Features | From Pivot Magazine

The loyalty dilemma

Shoppers are trading their personal data for discounts. Is the trade-off worth it?

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In the growing world of food retail apps, nothing says “loyalty” like Domino’s Zero Click. Launching it causes an old-style kitchen timer to pop up on your screen and count down 10 seconds, after which your local Domino’s will get an order for your favourite pie—without you having to do a thing. The conceit here is that Domino’s knows you so well it can deliver what you want without you even asking. “Ten seconds goes by really fast when you’re placing an order. All of a sudden you’re like—whoa!” says Dennis Maloney, chief digital officer at Domino’s Pizza in the U.S. “There really is no easier way to order in the digital space.”

Illustration by Matthew Billington of a hand pulling a slice of pizza from whole pizza on smart phoneThe Domino’s app lets users track the making, baking and travel of pizzas the same way the post office lets you track a parcel. (Illustration by Matthew Billington)

In the last few years, more and more consumers have started buying food with phone in hand—and loyalty app open—to earn or redeem reward points. Increasingly, we’re even paying with our phones. Citing the convenience of quick, no-hassle orders and the wealth of food options available, some 50 per cent of smartphone owners in the U.S. say they use branded restaurant loyalty apps, according to a survey published by The Manifest in May. (Similar numbers aren’t available here, but Canadians love their loyalty programs. A study by Colloquy, an industry research firm, showed the average Canadian household had 13.3 loyalty memberships in 2016, half of those in the retail sector.) By the end of 2018, Starbucks, a loyalty app pioneer, expects its 23.4 million users to have made at least one point-of-sale purchase in the U.S. within the last six months, says industry watcher eMarketer. That’s more than any other mobile payment system—even Apple Pay. 

Sounds good—maybe too good. While there’s little doubt it’s a smart business move for retailers to maintain attractive loyalty programs—to both win customers and generate useful data about them—some fear that consumers, already concerned about sharing data with mammoth digital players like Google and Facebook, will begin to worry they’re sharing too much with their favourite food purveyors as well. Companies that use loyalty programs, then, must handle the data they collect with caution, to prevent both hacking and the unwanted sharing of personal information. They would be wise to focus on privacy and digital security—because there’s no worse PR than when Big Data becomes Big Brother.

Of course, there’s no question that apps can transform a business. Domino’s, which in 2008 saw its stock price hit a low of US$3—it’s now at US$288—turned itself around by treating pizza as a high-tech venture. It uses the data it gathers to streamline and optimize the experience of ordering—the Domino’s app even lets users track the making, baking and travel of pizzas the same way the post office lets you track a parcel.

“We actually think of ourselves as an e-commerce company that sells pizza rather than a pizza company that sells online,” says Maloney, who helped lead the company’s digital charge—including the intro of an arcade-style smartphone game that for a limited time let players score points for future pizza orders. More typically, customers get 10 reward points for every purchase over $10 and a free pizza at 60. 

But like any other cyber currency, this leaves Domino’s customers open to potential online theft. 

“Today I got an email confirming a domino’s order I didn’t make bc someone HACKED my account,” a woman in Arizona named Grace tweeted in July, adding: “I called the store and the guy literally took it out of the oven, threw it away, and told me he’d tell whoever came for it to [get lost].” The tweet went viral and prompted Domino’s reps to reply with an offer of assistance. The company attributes such incidents to people who use the same password across multiple online accounts. “This is not an issue with the security of our platforms,” a spokesman said.

Consumers are happy to exchange their data for rewards as long as they see value in the benefits they get in return. 

Point theft raises an interesting accounting question: can a victim write off stolen points? In order to do so, they’d have to argue they depend on those points for their livelihood or for the operation of a business—meaning they’d have better luck deducting $500 in lost Air Miles than a $10 pizza credit. According to Jonathan Farrar, CPA, an associate professor of taxation at Ryerson University’s Ted Rogers School of Management, “the more interesting question is not from the perspective of the person being hacked, but from that of the hacker. So I’ve hacked in and now I’m using someone else’s points—is that income to me?” At least as far as the Canada Revenue Agency is concerned, Farrar says that’s likely a yes. “Because I’m now benefitting from using their points, the CRA has the view that you need to put forward any kind of profits, even from illegal activities.”

Accounting implications aside, incidents like these highlight the fact that customers who use loyalty apps are trading data for convenience and points. That dilemma of data—our desire for the benefits of being known versus the intrusiveness of surveillance—is the same trade-off many have made with social media. And as in the realm of Facebook and Instagram, the way customers react can often shake out along generational lines. “I think millennials and Generation Z are probably more open to it. It makes them feel special because they’re being targeted for this or that offer,” says Patrick Sojka, founder of Rewards Canada, which monitors loyalty programs. “The older crowd is probably more wary. Like, hold on a second! You’re tracking me?”

It’s also become less clear who is actually collecting your info: often it’s not the retailer whose app you’re using. Driving the proliferation of mobile rewards apps are third-party outfits that specialize in managing the complex back-end operations involved in running the systems. They’re cheaper, more nimble and can allow retailers to keep the programs in-house (rather than partner with separately operated loyalty schemes such as those offering travel miles).

It was one such company, U.K.-based Eagle Eye Solutions Group, that helped Loblaw launch its new PC Optimum loyalty scheme early this year, combining the Loblaw and Shoppers Drug Mart points systems (more recently, hundreds of Esso and Mobil stations partnered to begin offering these points as well). Eagle Eye’s digital machinery works behind the scenes to monitor purchases and manage points in real time across multiple platforms. Loblaw uses the data to streamline operations through one program and tailor its rewards for individual consumers. 

“What PC Optimum delivers are very personalized offers that get richer over time as they understand more about the data—about you,” says Eagle Eye chief financial officer Lucy Sharman-Munday. 

That means that shoppers who buy hummus, deli meats and President’s Choice-branded canned seafood will begin to be rewarded for maintaining those habits, with points awarded for just those items. “We run over a hundred million permutations of offers per week for Loblaw.” 

Sharman-Munday says that, because Loblaw has ties to Simplii Financial (formerly PC Financial), it’s possible that the PC Optimum app could soon include payment capabilities similar to the Starbucks app, by tying a credit card into the mechanism—upping convenience but also amplifying what Loblaw knows about you. And yet she argues consumers are happy to exchange their data for rewards as long as they see value in the benefits they get in return: “If it’s rubbish people won’t use it—they’ll just think they’re being spammed,” she says. “You’ve got to have something valuable to give them.”