The Australian Competition and Consumer Commission (ACCC), a government watchdog and consumer protection bureau, released a scathing report on Customer Loyalty programs last month that left many of us in the industry shaking our heads. The 107-page report, titled “Customer Loyalty Schemes,” warned program operators in Australia they must ensure they are not misleading consumers who become members of frequent flyer, supermarket, and credit card loyalty programs. Major concerns cited by the ACCC’s report include:
- Whether consumers receive the benefits advertised by loyalty schemes.
- Unilateral changes by loyalty schemes to their terms and conditions, and poor communication about how their schemes work.
- Poor disclosure about how consumer data is used and shared, including selling insights from consumer data to other parties without consumer knowledge.
- Sharing of consumer data with unknown third parties.
The draft report shows almost nine in ten adults are members of a loyalty program, with the average Australian carrying between four to six loyalty cards. Some of the most popular Australian loyalty programs report having more than 10 million members. With a population in Australia of about 25 million, that’s significant.
While the ACCC uses these statistics to bolster its claims about how pervasive the invasion of consumer interests by loyalty programs are, it did not balance the report with evidence of the positive impact these programs can be for Aussie consumers and businesses alike. Their only commentary about results paints a negative picture of profitability – citing stats that some programs generate A$110 – 370 million (US$75 – 250 million) in earnings per year. Sounds to us like most programs are working and delivering a sound value proposition for consumers.
The draft report raises concerns about the opaque terms and conditions of loyalty “schemes”, preventing consumers from making informed choices that align with their privacy preferences. Consumers also have limited control over how their personal information and other data could be used by loyalty operators and with whom it could be shared.
“The privacy policies of these schemes are frequently very vague and don’t tell consumers who their data is being shared with or how it is being used, shared, or monetized,” ACCC Chair Rod Sims said.
Mr. Sims continued, “The data that loyalty schemes collect can be used to profile consumers and produce insights about their purchasing behavior. These insights about consumers may then be shared with or sold to third parties.”
“Consumers may also be shocked to find that some schemes collect their data even when they don’t scan their loyalty cards, or that they combine it with data from other sources that they might not even be aware of.”
“Most people think they are being rewarded for their loyalty with discounts or points, but in reality, some schemes are building up detailed profiles about consumers and selling those insights to other businesses. Selling insights and access to loyalty scheme members are becoming increasing sources of revenue,” Mr. Sims said.
The ACCC claimed to have received reports from consumers that they haven’t earned, kept, or been able to redeem their points in the way they expected. For example, some operators:
- Failed to adequately advise them about critical components of their loyalty programs, including the need to remain ‘active’ by earning or redeeming points to avoid point expiry or restricted availability of redemption opportunities.
- Made unilateral changes that unfairly restricted the benefits available such as reducing the rate customers could earn points, or the value of points previously accumulated.
- Imposed high ‘carrier charges’ when points were redeemed for flights.
Mr. Sims added, “Many people think they can redeem their points for a free flight, but in some cases, the cost of purchasing an airfare without using points may be similar to the cost of a flight using points once the airline adds on taxes and charge.”
“Loyalty scheme operators must ensure they comply with the Australian Consumer Law, including by avoiding statements that are incorrect or likely to create a false impression, and avoiding unfair contract terms.”
“Loyalty schemes also need to review the way they explain to customers how their schemes work, and how they notify their consumers of any reductions to the benefits offered,” Mr. Sims said.
The ACCC asked for comments on the draft report and expects to release a final report in late 2019.
We asked for comments and reached out to Mark Ross-Smith, a travel loyalty expert in the Asia Pacific region for his perspective. Mark’s brief on the report:
- “A few of my initial takeaways from reading the full 107-page report:”
- Airline loyalty programs are superior to any other industry or business that has a loyalty proposition.
- Loyalty programs are hugely influential in locking in new and existing business. One example shows how businesses can fail without a compelling loyalty strategy.
- A segment of the population doesn’t take the time to learn the ins-and-outs of the program they sign-up to and complain later when their expectations don’t match what the program has offered.
- Banks & Telco’s changing the earn and burn rates midway during a contract the customer is paying for — a major problem.
- ACCC using the word ‘scheme’ instead of ‘program’ may be intentional. I’ve never in my career seen a loyalty or rewards program referred to as a ‘scheme’.
- The draft report stops short of specifying exactly HOW and WHY loyalty programs are using data to drive organizational objectives, including revenue generation.
We appreciate Mark’s perspective. Brands and loyalty providers in all regions of the world must ensure fairness, flexibility, transparency, and maximum communications to the membership or risk shooting themselves in the foot. At the same time, panicky rhetoric about potential harms to consumers are more than likely motivated by a separate and possibly less than transparent agenda.
Maybe the most important take-away from the report is a wake-up call to professionals in the customer engagement and loyalty industry to take advantage of available education opportunities (full disclosure: Wise Marketer owns the Loyalty Academy) and stay abreast of trends and best practices to continually improve their operation of successful programs.
Each of the points noted in the ACCC report indicate failures in program execution and represent departure from best practices in each area mentioned. We can’t comment on the accuracy of the details of the report, but we can urge everyone professionally involved in data-driven marketing to take the lead in setting the highest standards with the customer data collected and always keep the customer’s interests at the top of the pyramid.
For a complete read of the draft report:
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