The Australian Competition and Consumer Commission (ACCC) is warning businesses to review loyalty program practices in light of consumer issues.
Businesses looking to stay out of hot water should check their practices against the ACCC’s recommendations, corporate lawyer Richard Prangell tells SmartCompany.
“The biggest recommendation it has made is ultimately there will be greater communication between retailers and customers.
“Businesses should take great care about the kinds of benefits that may be offered, and if there are any changes, they should communicate very clearly how those changes will affect the customers,” he adds.
The industry regulator released a report last week stating its intentions to prioritise “competition and consumer issues arising from customer loyalty schemes in Australia as a focus area in 2019”.
“Having placed the industry on notice, the ACCC encourages consumers to contact us and report concerns where these practices are continuing with their customer loyalty schemes,” it added.
The average Australian subscribes to between four to six loyalty programs. The key danger in this practice is the lack of transparency and understanding of corporate data collection and usage.
“The loyalty business function often takes the lead role within consumer companies in
capturing, harnessing and, in some cases, monetising customer data,” the report reads.
Recommendations and personalised touches at the checkout is a good general indicator of whether a loyalty card is tracking customers’ purchases and behaviour. Data can also be collected through multiple channels and consolidated, such as through several cardholders listing at the same address, or linking apps and social media channels.
While this could be covered in the fine print of the agreement contract, it is also unlikely these customers are aware of the extent to which their data is being monitored.
Clear language also needs to be investigated. The report raised unilateral changes to benefits and rates without sufficient notice, and failing to adequately advise customers about the “critical components of their loyalty scheme” as two trending issues.
Businesses can also struggle to offer sufficient value and consistent engagement to their databases of customers.
Loyalty programs can often be expensive to implement and run. Cost-cutting measures can come from offering lower or less premium services and discounts to their loyalty case.
Small-to-medium businesses commonly join larger networks to optimise consumer value and relieve the workload of maintaining the typically costly requirements of running their own individual programs.
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Such affiliates face their own pitfalls.
The first is the underlying expenses. Businesses who earn customers through the program often pay a percentage fee to the program.
A major attraction to joining a network is brand awareness and customer case growth. In marketing to small business owners, program operators often list their total membership number as opposed to the number of engaged users. This leads potential affiliates to believe that the partnership is a bigger stream of potential new customers than in reality.
Another hazard is the oversaturation of loyalty networks, which prevents associated partners from differentiating themselves from the competition and making a mark on the membership base.
“The ACCC has made a number of recommendations. Small businesses should keep an eye on the law reform and continue to make sure their loyalty schemes remain compliant,” Prangell says.