Canadians remain loyal to their loyalty programs
Canadians aren’t tossing loyalty cards, despite recent problems, says Hollie Shaw.
A spate of recent data breaches and public relations snafus have made loyalty programs in Canada an increasing target of consumer ire, as any casual glance at their social media pages would suggest.
But even during the best of times, cardholders level a common set of complaints against programs such as Aeroplan and Air Miles: It can be difficult to book flights or secure merchandise, or the offers lack variety and quality.
Air Miles users, in particular, are still annoyed with owner LoyaltyOne Co.’s decision in December to reverse a plan that would have seen points older than five years expire by the new year, because many members had already rushed to redeem the rewards before the announcement was made.
Many other loyalty cardholders have expressed frustration after being asked by multiple providers in recent weeks to reset their passwords because of a series of apparent data breaches and points thefts from popular programs.
Despite the apparent setbacks, it appears Canadian customers aren’t ready to quit loyalty cards just yet. Indeed, the multibilliondollar business is just as popular as ever with consumers and companies alike and any changes are quickly noticed.
For instance, shares of Aimia Inc., Aeroplan’s owner, plunged 60 per cent last week after Air Canada announced it would cut ties with the loyalty provider in 2020 and launch its own program. Investors and cardholders worry Aimia will not be able to make up for the program’s value.
But consumer engagement generally remains strong across the board. More than nine out of 10 Canadian consumers participate in at least one loyalty program, according to an April report by market researcher BrandSpark International, and that number that has been consistent for more than a decade.
“Even with some of the bad press around these issues, most people think that they might as well collect the points and still see value there,” said Philip Scrutton, director of consumer insights at BrandSpark.
The company’s research found that 81 per cent of Canadian household shoppers belong to the Air Miles program, the most-held loyalty card in the country with 11 million active users, followed by Shoppers Drug Mart Optimum at 66 per cent, and Loblaw’s PC Plus at 65 per cent. Canadian Tire Corp. Ltd., which was not included in the BrandSpark data, said its loyalty program has 12 million active users.”
The bulk of Canadian loyalty card users belong to three or four programs, and the programs are particularly popular in Canada compared to the rest of the world. Nielsen data show 66 per cent of consumers globally belong to one or more loyalty programs.
“There is no national program in the U.S. with the penetration and coverage of Air Miles, and while individual retailers do have loyalty programs in the U.S., nothing reaches the penetration that Optimum has here,” Scrutton said.
But Canadians’ loyalty is being tested.
Last fall, scores of Air Miles cardholders flooded the loyalty purveyor with redemptions before the anticipated points expiry deadline, causing long phone wait times and extended waits for merchandise.
By the time the controversial expiry policy was reversed at the beginning of December, many consumers said they had already redeemed the points for unwanted merchandise out of fear their points would soon be worthless.
In the meantime, security issues have hit several loyalty programs including Air Miles.
For instance, PC Plus has asked some of its customers to reset their passwords twice after a breach in February resulted in the theft of points from some users.
A handful of members of the Inspire program at Quebec’s provincial liquor chain Société des alcools du Québec also had points stolen.
Not long after, Cineplex Inc. emailed its Scene card members to suggest they voluntarily change their passwords even though there was no apparent card breach. Cineplex employees told customers that it was wise to reset their passwords given the amount of recent industry breaches, and reminded customers not to re-use passwords between different accounts.
Then at the end of March, Air Miles suspended in-store redemptions of cash mile rewards after it determined some collectors’ points had been stolen.
Such issues tend to involve consumers using weak passwords rather than actual system hacks, according to security experts.
“The bigger problem is that consumers tend not to take these programs very seriously,” said Brian Krebs, an online security expert and author of the popular website Krebs on Security.
“They are often in a hurry to sign up for loyalty accounts and pick really bad passwords, or reuse the same password across all of the sites that they use. Lo and behold, when one of those sites gets hacked, so do their loyalty accounts.”
Krebs reiterates what loyalty program administrators repeatedly tell their members: it is not safe to use the same password for different digital accounts whether it’s for a social media site such as Twitter, online banking or loyalty memberships.
Rather than a password, Krebs suggests using a multi-letter “passphrase,” such as a song lyric.
“Part of the problem with these loyalty accounts and the reason people have been so successful at exploiting members is that (members) don’t view them as having a financial value until it is too late,” he said.
In the case of PC Plus, some points were stolen to buy thirdparty gift cards from grocery stores, a points usage option that has since been scrapped by the retailer. Air Miles also no longer allows cash reward redemptions for gift cards after recent thefts.
Nevertheless, loyalty cards remain popular with consumers as well as large retailers, who have embraced them for the rich insight they provide about customers’ shopping habits and preferences.
Loyalty card members generate 12-to-18-per-cent more revenue on transactions for retailers than non-members, according to Accenture. In addition, retailers use the data to target consumers with personalized deals aimed at motivating them to return and spend more money.
But how well loyalty programs work to increase sales is up for debate, and likely depends on the nature of the business involved.
For example, DavidsTea Inc. introduced a loyalty program in 2013 when it already had a “loyal, passionate customer following, and the program cost millions in discounts and it did not increase sales,” said company co-founder and entrepreneur David Segal, who left the retailer a year ago to work on new business ventures. He has since become a vocal critic of loyalty programs.
“You erode your margin and you train your customers to expect discounts,” Segal said. “There are more creative ways to capture the data and there are better ways to drive customer loyalty. It shows a lack of creativity when companies give you points in exchange for free stuff.”
David MacDonald, vice-president of financial services at Environics Research, has analyzed loyalty programs in the past and he agrees with Segal that some program formats might be stale.
“Where I think the loyalty industry has run into problems of late is the resetting of loyalty metrics,” he said.
Many popular rewards programs have slowly shaved the “earn rates” of members over time, MacDonald said, diluting the value of rewards points. That’s probably in part, he said, because Canadian consumers retain a high level of engagement in loyalty programs.