Loyalty discounts threaten privacy

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?

Argos-Homebase hardware stores discount cardBoots pharmacy discount cardCooperative supermarket discount cardIceland supermarket discount cardIKEA furniture store discount cardKLM flight discount cardMorrisons supermarket discount cardNectar scheme discount cardShell fuels discount cardStaples stationery shop discount cardSubway sandwich shop discount cardTesco supermarket discount cardWaterstones book store discount card

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

Privacy and threats to personal safety

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.

Illegal junk mail

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”), 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 have learned that we could only apply for a “discount” card if we were willing to receive such mail.

Mindshare and distraction

The supermarkets would have us believe that we are being kindly “rewarded” with “discounts” simply for being a “loyal card-carrying member”.  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.

Need or greed?

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 rather than what the customer actually needs.  One supermarket where we spent £14 GBP immediately sent us a discount voucher for £2 discount on a £20 purchase.  After we spent £20 several months later, they sent us a voucher for a £3 discount on a £30 purchase and another voucher for a £5 discount on a £50 purchase.

Deliberately confusing the customer

Sainsbury's supermarket introduced a customer loyalty scheme in the late 1990's, where one “point” was equal in discount value to £0.01 GBP (one penny).  They changed most of their price labelling scheme so that discounts were listed in “points” rather than in pennies, and continued with this scheme for many months, giving customers time to get used to the idea that points and pennies were equivalent.  The supermarket then introduced a scheme enabling customers to redeem their “points” against various coveted high-value consumer products that were priced slightly lower in points than in pennies and pounds (persuading customers to start thinking that points were even more valuable than pennies).  This programme, and the price labelling on the supermarket's product displays, appeared designed to persuade customers to stop thinking about the actual prices they were paying and think only about how many points they would receive for spending more.
Several months or years later, the supermarket quietly changed their system so that one point was equal to ½ penny; “generously doubling” everyone's “points balance” 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.

Actual cost and benefit of customer loyalty schemes

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 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.)

Expiring benefits and difficulties in claiming promised discounts

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 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” 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.

Carphone Warehouse 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:

  • Requiring customers to call oversubscribed premium telephone hotlines (waiting on the telephone with music playing) in order to learn how to obtain the promised discount.
  • Requiring customers to wait until near the end of their contractual service period, before claiming their “cash-back” cheque.  This ensures that most customers will forget to claim their “cash-back”.
  • Requiring customers to supply old copies of mobile phone bills (which may no longer be available from CPW by the time it is possible to claim), and various other paperwork, as part of their application to receive the promised “cash-back”.  The administratively onerous paperwork requirements dissuade many busy people from applying.

Such underdelivered “discounts” leave customers feeling cheated once it comes time to redeem the offer.  The headline prices might attract new customers once or twice but repeat custom will be rare among those who have experienced the real face of such “loyalty discounts”.

The operators of customer loyalty schemes often make it difficult to claim the discounts originally promised.  They persuade customers to evaluate prices with a “discount” included and then pay the full price without ever receiving the discount.  The customer loses privacy and anonymity that would otherwise protect their personal safety and the strength of their commercial negotiating position; and is often not even partially compensated for this loss because the large corporation's side of the deal is often never fulfilled.  In many cases, loyalty discount schemes appear to constitute a deliberate attempt to subvert the normal processes of free market competition, by making it more difficult to directly compare competing products and services and by dissuading customers from switching suppliers.

Emerging threats

CCTV tracking: See this article: Now it's illegal to write down prices in a Tesco supermarketSupermarkets and other commercial entities are attempting to use devices originally introduced in the name of security, to track and control customers and market analysts, and to deny us the ability to make direct comparisons between competing suppliers and products (the kind of direct comparisons that our free market economy is based on — note that all the assumptions of free market efficiency depend on customers having the kind of information that Tesco is attempting to prevent them from obtaining).

RFID tags (used for tracking products) can similarly threaten consumer privacy so as to imbalance the customer's negotiating position, allowing corporations to remotely track individual clients without their knowledge and to attempt to take control of consumers' purchasing agendas.

Credit & debit cards similarly allow financial services companies to remotely build up detailed pictures of consumer spending habits.

Mobile telephones are being tracked without the knowledge of their owners, by governmental, commercial and criminal organisations.  What you see in this video about mass tracking of mobile telephones in Gaddafi's Libya can only be the tip-of-the-iceberg.  We may safely presume that wherever a practice is not explicitly illegal (and sometimes even where it IS illegal), some governments, commercial entities and criminal groups will be doing it somewhere (sometimes in direct and wilful contravention and contempt of the law, as my own experiences demonstrate).

Take a close look at Mike Lazaridis' body-language on this interview, when the interviewer starts discussing RIM/Blackberry's relationship with governmental security organisations.  This is particularly instructive given that Blackberry is the only mobile telephony platform considered by GCHQ to be sufficiently secure for regular commercial communications.  Could it be that because of the Blackberry platform's excellent security, RIM has been forced to cooperate with the security apparatus of various countries in return for access to their markets?

Conclusion

Customer loyalty schemes portend a dystopian world in which privacy is disrespected and many people apathetically relinquish control of their purchasing agenda to powerful corporations without even realising what they are doing.  The only way to preserve our freedom and ensure a truly free & efficient market is to:

  • Legally entitle customers and market analysts to gather the information required for making more direct comparisons between similar products and services, and legally oblige suppliers to provide information in a format that may be directly compared by an average customer.
  • Legally oblige every organisation with a “data protection registration” to also fully inform, in plain language, all data subjects of the ways in which their data are actually used or shared by that organisation.
  • Enact stricter laws protecting personal privacy and stricter penalties for breaking those laws.  Governments should enforce privacy & data protection law more vigorously, support whistle-blowers and legitimate investigative journalism, and actively engage in “sting operations” and unannounced spot-checks to expose deliberate violators.  Governments should ensure that laws currently being enacted anticipate future developments in technology and are sufficiently broad to cover most new threats potentially arising from those developments.

Consumers should counterbalance the increasing surveillance & communication power of large corporations by taking advantage of new information technology (e.g. the internet) supporting price comparison and a healthy and competitive free market.


The author, a database professional with some knowledge of the industry and its technology; has disavowed allegiance to all customer loyalty schemes and encourages others to do the same for their personal safety, privacy and wellbeing.

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