They stretch from simple systems that give loyal shoppers a free cup of coffee or loaf of bread to the Qantas program which last year made $384 million in earnings before income tax.
Consumers often have little insight or control over how their personal data is collected or shared with third parties, the report found, and there was an “emerging risk” companies could use that data to discriminate against some customers with higher prices.
ACCC chair Rod Sims said a consumer could be charged extra based on their income or where they live, for example, or if their frequent flyer data or online search history indicates they could only travel on certain dates.
Mr Sims said that some consumers would be “shocked” to learn that Coles’ Flybuys and Woolworths’ Rewards schemes automatically link their loyalty accounts and their bank’s cards, and track their spending even if they do not present their loyalty card at the checkout.
The watchdog said loyalty schemes could bring benefits to consumers, particularly if different companies in the same sector used their schemes to make better offers or improved services to woo shoppers. But there were substantial risks, particularly in the Australian context of a small number of firms commanding large market share.
The commission found people could be “locked-in” to a particular company because of their loyalty scheme.
“If barriers are enduring and induce exit or deter entry, consumers are likely to be worse off,” it found, calling out Qantas’ Frequent Flyer scheme as potentially being a “significant” obstacle to a new airline entering the domestic market.
Competition regulators in Sweden and Norway have previously intervened to stop Scandinavian Airlines offering loyalty points on domestic flights because it created too great a challenge for competitors to enter those markets.
The ACCC cited a survey this year that found 22 per cent of consumers believed loyalty schemes were the “most significant” influence on their shopping behaviour.
Loyalty schemes often made it difficult for consumers to know the true cost of a particular product or service, reducing overall pricing transparency to the detriment of shoppers.
“A reduction in price transparency can result in consumers engaging in less frequent comparisons with competing products and services, and being unaware of cheaper prices,” it found.
The ACCC called on loyalty schemes to improve the way they communicate with members including about how their data is used, for unfair contract terms and practices to be banned, and for privacy laws to be strengthened.
A Qantas spokesman said its scheme delivered “real” benefits for members, and that it did not sell their personal data to third parties.
Woolworths said it was continually reviewing its privacy policies and data collection practices and would consider the ACCC’s recommendations. Virgin said it had already taken many of the ACCC’s draft recommendations on board.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Business reporter at The Age and Sydney Morning Herald.