Loyalty programs – what are you actually signing up for?

Authors: C.Banks and V.Tran

What do you actually get when you sign up to become a “member” of a loyalty program, the largest of which includes the likes of the well-established FlyBuys program or those introduced in more recent times such as Woolworths’ Everyday Rewards scheme?

Loyalty programs are based on a simple premise: the lure of ‘rewards’ (in the form of discounts, special deals and offers) in exchange for loyalty, in particular, regular and sustained purchasing behaviour. Customers join such programs with the expectation that, as a regular consumer, they will receive priority access to services and/or products (more accurately described in marketing terms as ‘incentives’) that are both matched to their needs and not ordinarily available to the general public.

As many of us would be well aware, when signing up to a loyalty program, one is usually required to provide basic personal identification details such as name, address, age, sex and preferred communication channel e.g. email or postal address. We can also be asked to provide information relating to our buying habits, such as preferences associated with products/brands and purchasing methods.

Many consumers may, however, not be aware that, by signing up to such programs, every purchase interaction that they are involved in is tracked and interrogated by the business as a means of building detailed customer profiles, information which is of significant commercial value to the business as a key driver in helping to refine its customer relationship marketing (‘CRM’) strategy.

The products you buy, the price you pay, how regularly you shop, where and when you purchase are key data metrics that feed directly into your customer profile each and every time you spend. The data collected is not only used to track (and ultimately predict) your spending habits but also features heavily in helping the business to entice you (and others within your customer segment) to purchase more regularly through the use of incentive-based tools e.g. targeted offers and promotions.

More critically, consumers are also generally unaware as to the nature and extent of how their personal information is being used by the business when it decides to on-sell such information (in de-identified form, often labelled as “customer insights”) to third parties. A recent survey by Monash University (Worthington and Fear 2009) identified that only 28% of respondents were aware that such a practice was occurring and that, when made aware, 71% were concerned about it.

The practice itself can include the sale of consumer information to: (i) the business’ manufacturers and suppliers to better inform product design, supply and advertising; (ii) private market research companies for inclusion in broader industry-specific research and development activities; and/or (iii) businesses with shared or mutually beneficial interest in the consumer behaviour such as ‘upstream’ or ‘downstream’ retailers/service providers.

As the business is not passing on your personal information to third parties in identifiable form, it is not in breach of Australian privacy legislation, which ordinarily limits the collection and subsequent distribution of personal information in such circumstances.

So, the next time you are confronted with the “opportunity” to become a member of a loyalty program, take a moment (indeed several moments!) to clearly appreciate what it is that you are actually signing up for.

A good start is to read the fine print (in particular, the associated terms and conditions) as you may discover that, by signing up, you are giving the business permission to not only track (and ultimately influence) your purchasing habits but, more importantly, to on-sell your personal information to third parties for a wide range of purposes.

Matters such as how will my purchasing information be captured and used and who will it be on-sold to and for what purpose(s) are important questions to ask yourself and should rank alongside those “what’s in it for me” questions that you regularly ask yourself as a consumer.


15 thoughts on “Loyalty programs – what are you actually signing up for?

  1. Just about everything we do is being watched and tracked in some shape or form! I think we need to exercise discretion whenever we dish out our personal details – but i wonder if some are more harmless/harmful than others.

    When i think about Coles ‘watching’ every cent i spend my immediate reaction is of concern, but when i really think about it…. they are not turning up to my house with my favourite loaf of bread and a 2 for 1 offer. They send me vouchers and then they can predict their sales and profits with more accuracy. The trade off for me (as long as my privacy is not violated) is worth it… it doesn’t really affect me if they need to analyse my spending habits… i’m still going to buy the things i need to buy.

    It’s what goes on behind the scenes online that concerns me more – i have a plugin that shows me how many (and blocks) any third party tracking of my web movements (40 so far whilst typing this comment!!!). I didn’t sign up for that like i signed up for a flybuys card!

