Loyalty is a quality almost universally admired. We trust people who show that they value long-term relationships.
Loyalty is also something many businesses claim to value. Some – like airlines and supermarkets – try to drive it through rewards schemes. Others run advertising campaigns that pay homage to long-term customers. But it’s increasingly clear that customers often pay for their loyalty, rather than being rewarded.
One area where there’s evidence that loyal customers pay more is banking. A recent ACCC report found that existing customers of the big four banks pay up to 32 basis points more on their mortgage than new borrowers. In a separate inquiry, the Productivity Commission estimated that around 15% of existing customers pay higher rates – up to $87 per month for an average home loan.
Similarly, in markets such as energy, insurance and pay TV, long-term customers pay much more than the deals used to lure new customers.
But loyalty isn’t just about paying higher prices – it can have drastic consequences. As we said when awarding a 2018 Shonky Award to the Dollarmites school marketing program, the Commonwealth Bank has been responsible for a swathe of financial scandals. From the young people who were sold income protection insurance they’d never use, through to older investors who were charged fees for financial advice that was never provided, I’d be willing to bet that lots of these customers had been banking with the Commonwealth Bank since their school days.
Even reward schemes that appear to offer benefits come with a sting. Airline frequent flyer schemes are often more profitable than the airlines themselves, because they work on the basis that airlines are paid now for rewards we claim much later, if ever. And supermarkets have used loyalty schemes to build rich data on our purchasing behaviour, which other companies use to target us in their marketing campaigns.
I’d like to imagine a world where loyalty comes with real rewards. In this world, your bank would tell you if a better deal was available. Your energy retailer would automatically provide fair prices to long-term customers. And rewards schemes would be more transparent about who they’re sharing your data with, and let you opt out.
That might sound unrealistic, but I think that consumer expectations are starting to change.
Alan Kirkland, CHOICE CEO