Loyalty programs are undergoing a makeover as retailers – driven by the current economic climate – find new ways to boost customer engagement. But it’s a double-edged sword, with many facing scrutiny for their impact on pricing and market competition.
While these programs play a huge role in the success of Australian retailers, Inside Retail reports that “the ongoing inquiries into the price-setting practices […] could call into question just how much value the supermarkets’ loyalty programs are delivering to customers.”
Rise of loyalty programs
The financial impact of loyalty programs is on an upward trajectory. Inside Retail predicts that the Asia Pacific (Apac) loyalty market could grow by 11% annually. It is also likely to reach US$52.05 billion by the end of this year.
Statistics from other regions corroborate this rise. For example, Statista research shows that US consumers want more, with seven out of 10 Americans supporting loyalty programs from their favorite brands.
In addition, 50% of shoppers in the US say they are likely to increase their participation in these programs. Meanwhile, six out of 10 shoppers wanted discounts to join loyalty initiatives.
Coles and Woolworths at the forefront
Their recent financial results show that Coles and Woolworths are leading the charge with loyalty programs. From July to December 2023, both companies earned 2.7 cents in net profit from every dollar.
Moreover, Coles’ e-commerce sales increased to $1.8 billion (29.2% growth). These sales were mostly driven by the “improved availability” of products.
READ MORE: Coles profit falls by 8.4% while online sales increase
Statista asked Coles and Woolworths’ rewards program users in Australia how they use their points. Nearly 60% said they get cashback on groceries.
Other usages include:
- Converting shopping points into airline benefits (13%).
- Using points to buy gift cards (9%).
Six percent of correspondents said they don’t use their points for anything, while 13% said they didn’t have any points.
Scrutiny over loyalty programs
Despite these marginal benefits, investigations into price-setting practices are underway in Australia. A recent report from Australian Unions says “big business” played a role in “worsening the cost-of-living crisis, deliberately driving up prices to fatten their profit margins.”
Coles and Woolworths’ profits for 2023 – $1.098 billion and $1.62 billion respectively – landed them the Shonky Award by Choice, for profiting from the cost-of-living crisis.
Some of the tactics used by large corporations to profit from poverty include:
- Excuse-flation, also known as greedflation, rides off the back of global factors such as the COVID-19 pandemic, Russia’s invasion of Ukraine, the Red Sea crisis, etc.
- Confusion pricing, the practice of obfuscation price comparisons to reduce competition.
- Drip pricing, where businesses only show part of the price.
Loyalty schemes also get a mention from Australian Unions, describing these rewards programs as “a low-cost means of retaining and exploiting customers with schemes that are of dubious benefit and often poorly run.”
In most cases, tactics include not presenting the company’s terms and policies, making unilateral changes to terms and conditions, and using consumer data in ways that go against the permissions given by customers.
NOW READ: Australian supermarkets under the spotlight: ACCC
About the author
Cheryl has contributed to various international publications, with a fervor for data and technology. She explores the intersection of emerging tech trends with logistics, focusing on how digital innovations are reshaping industries on a global scale. When she's not dissecting the latest developments in AI-driven innovation and digital solutions, Cheryl can be found gaming, kickboxing, or navigating the novel niches of consumer gadgetry.
