{"id":1575,"date":"2011-11-08T13:44:32","date_gmt":"2011-11-08T13:44:32","guid":{"rendered":"http:\/\/www.slyman.org\/blog\/?p=1575"},"modified":"2017-08-24T19:24:27","modified_gmt":"2017-08-24T19:24:27","slug":"loyalty-discounts-threaten-privacy-and-market-efficiency","status":"publish","type":"post","link":"https:\/\/slyman.org\/blog\/2011\/11\/loyalty-discounts-threaten-privacy-and-market-efficiency\/","title":{"rendered":"Loyalty discounts threaten privacy"},"content":{"rendered":"

How many of us would carry a tracking device around on our person, if paid a few pennies each week by a large corporation to do so?  A tracking device that enabled those corporations to know your personal whereabouts and to learn about your personal preferences intimately enough to be able to manipulate your spending habits?<\/p>\n

\"Argos-Homebase\"Boots\"Cooperative\"Iceland\"IKEA\"KLM\"Morrisons\"Nectar\"Shell\"Staples\"Subway\"Tesco\"Waterstones<\/p>\n

Strangely, this is precisely what most people do, and nowadays there are few<\/strong> large corporations that don't<\/strong> engage in this sort of tracking and analysis.  Where is the value for these corporations in schemes that offer customers money off their products?<\/p>\n

Privacy and threats to personal safety<\/h2>\n

Every time one of these cards is used, a computer records the customer's identity, location and purchases.  Somewhere, this information must be stored and processed.  That archival and processing facility must employ real people and some of those people must be able to read the data.  There can be no guarantee that nobody has examined records of your purchases and personal whereabouts for illicit reasons.  The more loyalty cards you use, the more chance there is that someone will use or transfer your data in ways that you wouldn't approve of.<\/p>\n

Illegal junk mail<\/h2>\n

On several occasions after registering for a loyalty discount card (being careful to specify that we did not want our details to be used for “marketing communications<\/em>”), we have started to receive junk mail against our wishes as the corporation running the card scheme has ignored our preferences (the author actually once worked for a company that illegally ignored marketing preferences and was fired for not cooperating with managers who wanted him to break the law, and so is not surprised to be on the receiving end of this behaviour).  In other cases, we could only apply for a “discount” card by agreeing to accept such mail (unfair terms & conditions).<\/p>\n

Mindshare and distraction<\/h2>\n

The supermarkets would have us believe that we are being kindly “rewarded<\/em>” with “discounts<\/em>” simply for being a “loyal card-carrying member<\/em>”.  There is a more sinister purpose to the card and the database that hides behind it.  Marketing mails and even the cards people carry in their wallets are designed to prompt people to think more frequently about a company and their products.  They subtly influence a customer's purchasing agenda.<\/p>\n

Need or greed?<\/h2>\n

Marketing communications stimulate consumption by suggesting product lines a customer has not purchased previously, and by tempting customers to spend more than they would otherwise have done.  Supermarkets rarely offer large discounts to customers on products they frequently purchase, but more frequently attempt to influence spending habits in their favour; with consideration to what the customer might be persuaded to buy<\/em> rather than what the customer actually needs<\/em>.  One supermarket where we spent \u00a314 GBP immediately sent us a discount voucher for \u00a32 discount on a \u00a320 purchase.  After we spent \u00a320 several months later, they sent us a voucher for a \u00a33 discount on a \u00a330 purchase and another voucher for a \u00a35 discount on a \u00a350 purchase.<\/p>\n

Deliberately confusing the customer<\/h2>\n

Sainsbury's supermarket introduced a customer loyalty scheme in the late 1990's, where one “point<\/em>” was equal in discount value to \u00a30.01 GBP (one penny).  They changed most of their price labelling scheme so that discounts were listed in “points<\/em>” rather than in pennies<\/em>, and continued with this scheme for many months, giving customers time to get used to the idea that points<\/em> and pennies<\/em> were equivalent<\/em>.  The supermarket then introduced a scheme enabling customers to redeem their “points<\/em>” against various coveted high-value consumer products that were priced slightly lower in points<\/em> than in pennies and pounds<\/em> (persuading customers to start thinking that points<\/em> were even more valuable<\/em> than pennies<\/em>).  This programme, and the price labelling on the supermarket's product displays, appeared designed to persuade customers to stop thinking about the actual prices<\/em> they were paying and think only about how many points<\/em> they would receive for spending more<\/em><\/span>.
Several months or years later, the supermarket quietly changed their system so that one point was equal to ½ penny; “generously doubling<\/em>” everyone's “points balance<\/em>” in nominal terms at the same time as devaluing each point by 50%.  The discounts on the shelves suddenly appeared more generous (despite being less generous in reality); and a smokescreen had been put in place to prevent customers from making simple value-judgements about costs and benefits, or from making simple & direct comparisons between prices at competing supermarkets.<\/p>\n

Actual cost and benefit of customer loyalty schemes<\/h2>\n

Shell fuels (whose products we had previously purchased for their high quality and low price) recently copied their rivals by introducing a new customer loyalty scheme, offering 1% discount payable in air miles, fuel discounts etc.  At the same time, their prices went up by about 1%, so that Shell no longer enjoyed a price advantage over their competitors.  We have continued purchasing fuel from Shell despite the loss of price advantage, since our car runs well on Shell.  Retailers and customers should understand that operating loyalty schemes costs everyone money and time, increases downside risks, complicates financial accounting and ultimately makes prices more expensive<\/em> for anyone who does not participate in the scheme, if not for everyone else as well.  In Shell's case, these costs are particularly severe since their card scheme has been poorly executed (the magnetic stripes on their cards frequently fail, wasting customers time and making it more difficult to claim the promised discounts.)<\/p>\n

Expiring benefits and difficulties in claiming promised discounts<\/h2>\n

We had a customer loyalty account with KLM, where we accumulated a healthy balance of “Air Miles”.  During a period of economic difficulty, we went for some time without flying.  During this period, our “Air Miles” balance expired<\/strong> without adequate warning.  Strictly speaking, this was in accordance with the terms of the contract; but in practice, after being told for so long that we were “earning<\/em>” our discount; this expiration of promised benefits felt like being burgled.  Suddenly, KLM's salty pasta in-flight-meals seemed like a bigger problem to us, and we have not flown with KLM since then.<\/p>\n

Carphone Warehouse<\/span> sells mobile telephone contracts with aggressive “cash-back” offers that make the contract look very cheap.  In practice, CPW makes it difficult for their customers to claim on these offers, e.g. by:<\/p>\n