Will Loyalty Programs Cause Widespread Consumer Detriment?

Ally Feiam By Ally Feiam | 04 Dec 2019

The ACCC has released a report that examined and dissected consumer and competition issues surrounding consumer-facing customer loyalty programs. As such, three key issues were highlighted throughout the report, including Consumer Issues, Data Practices and Competitor Issues. 

Ninety-two per cent of online shoppers are a member of at least one loyalty club. Since the inception of the points program for frequent shoppers, they have become an inherent part of the retailer strategy. From FrequentFlyers to Priceline Club Cards, there are more programs within the Australian landscape than you could shake a stick at. However, Aussie shoppers are finding less importance behind these programs, and the ACCC is now calling for its intense regulation.

Throughout this report, the ACCC expressed concerns about a ‘range of business practices’ in the loyalty industry, which have the ‘potential to cause widespread consumer detriment’. According to the ACCC, an example of the loyalty schemes that may cause these concerns to engage in the following practices:

  • seeking broad consents from consumers and making vague disclosures to them about the collection, use and disclosure of their data
  • providing consumers with limited insight and control over the sharing of their data with unknown third parties
  • offering a limited ability for consumers to opt-out of the targeted advertising delivered by third parties on behalf of loyalty schemes

While the ACCC acknowledges that many loyalty programs have sought out to resolve these raised issues, it aims to see further regulation of said schemes to diminish further ‘consumer detriment’.

“While acknowledging these changes, the ACCC remains concerned about a range of practices which persist within particular schemes and therefore continues to recommend changes to particular industry practices and consumer and privacy laws,” the ACCC noted. “The ACCC considers that these recommendations will both protect consumers and ensure consumer trust in the digital economy and data-based innovation.”

The Power Retail Advisory Board supports these claims regarding the level of consumer trust and the importance of loyalty programs. In the Power Retail Spotlight Series report: Loyalty Programs, 28 percent of the average Australian shopper finds it ‘increasingly hard’ to earn points, with a counter 24 percent finding it ‘increasingly difficult’ to qualify for said points.

As such, the ACCC has received numerous complaints stating that specific loyalty programs have “failed to adequately advise [the consumer] about critical components of their loyalty schemes, including the need to remain ‘active’ by earning or redeeming points within a specified period to avoid the expiry of points, or about the restricted availability of redemption opportunities.”

Further complaints include the creation of “unilateral changes that unfairly restricted the benefits available under a loyalty scheme, for example, by unilaterally reducing the rate at which they could earn points, or the value of their points previously accumulated.”

As cited from the Power Retail Spotlight Series, “seven of the top ten reasons for not joining or stopping using a program relate to reward ROI factors (for example, the belief that it takes too long to earn rewards). Two factors relating to confidentially also feature in the top ten (the security of personal information, and concerns about organisations tracking spending)’.

Advice from the ACCC

Due to the high volume level of complaints inundating the ACCC, the organisation has conducted several recommendations for reducing the level of mistrust amongst consumers.

  1. Improve Communication with Customers

    As the ACCC notes, “loyalty scheme operators need to review their approach to presenting terms and conditions of loyalty schemes and ensure changes are fair and adequately notified.” Expressly, it’s advised that retailers provide consumers with ‘relevant information at the right time and in the right way’ to make informed decisions.
    When a customer’s points balance is steadily approaching expiry, ensure that notification of said changes are ‘sufficiently prominent and appropriately targeted’. Moreover, loyalty programs must provide existing members with ‘prominent and timely’ notice in advance and the ‘genuine opportunity’ to redeem their current points for a valid reward.

  2. Cease the Practice of Automatically Linking Members’ Payment Details to a Loyalty Profile

    The ACCC has called out three major loyalty programs with the recommendation that they cease the automatic linking of payment details to track purchases. “Coles, Flybuys and Woolworths Group should end the practice of automatically linking customers’ payment cards to their loyalty scheme profile to track their purchasing behaviour and transaction activities when they do not scan their loyalty card,” the report stated. The Power Retail Advisory Board found that two of the indicated loyalty programs, Woolworths Rewards and Fybuys, dominate loyalty club memberships, with 76 percent and 75 percent, respectively. The result of this automatic connecting may cause ‘harm to the customer’, which includes the likelihood of “decreased consumer welfare from decreased privacy, and risks to consumers from increased profiling and from discrimination and exclusion”, the ACCC said.

  3. Improve Data Practices of Loyalty Programs and Strengthen Protections in the Privacy Act of Australian Law

    The ACCC has advised that loyalty programs need to “review their approach to presenting consumers with
    information about how they handle consumer data and provide consumers with meaningful control over their data.” The report found that consumers are often left in the dark about the collection, use and disclosure of their data. To relieve the lack of understanding on the consumer’s part, it’s advised that retailers with a loyalty program minimise information overload for consumers by clearly presenting relevant aspects of their terms, conditions and privacy policies to consumers.

    Moreover, the ACCC reinforced the Digital Platforms Inquiry Final Report’s recommendations for privacy law reform. For retailers, this includes the strengthening of consent requirements to require that approvals are freely given, specific, unambiguous and informed.

“Many consumers are increasingly concerned about receiving targeted advertising, in some cases from companies that they have never dealt with before,” explained Rod Sims, the ACCC Chair. “There is also an emerging risk of real consumer harm if individual consumers were to be charged inflated prices based on profiling derived from their data. For example, if a person’s frequent flyer data or online search history indicates they can only travel on certain dates, or otherwise based on their income, geographic location or other information collected through the loyalty scheme they may be charged extra.”

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