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Loyalty programs may limit competition, and they could be pushing prices up for everyone

<p><em><a href="https://theconversation.com/profiles/alexandru-nichifor-1342216">Alexandru Nichifor</a>, <a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a> and <a href="https://theconversation.com/profiles/scott-duke-kominers-1494057">Scott Duke Kominers</a>, <a href="https://theconversation.com/institutions/harvard-university-1306">Harvard University</a></em></p> <p>Loyalty programs enable firms to offer significantly lower prices to some of their customers. You’d think this would encourage strong competition.</p> <p>But that isn’t always what actually happens. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4377561">New research</a> shows that paradoxically, by changing the way companies target customers, loyalty programs can sometimes reduce price competition. The research also points to solutions.</p> <h2>A win-win proposition?</h2> <p>Joining a loyalty program is supposed to be a win-win. You – the customer – get to enjoy perks and discounts, while the company gains useful commercial insights and builds brand allegiance.</p> <p>For example, a hotel chain loyalty program might reward travellers for frequent stays, with points redeemable for future bookings, upgrades or other benefits. The hotel chain, in turn, records and analyses how you spend money and encourages you to stay with them again.</p> <p>Such programs are commonplace across many industries – appearing everywhere from travel and accommodation to supermarket or petrol retailing. But they are increasingly coming under scrutiny.</p> <p>In 2019, the Australian Competition and Consumer Commission (ACCC) <a href="https://www.accc.gov.au/about-us/publications/customer-loyalty-schemes-final-report">cautioned</a> consumers about the sheer volume of personal data collected when participating in a loyalty program, and what companies can do with it.</p> <p>Hidden costs – such as having to pay a redemption fee on rewards or losing benefits when points expire – are another way these schemes can harm consumers.</p> <p>But a larger question – how loyalty programs impact consumers overall – remains difficult to settle, because their effect on competitiveness is unclear. As the ACCC’s <a href="https://www.accc.gov.au/about-us/publications/customer-loyalty-schemes-final-report">final report</a> notes, on the one hand: "Loyalty schemes can have pro-competitive effects and intensify competition between rivals leading to competing loyalty discounts and lower prices for consumers."</p> <p>But on the other hand: "Loyalty schemes can also reduce the flexibility of consumers’ buying patterns and responsiveness to competing offers, which may reduce competition."</p> <h2>How a two-speed price system can hurt everyone</h2> <p>A new economic theory research <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4377561">working paper</a>, coauthored by one of us (Kominers), suggests that on competitive grounds alone, loyalty programs can sometimes harm <em>all</em> consumers – both ordinary shoppers and the program’s own members.</p> <p>It’s easy to see how the ordinary shopper can be worse off. Since a firm’s loyalty program enables it to offer discounted prices to its members, the firm can raise the base prices it offers to everyone else. Those not participating in the program pay more than they otherwise would have, and the firm can respond by saying “join our program!” instead of having to lower its price.</p> <p>But sometimes, even the program’s own members can end up worse off.</p> <p>When a given customer’s loyalty status is not visible to a firm’s competitors – as is the case in many loyalty programs today – it’s hard for those competitors to identify them and entice them to switch.</p> <p>The main way to compete for those customers becomes to lower the base price for everyone, but this means missing out on the high base margins achieved through the existence of your own loyalty program – remember, having a loyalty program means you can charge non-members more.</p> <p>It’s often more profitable for firms to just maintain high base prices. This, in turn, reduces overall price competition for loyal customers, so firms can raise prices for them, too.</p> <h2>What’s the solution?</h2> <p>Despite these effects on competition, loyalty programs still offer benefits for consumers and an opportunity for brands to form closer relationships with them.</p> <p>So, how do we preserve these benefits while enabling price competition? The research suggests an answer: making a customer’s loyalty status verifiable, transparent and portable across firms. This would make it possible for firms to tailor offers for their competitors’ loyal customers.</p> <p>This is already happening in the market for retail electricity. While there aren’t loyalty programs there per se, a consumer’s energy consumption profile, which could be used by a competitor to calibrate a personalised offer, is known only to their current electricity supplier.</p> <p>To address this, in 2015, the Victorian government launched a <a href="https://compare.energy.vic.gov.au">program</a> encouraging households to compare energy offers. This process involved first revealing a customer’s energy consumption profile to the market, and then asking retailers to compete via personalised offers.</p> <p>By opening information that might have otherwise been hidden to the broader market, this approach enabled firms to compete for each other’s top customers, in a way that could be emulated for loyalty programs.</p> <p>Such systems in the private sector could build upon “<a href="https://thepointsguy.com/guide/airline-status-matches-challenges/">status match</a>” policies at airlines. These allow direct transfer of loyalty status, but currently rely on a lengthy, individual-level verification process.</p> <p>For example, a design paradigm known as “<a href="https://hbr.org/2022/05/what-is-web3">Web3</a>” – where customer transactions and loyalty statuses are recorded on public, shared blockchain ledgers – offers a way to make loyalty transparent across the market.</p> <p>This would enable an enhanced, decentralised version of status match: a firm could use blockchain records to verifiably identify who its competitors’ loyal customers are, and directly incentivise them to switch.</p> <p>Both startups and established firms have experimented with building such systems.</p> <h2>What next?</h2> <p>New academic research helps us model and better understand when loyalty programs could be weakening supply side competition and undermining consumer welfare.</p> <p>A neat universal solution may prove elusive. But targeted government or industry interventions – centred on increasing the transparency of a customer’s loyalty status and letting them move it between firms – could help level the playing field between firms and consumers.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/220669/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /></p> <p><a href="https://theconversation.com/profiles/alexandru-nichifor-1342216"><em>Alexandru Nichifor</em></a><em>, Associate Professor, Faculty of Business and Economics, University of Melbourne, <a href="https://theconversation.com/institutions/the-university-of-melbourne-722">The University of Melbourne</a> and <a href="https://theconversation.com/profiles/scott-duke-kominers-1494057">Scott Duke Kominers</a>, Sarofim-Rock Professor of Business Administration, <a href="https://theconversation.com/institutions/harvard-university-1306">Harvard University</a></em></p> <p><em>Image credits: Getty Images </em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/loyalty-programs-may-limit-competition-and-they-could-be-pushing-prices-up-for-everyone-220669">original article</a>.</em></p>

