TORONTO – Canadian retailers have spent years weaning shoppers onto the concept of loyalty cards, and what was once considered an added perk is now putting pressure on the companies that run the programs.
Loyalty cards walk a fine line that can benefit both customers and drive revenues, but as many corporations have found over the years, a shopper who has fallen in love with their rewards isn’t prepared to compromise much.
Last week, Loblaw learned that hard lesson when the grocer’s trumpeted $12.4-billion acquisition of Shoppers Drug Mart (TSX:SC) was briefly eclipsed by concerns over the future of the pharmacy retailer’s popular Optimum rewards card.
Customers flooded social media with their fears that the Optimum program would evaporate and the attention forced both the retailers to reassure customers that the rewards card wasn’t on deathwatch — for now.
The passionate reaction to the Optimum card showed that rewards programs are working, and can successfully create a brand loyalty that helps buck trends and downturns in the economy. At the same time, customers who once saw rewards as a simple perk now feel they’re entitled to reap benefits for their loyalty.
A study from industry group Colloquy found that Canadian households belong to 8.2 loyalty programs on average, and that includes companies ranging from gas station cards like Petro-Points and Esso Extra, the grocery card at Sobeys, Indigo’s Plum Rewards and Hudson’s Bay card HBC Rewards.
The Shoppers and Loblaw (TSX:L) incident isn’t the first time that a relationship forged around loyalty points has nearly turned sour. Other popular loyalty programs have faced their own backlash over the years as the fine print of points programs, or significant changes to the rules, left customers feeling short-changed.
“Canadians have grown up with them in many circumstances, so there’s almost an expectation,” said Kevin O’Brien, chief commercial officer at Aeroplan Canada.
Aeroplan is perhaps the most popular rewards program that weathered a negative reaction from its customers after revealing changes. In 2006, the company said it would expire points that were unused for more than seven years. The change was set to kick in this year, but Aeroplan retreated from its plan and said members would not lose their points provided they remain active in the program.
While the announcement was criticized by some users at the time, the fury appeared to die down for awhile, though that was before Aeroplan organized focus groups to study customer reaction. What executives found was that while some members had gone silent, they still weren’t happy with the revisions.
Aeroplan initially picked seven years for their rewards to expire because it was double “the average life of a mile,” or the amount of time the points stayed unspent on an account.
“It was introduced to put some background pressure on people to look for redemption opportunities, so they didn’t just sit on a bunch of miles and let them build and build and never redeem,” O’Brien said.
“But we discovered it’s not really that they don’t have an intention to redeem, it’s that sometimes people are saving up for something very specific.”
Like all loyalty programs, unspent rewards points are essentially considered a debt, and companies keep tally of how much it would cost if all of the points were to be cashed in at once.
Points competitor Air Miles followed a similar shift in early 2012 when it began to let points expire after five years. The announcement went relatively unnoticed over the winter holiday season, and though it was met with some negative reaction, the company hasn’t changed its mind.
“We’ve got collectors with miles sitting on our books for 20 years,” Neil Everett, executive vice-president and chief marketing officer for Air Miles, said in an interview at the time.
“As a result of that, it makes it very difficult as a program continues to grow to be able to basically plan your financials accurately. And as a result, we need to get better discipline in place.”
Movie exhibitor Cineplex (TSX:CGX) is learning about the challenges and benefits of its widely successful Scene program, which launched in 2007 and has quickly grown into one of the most popular loyalty cards in the country with 4.6 million members.
Cineplex chief executive Ellis Jacob said that unlike many loyalty cards, Scene has grown its customer base across broad demographics, with a large amount in the lucrative target audience aged 18-34 years, with a nearly even split between males and females.
The points program, which the company developed with Scotiabank (TSX:BNS), has received plenty of attention, but it’s also starting to cost the company more money as consumers get smart about its loopholes.
Moviegoers who earn free movies can redeem the points for either regular-priced movie tickets or films shown on their UltraAVX or Imax screens, which can cost nearly twice as much as a regular ticket. Those bigger savings to the customer ultimately cost Cineplex.
“I know from the data we’re looking at, that’s a big problem,” Jacob said.
“I really want to leave it the way it is, but we have to be careful to what the eventual cost is… We don’t want to rush to fix it, but at some point it’s going to get to where we may not have a choice.”
Telecom giant Roger Communications (TSX:RCI.B) is the next big company to jump into the loyalty program game, an effort it hopes will keep customers from switching to rival carriers. Under the program, wireless, cable, Internet and home phone clients will be able to earn points that can be redeemed for rewards such as U.S. roaming packages, premium TV content and upgraded Internet packages.
Rogers launched the program earlier this month in Red Deer, Alta., and plans to roll it out across the country in stages throughout the rest of the year.