The major retailers are watching you. Information supplied when applying for and using loyalty cards is being used as a marketing tool by large multiple stores to increase your expenditure and boost sales.

The increased use of loyalty cards in the race among retailers to secure new business and retain existing market share is providing an unrivalled insight into buying trends and customer habits. From it will come the customer databases which will inform the marketing strategies of tomorrow.

Tesco and Dunnes Stores have followed Superquinn into the loyalty card market in the Republic and are leading the way in the use of the mechanism as a way of building offering discounts in offering discounts and products in proportion to the amounts spent in the store.

In the North, the co-op CWS runs a dividend scheme whereby consumers claim back cash annually based on their shopping spend.

The vast amounts of data coming into stores requires sophisticated computer programmes to analyse and "to tailor offers and rewards aimed at these shoppers by product, time and location", according to the latest issue of Checkout Ireland, a trade magazine for retailing interests.

A recent programme from the computer company, ICL Retail Systems, called Precision Retailing, "revolves around the concept of using a customer database to build up individual customer profiles and buying histories from loyalty cards, which in turn gives retailers an invaluable insight into the habits and preferences of their best customers".

Loyalty cards have become big business in Britain where there are now an estimated 25 million members of various schemes.

According to the British Consumer Association's Which? magazine, customers are fickle with one third of people in its survey having loyalty cards from more than one supermarket. "But loyalty cards don't appear to buy total loyalty - just 3 per cent of people say they now shop exclusively in one supermarket chain because of the card."

However, the success story of Tesco's ClubCard in Britain says a great deal about the potential of the marketing strategy involved. More than 10 million people in Britain are on the mailing list and the information about customers which is stored on computer means that Tesco can break down this group into 20,000 different kinds of customer and send out vouchers according to individual needs.

"The hope from a marketing point of view is to build a relationship with somebody over quite a long time. I would loosely use the phrase `from the cradle to the grave'," said Mr Michael Nason, marketing director of Tesco Ireland.

A spokeswoman for Dunnes Stores, which currently has 650,000 subscribers, said its scheme in effect more than pays for itself because a selective mailshot is one of the most cost-effective kinds of advertising and the supermarket can "hone its offers".

"It also allows Dunnes Stores to reduce its marketing spending," she said.

Although the card itself will produce the most valuable information - how much a customer spends - the application form has an Optional Information section, asking questions on the applicant's number of children. It also asks for information on shopping habits and whether the applicant has a credit card, a debit (Laser) card and a cheque guarantee card.

"In order to improve our services to you, it would be helpful to know a little more about you and your family," the form says.

As with the newly introduced Tesco Clubcard in Ireland, applicants are asked whether they want to be put on a mailing shot list for "customer research". Tesco goes further than Dunnes, also asking whether applicants wish to receive information about products and services from other companies.

Offering the applicant the box to tick on these choices is in accordance with the Data Protection Act 1988, which regulates the keeping of information on people in computer data banks.

"The crucial thing about these sign-up forms is that you are in a position to make an informed choice. In many instances, these forms are designed to get information for direct market activities and that is perfectly legitimate," says Mr Fergus Glavey, the Data Protection commissioner.

Tesco, which will be vying with Dunnes for the greatest customer numbers, hopes to have 60,000 people signed up by Christmas and as part of the ongoing battle with other multiples offers a Talkline, introducing comment cards and consumer panels.

Peculiar to its questionnaire is its "dietary requirements" section, asking applicants whether they are diabetic, or vegetarian, or teetotal. In common with Dunnes, it seeks household numbers and ages.

Which? points out that the Tesco scheme, operating in Britain since February 1995, also offers a combined payment card and savings account, offering one of the most competitive instant access interest rates and giving a hint of future developments in Irish loyalty card schemes.

The threat to existing retail leaders posed by the arrival of Tesco through its purchase of Quinnsworth/Crazy Prices is intensifying the focus on loyalty cards. Tesco's business in Britain is around two and a half times larger than the entire Irish grocery market, which is estimated to be around £4 billion per year.

The anticipated arrival of Sainsburys, which already has stores in Ballymena and Belfast, could introduce another reward scheme to the market.

Superquinn's loyalty scheme is well established and members can collect points from a wide range of major retail partners. This scheme will play an important role in protecting its future, according to Mr Frank Murphy, director of the ClubCard scheme.

The era of the plastic card is imminent, and although the information on multiples' databases may be innocuous enough, economist Mr Richard Douthwaite sees it as part of a trend. He points to the civil liberties issue raised by the next phase of smart card usage - the Electronic Fund Transfer at Point of Sale (EFTPOS) cashless payment system which is already at an advanced stage of development and trial.

"Nobody seems to worry about the longer-term implications of that. All of a sudden you can find you can be monitored at every step.

"Every time you are using the card you are logging on. In a benign democracy that is fine but in a police state that would be another thing entirely," he said.