Loyalty programs under the microscope

Concerns grow that reward programs may fall short of customer needs

The value of customer loyalty programs is under increased scrutiny by companies and users in the wake of Air Miles’ recent reversal of an unpopular expiration policy.

The operator of the shopper reward program, LoyaltyOne, angered many members last year with its proposal to void unused Air Miles after five years, only to abandon that plan weeks before it was to take effect.

“It put a little bit of a black eye on the industry as a whole,” said Patrick Sojka, founder of RewardsCanada.ca, which tracks travel reward programs.

Air Miles acknowledged the public frustration, saying card use dropped at the end of last year.

Blair Cameron, head of the program, said it’s premature to say whether that will reverse this year, but Air Miles is ramping up promotions to improve its relationship with collectors.

Still, the company has reduced the value of miles for some rewards, increasing the cost by about 20 per cent. Cameron said that change affects only 1.6 per cent of redemptions for its Dream rewards program, and does not apply to flights.

Last month, Metro said it was considering dropping Air Miles and launching its own loyalty program in its Ontario grocery stores following the consumer backlash. The supermarket chain said the change is one of many it considers when a contract is up for renewal.

The Air Miles misstep doesn’t help foster consumer trust and is a “cautionary tale” for other providers, said Sean Claessen, executive vice-president of strategy for marketing agency Bond Brand Loyalty.

It takes trouble with just one loyalty card to test the public’s patience with rewards programs, added John Boynton, chief marketing officer of Aeroplan operator Aimia.

“Everybody does a little bit of a double-take,” said Boynton, who joined the company months after it faced a similar controversy.

In 2013, Aeroplan found itself in the midst of a public uproar for attempting to invalidate miles that weren’t used over a seven-year period. Some Aeroplan users complained they had redeemed their miles on the premise that they would expire, leaving them with merchandise or trips they didn’t want. Boynton said customer satisfaction has since improved.

The use of loyalty cards remains widespread, with about 89 per cent of Canadians participating in some type of rewards program, Aimia says.

But even within companies, there is debate about their value.

The co-founder of DavidsTea has emerged as one of the more outspoken voices against rewards programs. David Segal said too many retailers are relying on costly points cards to deliver business.

“The term loyalty has been bastardized and diluted to mean rebates and discounts in exchange for customer information,” he said, adding that these programs are eroding margins and training customers to expect discounts.

“It’s a race to the bottom,” he said. “It’s not a way to build a sustainable brand.”

Segal, who last year parted ways with DavidsTea after cofounding it in 2008, said the company spent heavily to introduce its Frequent Steeper member program in 2014 but it failed to generate additional sales or attract new customers.

DavidsTea declined to comment, saying it is in a quiet period before releasing its next quarterly results.