The Steep Cost Of Consumer Loyalty

Retailers collect an obscene amount of data on their customers and they use loyalty programs such as Air Miles and Aeroplan to gain additional insight into our shopping habits and spending patterns.

Consumers want to know what data is being collected about them and want retailers who offer loyalty programs to ask for permission before tracking them online or in-store. Unfortunately, the majority of Canadians have a hard time understanding how new technologies affect their privacy.

Related: PRISM – An attack on data privacy

Air Miles has been at the forefront of consumer data collection for decades. The loyalty company provides its partners with actionable data on consumer behaviour so they can engage in specific marketing tactics to increase traffic and sales.

The Public Interest Advocacy Centre (PIAC) published a research paper suggesting that rules are needed to protect consumers from the massive amount of data collected by loyalty programs.

The report features a case study of the long-standing relationship between Air Miles and Shell gas stations.

Air Miles / Shell case study

In an example that took place in the 1990s, Shell determined they had too many gas stations operating in Canada. As a result, Shell planned to reduce its network by 20 percent, while renovating a number of their remaining outlets. The challenges Shell faced as a result of this decision included:

• To identify which stations to close;
• To identify which stations to renovate;
• How to transfer customers of closing and renovated stations in an effort to retain them; and,
• How to recapture their customers once the renovated stations were reopened.

Using data obtained by their loyalty partnership with Air Miles, they discovered that members of the program accounted for more than half of each location’s total revenue, and of those customers, half of them generated 86 percent of those sales.

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Using these customers as its target market, Shell was advised by Air Miles which sites consumers would turn to once their regular Shell locations were closed.  The partners then employed a series of direct-mail and in-store marketing tactics to retain customers, including:

• Direct-mailing and in-store marketing alerting customers of a location’s upcoming renovation;
• Guides to nearest (and most likely) alternative site;
• During renovations, Air Miles offered double miles for purchases made at the alternative site; and,
• After renovations, direct-mailings offering double and triple reward miles, as well as site reopening announcements to encourage consumers to return to the revamped location.

What were the results?  Shell was able to retain about 75 percent of its customers during the renovations, and in response to offers, customers actually increased their spending by 7 percent.

To put this in perspective, a substantial number of Shell’s customers drove further and spent more while their most convenient location was closed.

Changing technology

Keep in mind the Air Miles example took place in the 1990s. Technology has improved and the amount of data collected on consumers today is mind-blowing – one industry observer indicated the amount of customer information collected doubles every 18 months.

The PIAC study noted that concern about privacy is consistent across demographics, yet what is “cool” or “creepy” to loyalty program members varies.

Related: How to profit from loyalty programs

For example, at least two-thirds of Canadian loyalty program members over 50 years old categorized the following activities as “creepy and weird:”

• Allowing programs to review your friends’ status updates/photos to determine your eligibility for benefits
• Offer benefits to those who provide the program with access to personal information about you (such as personal income, household composition, etc.)
• Allowing programs you “Like” or “Follow” to review your profile, to determine your eligibility for benefits
• Determine your location using your smartphone and offer you deals if you are nearby.

Meanwhile, the same study found at least 49 percent of those aged 16-34 were open to reward programs engaging with them in the following ways:

• Personalized discounts on your favourite items, based on your purchasing habits
• Personalized offers you want, based on preferences that you can manage and update
• Special benefits to those who “Like” or “Follow” a program on Facebook or Twitter

While a substantial number of those surveyed – roughly 40 percent – expressed concern about Facebook’s ever-evolving privacy settings, only 18 percent were concerned about loyalty program operators abusing their personal information, while nearly half were more likely to share personal information with brands that offer reward incentives.

Related: Nine ways to protect yourself from identity theft and cyber fraud

In addition, over three-quarters of Millennials agree with their older peers that opt-in permission is a prerequisite for any brand that collects personal data or tracks their behaviour.

Final thoughts

We all love a deal and to get rewarded for the things we buy every day. But we can’t forget why loyalty programs exist in the first place – to attract new customers and to encourage existing customers to spend more.

Our privacy and personal information is exchanged for small rewards from retailers. The PIAC study says there’s no doubt both parties are receiving something of value in that exchange, however the difference in value between what is received by the consumer and the information collected by loyalty program providers is so vast, it is worth investigation and further scrutiny.