Have Loyalty Programs Gone Too Far In Pursuit Of Your Data?

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 difficulty understanding how new technologies affect their privacy.

Related: How retailers use rewards to help shape consumer behaviour

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.

Jonathan Bishop, an analyst with the Public Interest Advocacy Centre (PIAC), wrote a research paper suggesting that rules were needed to protect consumers from the massive amount of data collected by loyalty programs.

In it, Bishop featured 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.

Related: Air Miles eVoucher breathes new life into rewards program

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.

Related: Why Aeroplan members are fed up with their rewards program

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

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 4 in 10, 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: Why PC MasterCard customers refuse to change

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.  Bishop 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.

TrueEarnings Card discontinued as Costco, Amex end partnership

In 1999, American Express became the first and only credit card accepted at Costco warehouse clubs.  The long standing partnership included a co-branded card for consumers and small business owners known as the TrueEarnings Card from Costco and American Express.

That relationship appears to have ended as American Express confirmed it will no longer be partnering with Costco to offer a co-branded credit card in Canada.  What that means is the TrueEarnings Card is no longer available to new applicants – the card has been pulled from Costco stores and on the American Express website.

Current cardholders will still be able to use the TrueEarnings Card as usual until further notice.

Related: My credit card fail with the TrueEarnings Card from Costco

TrueEarnings card discontinued

The TrueEarnings card had some neat benefits for a cash back rewards card, including:

  • 3% cash back on eligible restaurant purchases
  • 2% cash back on eligible gas purchases
  • Up to 1% cash back on everyday purchases – including at Costco
  • Free supplementary card – that person just needs to be a current member on your Costco account
  • Show your TrueEarnings Card for entry into any Costco warehouse and use it to pay for your purchases

American Express spokesperson Amanda Betti said the details of the wind-down and alternative options for Amex card members are still being finalized.  As of now, Costco is still an accepting Merchant and all American Express card members can continue to use their cards at Costco.

Related: How to use your non-Amex credit card at Costco

“We will inform our Cardmembers as soon as we have concrete information to share with them,” she said.

Final thoughts

We can only speculate at this point, but it sounds like the TrueEarnings Card will be discontinued for existing customers at some point this year.

Perhaps Costco will open up its doors to Visa and/or MasterCard and start accepting those cards in-store.  Or maybe we’ll see a new exclusive agreement with one of the big three credit card providers.

In the meantime, we’ll wait to hear from American Express to decide the fate of the TrueEarnings Card in the coming weeks or months.