    Liked by 1 person

  2. Good post and I guess the same can said for just normal purchases also. Whether we sign up for a loyalty card or not, our items are just passing through the cash register and the marketers are using the recordings to identify trends and patterns and top products for sale etc. I don’t think it stops with loyalty cards. You only have to dig deeper into the financial world etc.

    For me as a consumer I am quite happy to sign-up to a well known branded loyalty card but I too will perform marketing research on which is the best one and safest one to use. If I select correctly then I will become the winner also and rewarded for my spending. We all know the popular flybuys, small rewards but eventually amounts to something. Credit card points etc. I think there is value in it for consumers who are knowledgeable and educated as to what is happening in the backend.


  3. Great post. I recently saw a statistic by the company Colloquay that over 3 billion loyalty program memberships exist in the US alone, with the average household participating in 29 programs. I thought this was astounding, but when you consider the buy 10 get 1 free coffee stamps, airline programs, bank rewards I guess it all adds up. I see these programs as being split into two groups- those that require your personal information (like Qantas FF) and those that don’t (like subway stamps). The reward for handing over your personal details has to be worth it. If I don’t think I’ll gain anything significant from a program I’m very reluctant to sign up, even if I know I’ll probably collect a few points here and there. But where I know I will get a pretty decent reward, I have no problem with companies knowing what I’m buying and when. Qantas Frequent Flyer is a great example- linking your credit card to the program means they even have my banking details. That’s an awful lot to give over to a company. But the “what’s in it for me” definitely outweighs this. Keep giving me those “free” flights and I have no problem.


  4. These are the business norms now days, getting there customer information and their purchasing activities to build or offer products which better suit to customers and in-effect the businesses increase their profitability. Airlines have their frequent flyer program, stores have rewards card, loyalty schemes are there. Thses are totally voluntary for consumers if they are not comfortable in giving their personal information then they can opt not to be part of such program but if they do become their loyalty member then in return companies offer there customers as well in the form of rewards discounts etc. The question is how many consumers carry their reward/loyalty card everytime they shop many times they forget or many times they just don’t care to acrry them because maybe they are too stuffed with such cards, the question to ask is how do the CRM system which captures the customer data compensates for such sales and what options can companies come up with to scan customer data without giving them a responsibility to carry such cards.


    • Good points. It would be interesting to see the split of male/female data available for loyalty cards. I am betting they get far more data from women than men. I have lots of them (and have a very fat purse because of it), in comparison my husband has only one or two loyalty cards in his wallet (and that is only because I insist he uses them).

      There is probably a whole other lot of customer information out there that these companies cannot access through the loyalty cards. Perhaps this is where market research plays a part.

      Liked by 2 people

  5. Excellent post. You have raised a topic that I had not considered in the loyalty program game – that the information could be used for good by the makers of products. By giving direct feedback to producers on a “live” type basis, they can adjust their own future planning ahead of traditional methods such as customer feedback surveys. Theoretically this could reduce a significant amount of waste in the economy in not making products that people really don’t want to purchase, which should have other indirect benefits in the economy (e.g. improved environmental benefits).
    Another good point is the lack of understanding in the general community of how their data is being used. The fact that such a low percentage of the population is aware that their data is being tracked is a little concerning and has some rather serious ethical implications.


  6. Great post. It’s so true, people just think about what’s in it for them when they sign up for these loyalty programs. But when you start getting regular emails, like Woolworths send now, that started off with a weekly special deal and have now become more about identifying what products you regularly buy and notifiying you of when they’re on special, you start to see the way they use the data they’re collecting to invade your privacy and try to incentivise you to spend.
    And how many loyalty programs can one person belong to? It seems that every time you go shopping, someone else is wanting you to join their program so they can bombard you with promotions. It’s probably really a case of what’s in it for the business. And that’s about the Big Data that they can collect from the simple swipe of a card.

    Liked by 1 person

  7. Thanks for the comments. I think the majority of people are aware that they are giving up their personal information to receive some degree of reward. The question arises as to how aware they are of the extent, as to which their information is used.

    Is it the obligation of the consumer to read the “fine print” in its entirety or the business to simplify their terms and conditions to ensure a greater level of understanding?


