Canada: The battle for Canadian loyalty and expiring points
It didn’t take long after Loblaws Cos. Ltd. bought Shoppers Drug Mart in a mega $12.4 billion deal before some consumers settled in on what the “important” part of the transaction was.
“What’s going to happen to my Optimum points?” In online chat rooms and discussions, people fretted that all their accumulated purchasing power would be wiped out — a fear that has so far turned out to be unfounded as the loyalty card for Shoppers Drug Mart, with an estimated 11 million users, has gone nowhere.
“Some people were worried (about Optimum ending) but it’s just too popular,” says Lynn Wiegard, a 45-year-old shopper from Cambridge, Ont., who can quote her shopping stats pretty quickly. “I just love the game aspect of collecting points. It’s a strategy game. You can’t play a strategy game by just sitting there and hoping for the best.”
The points game has become part of the Canadian shopping fabric. A 2015 study from Colloquy Loyalty Census Canada, run by LoyaltyOne — the operator of the Air Miles program — found Canadians have almost 130 million memberships, or an average of more than four per person. The retail sector accounts for the biggest chunk of membership at 48 per cent and it grew by 12 per cent in 2015.
“Canadians love their points programs. I spend a lot of my time travelling the world meeting with other program operators and looking at the structure of loyalty programs in different countries and Canada is probably one of the most developed loyalty program markets in the world,” says Bryan Pearson, chief executive of LoyaltyOne.
But Wiegard says there’s more than fun to points collecting. In an economy with low wage growth, people need the extra cash breaks wherever they can get them. Her 2016 gross purchases at Shoppers would have been $1,746 she says, but the coupons and redeemed points cut her spending to $1,078.
“I love the (Shoppers) program because I’m doing the best with that program as far as the money that will come back,” Wiegard says.
Consumers vary widely in how they collect points, some treating it, like Wiegard, as an exercise in strategy, while others are more passive about collecting the points. Navigating the divide, and pleasing all its customers, is the great challenge for loyalty providers.
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“I once took a group of collectors out for dinner and I was talking about our program relative to others and I had this one guy who knew the terms and conditions and specifics of our program better than (I did),” Pearson says.
The other side of the coin is people who just swipe and collect points, figuring one day they’ll cash them in.
“The spectrum is similar to how any consumers react to different brands that are out there,” Pearson says.
If you have to trace the origin of the loyalty program in this country, it probably begins with Canadian Tire whose famed bills, adorned with the fictional character Sandy McTire, first appeared in the 1950s. The Canadian Tire money bore a resemblance to real Canadian currency and helped the retailer create strong loyalty with customers.
When Air Canada rolled Aeroplan in 1984 as an incentive for frequent flyers it was one of the first real points-based programs. Coalition programs, which team up with multiple retailers and allow businesses to collect user data, started in 1991 with the introduction of Air Miles. By the late 1990s and early 2000s, single retailers like Shoppers started introducing their own brands.
But, that loyalty comes at a price.
Air Miles has come under fire for its redemption program and some people maintain it is difficult to cash in the points that will begin to expire at the end of this year. At the end of 2011, Air Miles issued a five-year expiry date on reward points and, with the date now upon us, it somehow has caught some off guard.
“The biggest thing you can do is try to be clear and communicate in the best way possible whatever changes are coming along,” Pearson says. “The biggest problem in the reward program is you have undeclared intentions from the consumer because there is no signal to say ‘I’m interested in a flight to Paris or four grocery certificates.’”
If an offer disappears, the risk is an angry consumer.
Companies have been rapidly changing their programs as they compete for customer attention. Starbucks recently overhauled its reward program from one that gave consumers points based on each purchase or visit to a program that reflects what the consumer actually spends at the coffee chain. The latter model seems to be catching on across the rewards industry because it favours customers who are willing to spend more.
“The hotel model programs are shifting from a program that was (based on) a night stay and if you get, say, 35 stays you were a super elite customer. Now they are rewarding on what customers are actually paying,” Pearson says.
Some of the changes are to close loopholes where consumers had gamed the system. One trick employed by airline consumers to achieve a certain status was to load up on cheap short-haul flights at the last minute.
“They’d be six segments away from achieving top tier status so they book a ticket where they go Toronto to Chicago to Washington to New York to Boston to Toronto. They get their six segments and secure their top tier status on one Saturday,” Pearson says.
Naturally, any change to a loyalty program risks challenging the very nature of why it exists — namely, to keep customers coming back to a certain brand.
Ken Wong, a marketing professor with the Smith School of Business at Queen’s University in Kingston, Ont., figures Loblaw probably wanted to roll the Optimum program into its own PC Plus rewards program, but realized it was going to face some backlash under a single banner.
That concern is not without precedent. When Air Canada swallowed up Canadian Airlines in 2000, it rolled its points program into Aeroplan and made the transition more palatable by including some elements of its formal rival’s Canadian Plus features, like the concierge program for its top tier flyers, while also respecting their status level.
“I think it’s a bit like the TD Canada Trust situation where everybody thought (TD Bank) would drop (the) Canada Trust (name) from the banner but found they couldn’t do it,” said Wong, adding the efficiencies from joining two programs together can be achieved without completely eliminating the brands. “The unification of the back office to get scale efficiencies, you don’t lose that. You don’t lose the analytics. Sure, the advertising goes up, but you were going to spend some money on that already.”
Shoppers officials say there are no plans to end the Optimum loyalty program despite the recent changes in the terms and conditions that have some consumers convinced its future is limited.
“Yes, we revised the terms and conditions in September to make them more reflective of other loyalty program standards. As a result, there is no longer an end date of Dec. 16, 2016. The new terms and conditions indicate there will be a 45-day notice period should the program end. We understand the value of our customer loyalty program and this continues to be a major focus for us. There are no immediate plans to end the Shoppers Optimum program,” said Tammy Smitham, vice-president, external communication, Loblaw and Shoppers Drug Mart, in an emailed statement.
There’s another reason points program can’t simply just end — they are a legal and financial liability. Lawyer Sylvie De Bellefeuille with Option Consommateurs, an association that advocates for consumers and has launched a class action against Pharmaprix, Shoppers Drug Mart Corp., over points, argues you can’t just change the points structure either. Her case is still winding its way through the courts.
“What (the lawsuit) is based on is there was a contract for a certain period amount of time and it said your points had a certain value and what they did is lower the value of those points,” says Sylvie De Bellefeuille. “Now you need more to get the same thing.”
The argument by some is that points are giving you something for nothing, but the Montreal lawyer says your data or information about yourself is what you are giving. “No company is there just to give gifts,” she says, adding sometimes consumers also shop at a slightly more expensive store because of the points.
The reason to devalue the points is plain and simple, she says.
“It’s a liability, when you lower the points you don’t owe people as much,” De Bellefeuille says. “It becomes a question of how many consumers you will lose versus how much you will lose in your books.”
Jeff Novak, brand director for RedFlagDeals.com, said every time someone tries to change the terms and conditions on a plan they risk major backlash.
“Aeroplan made an announcement they were going to start expiring miles and there was a massive uproar. There were threats of a lawsuit and they decided to reverse course,” Novak says.
Patrick Sojka, the founder of Rewards Canada, says that ever since Air Miles announced points would start expiring people have become “jumpy” about all of their rewards.
“Loblaws knows they can’t just end the program,” Sojka says . “They all put these terms in (saying they can end the program), but it doesn’t mean they will,”
Source: The Financial Post
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