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Is the loyalty point system running out of steam?

Samantha Menzies
Is the loyalty point system running out of steam?

The real cost of customer loyalty reveals why the whole system may soon be a thing of the past.

Recent interchange fee changes by the Reserve Bank of Australia, means that credit card holders face having to spend more to get their frequent flyer points, as banks face reduced revenue from fees they used to purchase points from airlines to pass on as rewards to customers.

At the same time, news that Woolworths may have to redirect hundreds of millions of dollars into cutting the prices of its products due to the poor customer response to its $500 million loyalty program launched last year, has raised further question about the longevity of points schemes.

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Recent Woolworths research has revealed that customers prefer cashback, which has led them to look at revising their points program.

“Points relevance will become close to obsolete unless you are a high frequency traveller,” said founder and CEO of Cashrewards, Andrew Clarke.

“Catalyst research last year found that 68% of shoppers wanted money off their shopping rather than frequent flyer points, and given the way airlines seem to be making it more difficult to redeem a flight, it follows that consumers may feel somewhat disheartened,” he said.

Clarke says he has seen membership for his cashback site grow 10% month-on-month, averaging around 100,000 new members in the last 12 months, and he attributes this shift to a decline in Aussies’ long-standing love affair with loyalty programs.

“Whilst over 80% of us subscribe to at least one loyalty program, I see online cashback as a major disruptor which is on the way to overtaking points as the most sought after benefit, with 78% of consumers considering immediate price discounts as very important when making purchases,” Clarke said.

Cashrewards’ commissioned research showed that almost half of respondents preferred cashback (49%) over points (11%).

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“I think it boils down to simplicity and immediate gratification. Traditional rewards programs have become too complex over time, while the rewards have become ever smaller,” Clarke said.

As a result, consumers feel that points take far too long to accumulate.

“A recent study by RateCity showed that one well established retail rewards system awards one point per dollar spent, but for a $150 shop, that only equated to about 75c value in points.  It’s no wonder consumers are confused and frustrated,” he said.
“Points programs are phasing out because consumers are becoming less engaged and influenced by them. Points do not compare to hard cash: cash is easy to understand, and unlike points, its value is unequivocal.”