Loyalty schemes: Do they benefit you, or the business?

From special discounts, to cheaper fuel and “VIP” parties, loyalty programs at the major retailers offer the lure of a reward for spending your dollars with them.

But these schemes should come with a warning. They might promise the Earth, but the real return for your loyalty is benefiting the business – not you.

Dr Paul Harrison, senior lecturer in Consumer Behaviour and Advertising at Deakin University, warned shoppers not to get sucked in by the programs.

“These programs are not a community service,” Dr Harrison told The New Daily. “They are being run for the benefit of the business.”

For example, take into account how much you’ll get back from these schemes – in most cases, it’s less than a dollar back per $100 spent.

Even the popular 4c a litre saving on your petrol reaps little financial return when compared to the time spent keeping vouchers and the cost of searching for a service station that offers the discount.

“Often what seems like an obvious saving, is not a saving, because we are very irrational and we tend to look at easily calculable savings,” Dr Harrison said.

Dr Harrison said money is always easy [to calculate], “but the amount of effort I need to spend to save that is less easy to calculate”.

“You may well save some money, but you might destroy your relationship because you are driving across town to save 4c and never see your partner – this concept of cost is more than financial.”

Loyalty not always rewarding

Dr Harrison warned that most customers were not aware of the overall effect of the loyalty programs.

“These businesses will always have more resources and more access to information about you as a consumer than you will about the intentions of the business. That’s where we fool ourselves,” he said.

“We think we are in control, but let me tell you, those businesses have a lot more control over what we are doing then we think. They aren’t pulling the levers – we aren’t robots, but the idea of complete free will is a bit of a myth.”

What is on offer for the retailer is customised and detailed data about your shopping habits; where, when and how you buy goods. This allows them to target you with specific advertising and build a detailed knowledge base about their customers overall.

The other hope is to foster loyalty and keep you shopping only with that retailer.

“That’s what these loyalty programs are really about. It’s not saying we love our customers, it’s saying we love you enough to keep you away from the competition,” Dr Harrison said.

It’s about profit, not customers

While loyalty programs themselves hadn’t been proven to change habits, they were now considered part of the core business model, he said.

One tactic is to “nudge”, through targeted advertising, the consumer to buy a particular brand.

“If they had ever bought something that has been promoted to them through a loyalty program, then they responded to the loyalty program. Whether it is a price discount, weight discount, or the number of products you have to buy, you’ve been taken in so to speak.”

According to a study conducted last year into the effectiveness of loyalty programs, consumers bought more from companies at which they had signed up to loyalty schemes.

The For love or money? 2013 consumer study into Australian loyalty programs, commissioned by strategic marketing company Directivity and digital agency Citrus, found that 88 per cent of consumers surveyed belonged to some kind of loyalty program.

Rewards as incentive

Directivity CEO Adam Posner, who worked on the 2012 Flybuys relaunch and other loyalty programs, said that the financial benefits, like instant or special discounts, were the most sought-after reward, with points-based programs second.

“There’s two elements,” he said. “One, that it is profitable for the business and, two, meaningful for the member.”

One respondent told the study: “I like it when they give you a 10 per cent discount if you spend over $50 and it is taken off your grocery bill immediately. When that happens, I make a special effort to spend $50 (which is more than my regular weekly spend).”

While financial benefits were a key part of the rewards schemes, the emotional connection was often underplayed, Mr Posner said.

“To find special experiences – that’s when the attitudes and the emotional connection start. A loyalty program or strategy has to change two things: Attitude and behaviour. That’s what loyalty is about.”

He suggested tactics like special birthday offers, a surprise event or even just a random gift.

Consumer group Choice warns that what you’ll get back for your loyalty isn’t nearly as valuable as what the companies get. 

“Retailers gain valuable information about your shopping habits,” Choice said. “Sophisticated databases store information on the specific products you buy, which could show if you smoke, prefer organic produce, choose low-cholesterol margarine or have a preference for certain snack foods.”

Choice’s advice to consumers is not to let loyalty programs deter you from shopping around.

Here’s our guide to what the major retailers offer – and what you get back.

Fly buys

Where: Coles, AGL Energy, WebJet, Target, Kmart and more.

What: You get one point for every dollar spent. However, there are frequent bonuses and offers where you can accrue points faster. For example, if you get Coles Insurance you can accrue points at double the initial rate.

Reward: You can redeem your points whenever you like. A $20 Coles music voucher will cost 3000 points and a $50 Kmart voucher will set you back 10,000 points.

Woolworths Everyday Rewards card

This is actually a way of accumulating Qantas frequent flyer points. While you need the Woolworths card to accumulate points in store, the rewards are given in Qantas points.

Where: Woolworths, Big W

What: You earn one point for every dollar spent as long as you spend more than $30. You save 4c per litre when you spend $30 at Woolworths affiliated petrol stations.

Reward: Your points can be automatically turned into a Woolworths gift voucher every three months. You need 3000 points to get a $20 voucher.

Alternatively you can accumulate frequent flyer points – you need 16000 points to fly from Melbourne to Sydney.

Targeted: Woolworths targets customers based on their shopping habits tracked through card use. You’ll get discounts and specials specific to your spending habits.

Myer One

Where: Myer, IGA and other affiliates.

What: Points are generally accrued at two points per dollar.

Rewards: When you earn 2000 points you get a $20 Myer voucher.

Other rewards and specials depend on your level:

All levels earn two points for every dollar spent at Myer or Myer affiliates, get a free Emporium magazine, and are given Myer One general offers.

• Myer One: Spend up to $1499 annually
• Silver: Spend $1500 – $5999, Myer One birthday voucher, Silver member offers, invites to special shopping events.
• Gold: Spend $6000 or more, gold Myer One birthday voucher, gold member offers, invites to special shopping events.
• Platinum: Invite only.

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