The clever ways loyalty programmes are costing you

In a cost of living crisis, loyalty programmes are a welcome way to save a few dollars. But there's no such thing as a free lunch.

Loyalty programmes are a regular part of Kiwis' shopping habits. A recent Consumer NZ survey showed that nine out of 10 people use a loyalty card at the supermarket.

And why wouldn't we? For the small hassle of swiping a card, we get discounts on certain products, personalised offers and sometimes even a reward, such as a voucher.

But what are we actually giving up in exchange for a couple of dollars?

"When you go to the supermarket and you swipe the card, the supermarket is getting a view of everything you buy, where you live, how they can contact you," says Consumer NZ's research lead Rebecca Styles.

"It can seem quite benign data as we're giving it away, but it is actually used to the most benefit for businesses to see what specials work, what specials don't work, what promotions we respond to, what stuff falls flat. So, it's a huge data pool that can extract this really useful information for businesses to see what we respond to and what we're likely to spend money on."

She says that as loyalty programmes have developed over time, it has become easier for companies to collect shoppers' data, and she's worried about how the data is being used to sell products to consumers.

"Perhaps the biggest vulnerability is it could open the floodgates for more dynamic pricing."

Dynamic pricing is where customers are offered different prices based on various market factors.

Styles says there are questions around "how we monitor whether prices are being offered in accordance with the Fair-Trading Act".

"I think that is potentially a slippery slope if there becomes a lack of transparency about what the actual price is, are we actually getting a good deal or are we being offered prices differently depending on our demographic information and our shopping information that we're handing over to these companies."

On this episode of The Detail, we look at reward programmes and whether the price you pay for being loyal is a fair one.

Location based

Laszlo Sajtos, an associate professor at University of Auckland Business School, says that your physical location can affect the alerts you get.

"There are many loyalty programmes that are location-based. So, if they know that you are in the mall, then you just happen to have a notification of an upcoming offer or current offer."

But do we really care about handing over our data in exchange for a better deal?

"This is like a 100-year-old debate," says Sajtos. "It's usually called the privacy personalisation paradox. This paradox is really about, would you be willing to give up your privacy?

"We tend to say 'no' at an attitudinal level - we say 'privacy is important.' But when it comes down to thinking about how companies can make us more comfy and customise their offers because that's what we're interested in - the offers that suit our needs - then we tend to sort of trade [our privacy].

"The bottom line is that I guess everybody understands that personalisation comes at a cost and that cost is basically your data."

And the cost for companies not to have that data would be huge. Sajtos points to airlines as an example.

"Airlines' loyalty programmes can be worth more than the airline itself. It clearly shows the value of the data."

It's not all bad news though. Styles says that programmes can be beneficial to consumers if they're aligned with what they've already planned to buy.

"People do love the rewards, if you go somewhere regularly and you're buying stuff that you intend to buy and you're collecting points and that works for you, that's all great. It perhaps doesn't work as well for a customer when they're enticed to buy stuff they never intended to ... in order to get points."

Styles says that it doesn't help that we have limited options of where to shop.

"It's rewards in a very concentrated market, especially for essential services like food. We've got a duopoly, we're probably loyal to both and most New Zealanders would go to both."

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