What Are You Really Paying for Those Rewards Points?

Imagine this: you’re standing in the pharmacy store lineup, waiting to buy the things you’ve grabbed for your week ahead. The clerk asks for your postal code, and then whether you collect AirMiles points. You recite your postal code and hand over your AirMiles affinity card.

Then you’re off to the grocery store. After you fill your cart, you decide to pay with your President’s Choice Financial MasterCard that simplifies the checkout process, as well as rewarding you with points you can use towards free groceries in the future. 

Whether you realize it or not, you’ve just created a detailed electronic profile of your shopping behavior. Both your rewards points credit card and your AirMiles card are tracking and recording what you just bought.

In exchange for the points these programs award you, you’ve agreed to provide marketers and retailers with information about who you are and how you shop.

But is the tradeoff  - personal information for rewards points - worth it? Let’s take a closer look at how customer rewards programs work, and whether Canadians who participate in these "affinity marketing" programs expose themselves to privacy risks.

Affinity marketing basics

Retailers use the information they gather about you to design their ad campaigns, determine whether and where to open new stores, decide how their stores should be stocked, and more. They group together the information they gathered from your store visit with that of their other customers, and "slice and dice" it to glean insights about the buying patterns of all those who visit their stores and use their rewards program cards.

Retailers can also sell this data to other retailers, who then similarly use it for "target marketing" purposes. 

This process of extracting information about customer spending behavior is called "data mining," and stores across Canada and the world use the results of data mining to try and attract new customers and increase customer spending. 

The good news and bad for consumers

There is no doubt that the data mining performed by marketers through affinity and loyalty programs diminishes your privacy.  But it's not all bad news for consumers. In addition to the rewards you rack up through affinity programs, there are some additional benefits.

True, data mining enables merchants to target their advertising more precisely to you. But the result is that you get more of what you want – or, at least, marketing messages that are more closely aligned with your actual shopping preferences and behavior. 

This is a good thing for both you and marketers: They aren’t wasting their money trying to sell you things you’re not interested in, and you aren’t receiving marketing messages for products and services you don’t want.

On the other hand, even though your personal information is really only useful to marketers as part of a larger group, it can still reveal your individual identity and your specific preferences and habits. While retailers today typically don’t target you or your household exclusively, it is possible that in the future they will use ever-narrowing marketing channels to reach out to individual purchasers. How closely do you want to be identified and tracked by the people who want to sell you things?

Also keep in mind that using an affinity card when shopping means that you consent to have your buying habits recorded and stored by retailers at the point of purchase – and that you lose control of that information once it has been collected. Privacy issues arise when personal information is used in ways that we don’t anticipate.

Affinity programs can also increase your chances of identity theft. The more businesses that record and hold your personal information, the higher the chances of having your identity compromised. By signing up for affinity programs and credit cards, you authorize your private details to be recorded and stored in marketers’ databases – databases that are increasingly under attack by identity thieves.

Participation in affinity marketing programs and the practice of data mining is growing each year. It’s up to each of us to decide if giving away our personal information is worth the free groceries, airline miles, and other rewards that these affinity programs offer.