Loyalty comes at a cost: the apps holding back Australian shoppers

Loyalty cards or apps that offer rewards to faithful customers are poised to be the newest battleground in the fight to turbocharge the Australian economy.

More than three decades after their first foray into breaking up cosy business and government arrangements, federal, state and territory governments have launched a new effort to overhaul the nation’s competition laws.

A new consultation paper will focus on ways to help consumers make better choices.Credit: Dion Georgopoulos

The National Competition Policy agenda of the 1990s focused on the supply side of the economy, sweeping away restrictions that included the types of bread bakers could produce to the times supermarkets could sell packaged meat. It was estimated to have made every Australian household $5000 richer.

However, a consultation paper that will guide the new competition agenda will focus on ways to help consumers make better choices, including raising awareness of how loyalty programs can lock people in to higher prices and reduce their spending power.

“Relying on consumers to actively exercise choice is not sufficient,” the consultation paper said, noting customers tended to stick to their choices even when they were against their best interests.

Lack of time, inertia and even customer loyalty programs were partly to blame, the paper said.

Assistant Minister for Competition Andrew Leigh said while no one was talking about banning loyalty programs, the government needed to take a closer look at the impacts of these schemes on competition.

“If everyone is shopping around for the best deal, firms end up being forced to produce the very best prices,” he said. “But if there is a component of customers who are locked in by loyalty programs, then that takes away some of the competitive pressure in the market.”

Customers switching or even threatening to switch providers can put powerful pressure on businesses to compete. But key to this “demand-side” competition lever, the government says, are laws and government policies and programs aimed at keeping customers informed, engaged and protected from exploitative conduct.

“Shopping around is not only a good thing to do for yourself – it’s also an altruistic thing to do for your neighbours,” Leigh said.

By boosting competition, the government is hoping to lift productivity, a crucial driver of economic growth and an important dampener on inflation, which is still running above the Reserve Bank’s 2-3 per cent target. The economy, meanwhile, has been flirting with recession, shrinking in per-person terms for the past 12 months.

The consultation paper also sets the government on a collision course with private companies that hold huge volumes of customer data.

Governments could foster more competitive outcomes by safely sharing their data, the paper suggested. Private companies could be required to reveal their data, too, although the government noted the latter suggestion would need to be balanced against its potential impacts, including on research and development and intellectual property.

Leigh said data sharing was already mandated in some areas, such as the petrol market, in which “you can now get far better data about the cheapest petrol than what was possible a couple of decades ago”.

AMP deputy chief economist Diana Mousina said while information was increasingly being collected and used by companies, organisations and governments, there could be pushback from consumers.

“Consumers have become much more sensitive and might not want their data shared,” she said.

However, she said there would be value in collecting data to assess the impact of loyalty programs on consumer spending habits.

“It’s hard to see how customers use those programs and how loyal they are,” she said, noting a company such as Qantas would have copious information from its rewards programs.

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