Loyalty programs are 'ground zero' as companies turn them into 'data-harvesting machines' — why this should concern you

Loyalty programs were once designed to thank customers for sticking around, whether that is offering free coffee, airline miles, or grocery discounts in exchange for repeat business. But that long-standing model of mutual benefit is rapidly disappearing.

While these loyalty programs are booming in terms of membership, data collection and digital-first strategies, they can increasingly serve corporate interests rather than keep the promise of “rewarding” you.

When loyalty stops paying off

The Washington Post columnist Geoffrey A. Fowler discovered that the more frequently he visited Starbucks, the fewer promotions he received through the company's mobile app (1). Fowler requested his data under California’s privacy law and found the company had tracked every purchase, offer and hundreds of clicks. Two former officials at the Federal Trade Commission (FTC) who reviewed the data called it evidence of a disturbing pattern of surveillance pricing (2).

“Are Starbucks’ most loyal customers actually getting the fewest coupons?” asked Samuel Levine, the FTC’s former director of the Bureau of Consumer Protection. “That’s certainly what this report suggests.”

The chain declined to confirm individual-price setting based on behaviour, but admitted it uses “inferences” — judgments based on a customer’s purchase history — to decide who gets discounts. Their AI tool, Deep Brew, analyses data to “identify and incentivize specific rewards-member cohorts.” Frequent customers may get fewer deals simply because the system assumes they’ll pay full price anyway.

That means two patrons could walk into the same café, buy the same $6 latte, but one pays $3 after a personalized discount, while the other pays full price because the company deems they’re “less price sensitive.”

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The rise of “surveillance pricing” in Canada

While specific Canadian cases of “the most loyal customers get fewer discounts” haven’t been heavily publicized, the conditions for it are clearly present:

• Canadians hold an average of 14.3 loyalty programs in their wallets, but use only about half regularly (3).
• Loyalty programs in Canada are increasingly digital-first. It leverages apps and data analytics to personalise offers (4).
• Data collection and analytics are central to the loyalty-programme value proposition in Canada (5).

Popular retail-loyalty programs in Canada include the PC Optimum, which allows shoppers to earn and redeem points across groceries and other retail partners, and the Scene+ program from groceries and moviegoing.

Many loyalty programs collect detailed purchase histories and preferences, and increasingly use algorithms to offer targeted promotions. A customer deemed “high-value” may receive fewer incentives, because the system assumes they’ll buy anyway. Meanwhile, other customers receive more frequent or deeper discounts as a way to nudge behaviour.

Loyalty cards and apps no longer just reward you — they profile you. When companies use that profile to decide who gets deals, what sounds like “membership perks” begins to resemble data-driven price discrimination.

Can Canadian consumers push back?

Fully divesting from loyalty programs may not make sense for most Canadians — especially in an inflationary environment where even small savings feel important. But there are proactive steps you can take:

• Be aware of retail practices: Compare with friends or family whether you’re seeing the same offers. Recognise that how you shop, click, scroll and redeem can influence what you’re shown.
• Review your privacy settings: Under the Canadian Personal Information Protection and Electronic Documents Act (PIPEDA) law, you may be able to request access to your data and ask for limitations on usage (6).
• Track your savings: Compare the value of the rewards and discounts you receive against the total you spend. If it feels like you’re paying more in full-price purchases to access “rewards”, then you’re effectively not winning (7).

Surveillance pricing is legal in Canada, as long as it does not violate anti-competitive practices. Although some Canadian guidelines require companies to limit data collection and ensure transparency, enforcement and consumer awareness lag behind.

“We shouldn’t be put in a position where we have to decide between affording our groceries and protecting our privacy,” say former regulators and researchers.

As loyalty programs evolve from simple “thank-you cards” into sophisticated behavioural-economics tools, Canadian consumers may realize the real cost of those “free” rewards is higher than they thought.

Scanning that loyalty card no longer simply earns you points. It helps define you and dictate how much more you’re willing to pay, for better or for worse.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

The Washington Post (1); City News (2); R3 Marketing (3); Businesswire (4); Smith School of Business (5); McMillan (6); Coach My Business (7)