premium credit card (ie. one with rewards).

The credit card company attracts more people because of the rewards program, but isn't really out of pocket because they have other ways (like above) to offset the cost of providing the rewards.

With supermarkets, the rewards would be offset by the prices of their products and also by their data mining (not necessarily to sell to others, but often to improve their own marketing/merchandising).

One other beneficiary is the people whose products are offered as rewards. Even though you go to their store to claim your reward, you have now sampled their products and possibly even made another purchase while you are there. It is a great way for them to get new people in the door. Your reward would be subsidised by the rewards program, so this product vendor isn't out of pocket, then it's up to them to turn you into a regular customer. With this in mind, they would likely offer the rewards to the rewards program at cost (or close enough to).