Paul's Insights: Loyalty but at what cost?
Loyalty schemes are everywhere in Australia. They’re offered by airlines, banks, cinemas, hotels, restaurants and retailers. They’re so popular that the average Aussie carries around four to six loyalty cards.
The sheer numbers are amazing. According to an investigation by consumer watchdog, the ACCC, Qantas Frequent Flyer has over 12 million members. Woolworths Rewards has almost 11 million members.
Despite their popularity, loyalty schemes can have serious drawbacks. They’re often a lot more rewarding for big business than for you and me – though often in ways many of us never suspect.
Most people join a reward scheme to earn a few perks or special discounts. But behind the scenes, some schemes build up detailed profiles of members, and then sell these insights to other businesses. In fact, this on-selling of member data is becoming an increasing source of revenue for many scheme providers.
The scary part is, you don’t always need to scan a loyalty card to reveal personal data. The ACCC notes that Qantas Frequent Flyer collects data about members when they use free wi-fi in the Qantas Lounge and on the aircraft.
Loyalty schemes can impact our spending in other ways.
A Canstar Blue survey found that almost 40% of Australians shop at one supermarket chain – and for more than half these shoppers, their loyalty is driven by the opportunity to rack up some rewards points.
When it comes to redeeming points however the experience isn’t always so rewarding. It’s an area where the ACCC receives plenty of complaints.
Common problems include points that expire, restricted opportunities to redeem points, and sudden changes to the rate at which points can be earned.
The ACCC has made some draft recommendations about how these downsides can be addressed. But until anything concrete happens, it is worth a think about whether your reward programs are offering real value.
Plenty of reward schemes charge an annual fee – making it even more likely you’ll stick with the same provider to recover your money. But what the fee is really costing you is the incentive to shop around for a better deal – and in many cases, your personal privacy.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Loyalty schemes are programs offered by various businesses like airlines, banks, and retailers to reward customers for their continued patronage. They are popular in Australia because they offer perks and discounts, with the average Australian carrying four to six loyalty cards.
While consumers join loyalty schemes for perks, businesses benefit more by collecting detailed profiles of members and selling these insights to other companies, which has become a significant revenue source for scheme providers.
Loyalty schemes can collect personal data even without scanning a card. For example, Qantas Frequent Flyer gathers data when members use free wi-fi in lounges or on aircraft, raising privacy concerns about how this information is used.
Loyalty schemes can drive consumer loyalty to specific brands. A survey found that nearly 40% of Australians shop at one supermarket chain primarily to earn rewards points, which can limit their willingness to explore better deals elsewhere.
Consumers often face challenges like points expiring, limited redemption opportunities, and sudden changes in the points earning rate, leading to dissatisfaction with loyalty programs.
The ACCC has drafted recommendations to address the downsides of loyalty schemes, such as improving transparency and fairness in how points are earned and redeemed, although concrete changes are yet to be implemented.
While loyalty schemes may charge an annual fee, it's important to consider if the rewards justify the cost. Often, these fees discourage consumers from shopping around for better deals, potentially costing them more in the long run.
Consumers should assess whether the perks and discounts offered by loyalty programs outweigh the costs, including annual fees and potential privacy concerns, to determine if they provide real value.