  8. What about where there are no rewards for giving up our personal information? I am thinking of banks. A bank has far more important information about us than the companies running a loyalty program. They can see where, when and with whom we spend our money, they see how much we earn when our pay is deposited into our account, they see the size of our mortgage, and they even know how much we get back from the tax man each year. And most of this is unavoidable. Whether we like it or not, we need to use a bank for at least some of our financial transactions.

    I wonder what they do with this information that we don’t know about? They are certainly using it for their own market research purposes to try and upsell their products. I am with one of the big four banks and every time I go into the branch or call they are trying to up-sell me something else. I have just about everything possible with the bank but they still make an attempt (even with a crying baby in the pram).

    I am comfortable with Coles/Woolworths getting a few extra dollars out of me when I buy “2 for the price of 1” M&Ms but I am not that comfortable with the banks knowing the level of detail about my financial situation (and all of these comes without any real reward coming my way). At least when I sign up for a loyalty program I have a choice to do so and there is a reward for my participation.


  9. Very interesting point martiniqued. I am going to resist the temptation to ramble incessantly about banks as I am sure I will go way off topic.

    I will say though that most banks offer loyalty programs with inducements and discounts on their ‘loyalty’ packages. My bank provides significant discounts on my mortgage, my account keeping fees and credit card rewards, if I sign up to a ‘loyalty’ package with them.

    These days, it is pretty essential to use the services of a bank but it is not essential to sign up to their ‘loyalty’ programs. Do the rewards outweigh the continued ‘up-selling’? In my case it does. Do the rewards outweigh the on-selling of my information? Not as sure about that one.


    • What’s your bank? I’d like to get discounts on my mortgage!
      As long as there’s something in it for me, I will sign up for any loyalty program


  10. Great post! I’ve just signed up for my first loyalty card and this really made me think.

    In terms of reading the T&Cs – I think we know that hardly anyone ever will. Like the Apple stores agreement, they are purposely long and confusing in order to deter people from educating themselves before they sign up.

    I notice that Woolworths even has special prices on common items for loyalty card users, which has a shopper feeling penalised for not signing up for a loyalty program.


  11. Great blog! I totally agree with you regarding ‘The data collected is not only used to track (and ultimately predict) your spending habits but also features heavily in helping the business to entice you (and others within your customer segment) to purchase more regularly through the use of incentive-based tools.’ Here is my experience: Do you realize that we may receive different special offers from Coles or WWS via emails? I remember I got an offer from Coles last year about ‘Spend $40 or more in one transaction every week for 4 weeks and collect $100 off your shop’, but some of my friends got ‘Spend $80 or more in one transaction every week for 4 weeks and collect $100 off your shop’.

    While, I am comfortable with these branded loyalty cards so far. It is a win-win strategy, customers get reward points, cash back and special offers, etc. and the companies collect data to analyze consumer behaviours to finally increase their profit.


  12. Thank you all for your comments regarding Van’s and my blog – it was good to read the range of perspectives put forward regarding the merits (or otherwise) of loyalty card/rewards programs.

    It is certainly clear that there is value in such programs (for most) and that general “concerns” regarding the associated usage of personal information (in the consumer context) are mixed.

    As we look to the future, there is little doubt that these types of programs, including their derivatives, will continue to morph and flourish in the broader marketplace … so, if we have prompted you, in any way, to think a little bit more deeply the next time you are weighing up the decision to become a member of such a program, then that can only be a good thing.

    All the best with your consuming!


  13. Hi,

    Good post! The loyalty program was successes in many business especially a loyalty card offers a shortcut to store discounts, coupons and special incentive programs.
    However, In most cases, the programs are free and all you have to do is provide information such as your name and email address. It might bring disadvantage for firm like customer stalking.
    The downside to the gathering of said data is that many customers are now becoming wise to it, and are naturally feeling somewhat wary. Lots of people feel uncomfortable in the knowledge that their habits are being tracked, believing they are being “monitored”.



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