Supermarket giants Coles and Woolworths should stop tracking customer purchasing behaviours by linking debit and credit cards to their respective loyalty schemes, the Australian Competition and Consumer Commission (ACCC) says.
The ACCC today released its 149-page final report into the operation of consumer loyalty schemes in Australia, finding major programs run by big business have created a host of consumer, competition and data practice issues that potentially cause “widespread consumer detriment”.
Making five recommendations on Tuesday, the ACCC took aim at the major supermarkets specifically, also noting the increased use of big data analytics poses competition risks that could raise barriers to entry for smaller firms.
More broadly, the competition watchdog has called on businesses to “review their approach to presenting terms and conditions”, saying the ACCC has received about 2000 reports about loyalty schemes in the five years to December 2018.
“We are calling on companies that offer loyalty schemes to improve both their data practices and how they communicate with consumers, to help consumers understand how these programs operate,” ACCC chair Rod Sims said in a statement on Tuesday.
“Even simple changes, such as more prominently alerting customers that their points are about to expire, for example, in the subject line of an email, could help prevent a consumer from losing points earned over several years.”
Coles and Woolworths were repeatedly named by the regulator, which is concerned the supermarkets are limiting the ability of consumers to control their data.
Coles’ Flybuys and Woolworths Rewards automatically link customer debit and credit cards, enabling the supermarkets to track purchasing habits, even when consumers don’t scan their dedicated loyalty program cards.
“When a customer chooses not to present their loyalty card, we think it is reasonable that they would not expect their data to be collected for that transaction, and we are therefore calling on the relevant schemes to stop this practice,” Sims said.
A Woolworths spokesperson said the company will “carefully consider” the ACCC’s recommendations.
“We understand that simplicity, transparency, and data security are essential to customer trust in our program, and continually review and refine our privacy policies and data collection practices to this end,” the spokesperson said.
The average Australian carries four to six loyalty cards, the ACCC says, which means changes to the way these programs operate could have potentially wide-reaching ramifications for industries where their use is prevalent, including retail, hospitality and travel and accommodation.
Business practices the ACCC is concerned about:
- The collection, use and disclosure of data in ways that don’t align with consumer preferences;
- Making unilateral changes to terms and conditions in ways that are unfair to customers; and
- Failing to present terms, conditions and privacy policies in a way consumers can understand.
Big data could stymie small disruptors
The ACCC began investigating loyalty schemes earlier this year amid a broader focus on what consumer and competition issues are being created by the emerging digital economy.
Businesses such as Woolworths, Coles, Qantas and others have been investing heavily in improving their ability to use big data to track customers, define actionable business insights and promote better loyalty.
But the ACCC says these practices raise a range of potential competition issues that could stymie the ability of disruptive, smaller firms from entering or otherwise operating in these markets.
“Loyalty schemes may be harmful to competition when they ‘lock up’ customers and introduce switching costs that increase barriers to entry and expansion for rival firms,” the ACCC said.
“If barriers are enduring and induce exit or deter entry, consumers are likely to be worse off.”
While competition concerns associated with big business loyalty programs are nothing new, the ACCC says data analytics capabilities are improving the ability of companies to use customer loyalty more effectively, which has implications for competition.
It said schemes with “large membership bases” could use the data they’re collecting to entrench their market position at the expense of smaller rivals.
“The ACCC will consider the competitive effects of loyalty schemes on a case-by-case basis in enforcement investigations; merger and authorisation decisions, including with respect to analysing any substantial market power held by a firm; and the height of barriers to entry in a market in competition law matters,” the ACCC said.
While loyalty schemes can also have pro-competitive effects on the markets they operate in, the ACCC said industries that are saturated with longstanding programs make it more difficult for new players to gain a foothold.
SmartCompany has contacted Coles for comment.