How much is customer loyalty worth to you?- the trade-off for free rewards

Free drinks on your birthday is an awesome Starbucks Rewards member perk. That free car wash you get after buying nine? Completely satisfying. While loyalty programs and their benefits seem great – for both the customer and the business – the value of these memberships can be compromised when you consider the services received and the invasion of your privacy. So, are loyalty programs worth it?

According to the Financial Post, about nine out of ten Canadians participate in at least one loyalty program. A loyalty program gives customers exclusive benefits, like free products or rewards, for buying their merchandise in a repetitive fashion. These programs encourage repeat business, and are also used by businesses to reward consumers’ brand loyalty while also gathering consumer information, like what promotions are effective. These programs are opt-in, meaning that customers decide if they wish to receive the reward, but once they’ve opted-in the business continues to mine information and spending habits.

The reason loyalty programs are successful is that they play on consumers’ egos. When there are different classes in loyalty programs, consumers will continue to spend money on that company’s products because their consuming habits are recognized as important, and they’re driven to maintain or improve their status (and potentially unlock more perks and rewards). A recent study by Accenture found that 12-18 per cent more revenue is generated on loyalty card member transactions. Consumers will also use loyalty programs because of the promise they provide. Even if they have to buy a certain amount of product to receive that free item (perhaps even more than they originally wanted or needed), they focus on the promise of free.

While such incentives can be successful for some businesses, consumers are very vocal when loyalty programs make mistakes.

Recently, Brandspark found that 81 per cent of Canadian household shoppers belong to the Air Miles program.  However, according to the Corporation Reputation Study, the Air Miles brand has suffered the biggest drop in reputation score in 2017. This is as a result of the changes they made to their loyalty program at the end of last year. Air Miles told their collectors that their points would expire, prompting customers to redeem rather than continue saving up, only to later reverse their position. Collectors had changed their behaviours from saving up for vacations to redeeming their miles extravagantly to prevent them from going to waste. When Air Miles reversed the expiry policy, customers’ dissatisfaction (from the initial change) amplified.  These issues were in addition to existing customer complaints about the way the program dispenses rewards, as many felt that Air Miles hid products from them. This situation compounded when Air Miles’ partnering businesses have started to run fewer Air Mile promotions due to consumers’ dissatisfaction. The main result is that the provincial government has banned the expiry of loyalty points in Ontario (Protecting Rewards Points Act).

Consumers have become more wary of loyalty cards as a result of Air Miles’ disrespectful use of consumer loyalty. Besides the amount of promotional email spam that consumers receive by opting-in as loyal customer, consumers have become frustrated with loyalty programs’ treatment of members in the face of privacy breaches. These breaches can either be stolen consumer information or stolen rewards. In February, both Loblaws and Canadian Tire had rewards-points breaches, which are causing consumers to reconsider their decision to use loyalty programs. At that time, Cineplex was a company who proactively advised its loyalty program members to change their passwords because of the number of data breaches in the loyalty program industry, which resulted in increased customer satisfaction. In the beginning of May, Starbucks Rewards members reported that hundreds of dollars was loaded onto their accounts via their credit cards and then spent without their authorization. Starbucks’ response was encouraging their customers to change their passwords. These experiences have made consumers less likely to trust companies with their information.

Cofounder of DavidsTea, David Segal, is a vocal business professional who demonstrates to other businesses the negative aspects of these programs to brand. He says that loyalty programs can do damage to your brand, cause your consumers to expect low prices and ultimately do not fulfill its purpose to generate loyalty.

It can be seen from these recent loyalty program stories that the age of the loyalty program may be coming to an end. If you are considering adding a loyalty program to your business, you might want to reconsider. Consumers have become hesitant about joining loyalty programs and, as Segal suggests, they aren’t worth it in the long term as the price decreases consumers will expect will damage your brand.