Money & Banking

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5 dark secrets of web travel sites

<p>Booking a trip on an online travel site is convenient, but comes with its own set of problems.</p> <p><strong>1. They know who’s on a Mac and who’s on a PC – and who’s going to spend more.</strong></p> <p>Last year, US travel research company Orbitz tracked people’s online activities to test out whether Mac users spend more on travel than PC users. Turns out that on average, Mac users lay out US$20-30 more per night on hotels and go for more stars, according to the Wall Street Journal. As a result, online travel sites show these users more expensive travel options first. To avoid inadvertently paying more, sort results by price.</p> <p><strong>2. Their software doesn’t always hook up to the hotel’s system.</strong></p> <p>A guaranteed reservation is almost impossible to come by anywhere – but the risk of your flight or hotel being overbooked increases with third-party providers. The middleman’s software isn’t immune to system errors, so always call the hotel or airline to make sure your booking was processed.</p> <p><strong>3. Don’t be fooled by packages: Often, they’re low-end items grouped together.</strong></p> <p>Ever notice how travel sites recommend a hotel, a rental car, and tour package all in one click? These deals usually feature travel that no-one wants, like flights with multiple layovers. Check the fine print.</p> <p><strong>4. You could miss out on loyalty points.</strong></p> <p>Third party providers can get between you and frequent flyer miles or points. Many hotel loyalty programmes don’t recognise external sites, others award only minimum points and exclude special offers, like double points on hotel stays.</p> <p><strong>5. Once your trip is purchased, you’re on your own.</strong></p> <p>An online travel agency can’t provide assistance the same way an agent can if a flight is cancelled or a room is substandard. Basically, when you arrive at the airport or hotel, you’re just another client who booked at the lowest rate.</p> <p><em>Written by Sheri Alzeerah. This article first appeared in </em><a href="https://www.readersdigest.com.au/travel/tips/5-Secrets-of-Web-Travel-Sites"><em>Reader’s Digest</em></a><em>. For more of what you love from the world’s best-loved magazine, </em><a href="http://readersdigest.innovations.co.nz/c/readersdigestemailsubscribe?utm_source=over60&amp;utm_medium=articles&amp;utm_campaign=RDSUB&amp;keycode=WRN93V"><em>here’s our best subscription offer.</em></a></p>

Travel Trouble

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Is it better to be loyal or honest in your relationship?

