Supermarket loyalty programs slammed, but expert says transparent loyalty schemes can work

New research from consumer research group Choice reveals supermarkets are gaining millions from loyalty programs, with only a few customers making enough to cash in for a reward.

But retailers must use loyalty schemes which are as simple as possible in order to maintain a good reputation and ensure customers do not become confused, an industry expert has warned.

The research reveals a $50 shopping voucher at Coles is redeemable only if a consumer spends $15,700 with a FlyBuys card, while a similar offer at Woolworths requires about $11,000. Choice said this would take the average shopper about 16 months to spend, based on research from Roy Morgan.

Additionally, Choice also claims flight benefits are similarly out of reach for most consumers, saying it takes seven years for consumers to earn enough for a Virgin Blue Sydney-Melbourne flight.

“Loyalty cards are used to collect enormous amounts of personal data when you do your shopping such as whether you buy anti-cholesterol margarine, prefer organic food or eat certain snack foods,” spokeswoman Elise Davidson said in a statement.

Additionally, Davidson said these programs can cost consumers more than they would otherwise if they change their consumer behaviour in order to take advantage of the rewards.

Retail Doctor chief executive Brian Walker says he is in favour of retail reward programs but they must be transparent and fair to the consumer.

“I’m in favour of loyalty programs as an element of service and policy, and I am in favour of programs which are transparent, genuinely reward customers for repeat business and provide consumers with an incentive. It should not be about profiteering, it should be about profit on a repeat visitation.”

“There is no doubt in my mind that loyalty comes about by having the right offer at the right time, and having the right service people. All of these elements will produce customer loyalty, not a program in and of itself.”

Walker says businesses must not make a habit of attracting customers based on a loyalty program. Instead, a loyalty program should be a natural consequence of good customer service and a well-run business.

“I don’t fly with Qantas because of their loyalty programs, and I wouldn’t if the fundamentals aren’t in place. I go because of the customer service, the way you are treated. What this study shows is there is a bit of an implicit perception they are not being transparent enough to customers.”

Walker says one of the key facets of a successful rewards program is simplicity, which will make customers eager to continue shopping.

“Keep it simple, keep it transparent, and look to reward customers for repeat visitations. Reward them in unique and novel ways they actually understand. If there are six hundred terms and conditions, it becomes about the business and not the reward – and then what’s the point?”