<p><strong><em>Susan Krauss Whitbourne is a professor of Psychology and Brain Sciences at the University of Massachusetts Amherst. She writes the Fulfilment at Any Age blog for Psychology Today.</em></strong></p> <p>An old friend is in town on a trip that you’ve known about for months. Back when you made a date to get together for the evening, it seemed like a great idea. You definitely want to see this person, or at least you did at the time. Now that it’s getting closer to the actual event, you’re starting to regret having made those plans. Things have gotten hectic at work, and you’d like to take the evening to sit around in your sweats and binge watch that new program which just became available for streaming. </p> <p>Perhaps it’s not an evening out, but a lunch date on a weekday close by to where you work. The weather forecast is predicting a messy, rainy, day and you don’t think you’ll want to venture out any more than is necessary to get from home to the office. These situations present you with a classic dilemma: Do you tell the truth to your friend but risk the relationship or preserve the relationship by making up a legitimate-sounding excuse?</p> <p>Testing the values of loyalty vs. honesty in moral judgments, Cornell University’s John Angus D. Hildreth and University of California Berkeley’s Cameron Anderson (2018) asked “Does loyalty <span><a href="https://www.psychologytoday.com/au/basics/president-donald-trump">trump</a></span> honesty?” As they note, “Groups often demand loyalty, but all too often, loyalty can corrupt individuals to engage in deceit."</p> <p>Among the list of possible deceptions that loyalty to organisations or causes can prompt is pretending to believe in something you don’t or overlooking bad behaviour by people who are a part of your group. A politician might downplay a fellow office-holder’s illicit activity, or a sales manager might turn a blind eye to the shoddy products that the company is putting out on the market. You might lie to help your <span><a href="https://www.psychologytoday.com/au/basics/teamwork">team</a></span> win in a competitive match. The deceptions involved in these instances have more serious consequences than those associated with <span><a href="https://www.psychologytoday.com/au/basics/deception">lying</a></span> to a friend to preserve the relationship, but the same underlying dynamic is at play in that honesty and loyalty operate at cross-purposes.</p> <p>As the Cornell-Berkeley researchers go on to observe, most people view lying as unethical but may be more accepting when a lie is the result of a prosocial motive. In fact, they cite evidence that you’ll gain more trust from the people who know you if you have a reputation as a prosocial liar. A friend may overhear you saying to a mutual acquaintance that her new hairstyle looks great when, clearly, the cut and colour are all wrong. Your coming out with this slight untruth shows how much you value other people’s feelings. Such lies are preferable to lies that are intended to give you an advantage over other people in order to get ahead. When you tell someone she looks nice so that you can get her to do a favour for you, this is no longer a prosocial lie because you’re doing this to increase the odds of getting something you want.</p> <p>However, when a lie isn’t just prosocial but a “loyal lie,” other people are likely to view you far more negatively. A lie that is intended to protect shady operations by a group of which you are a part comes closer to a self-serving lie than one that is <span><a href="https://www.psychologytoday.com/au/basics/altruism">altruistic</a></span>, even though “loyal” implies some sort of higher purpose. There is a philosophical reason for this notion as well. Philosophers such as Jeremy Bentham and John Stuart Mills regard loyalty as “immoral” due to its “inherent partiality”. Because loyal lies benefit one’s group as well as oneself over others, they should be perceived as immoral by those who observe the lie being told. The liar, by contrast, sees no such problem and, in fact, feels “a moral imperative to act in the best interests of the group.” By not lying, the individual runs the risk of “negative social judgment, ostracism and social exclusion."</p> <p>Putting these ideas to the test, Hildreth and Anderson conducted a series of four studies involving nearly 1400 participants involving both online surveys and laboratory experiments. In the online version of the test of the study’s hypotheses (later replicated with college students), participants read scenarios varying in the behaviour described by an individual who either lied or did not lie either to benefit their group in its <span><a href="https://www.psychologytoday.com/au/basics/sport-and-competition">competition</a></span> with another group. The question was whether participants would regard deceit as unethical and immoral. In the condition involving loyalty and intergroup competition, participants perceived deceit as being relatively less unethical than in other conditions. However, participants rated loyal deceit (lying to benefit their group) as more unethical than disloyal honesty (being honest at the expense of one’s own group).</p> <p>The research team placed college student participants in the experimental study similarly in conditions involving either intergroup competition or no competition. Here the question was whether or not they would lie when their loyalty was triggered. Rather than judging the <span><a href="https://www.psychologytoday.com/au/basics/ethics-and-morality">morality</a></span> and ethicality of others, then, participants judged their own behaviour.</p> <p>As shown in prior studies, participants were more likely to lie when they thought it would help their own group. In general, they judged their own behaviour as less ethical when they lied compared to when they were honest. However, there was an important exception – when they lied to benefit their group, the participants did not see any ethical problem in their own behaviour. In fact, they actually saw their behaviour as slightly more ethical when they lied compared to when they told the truth.</p> <p>As the authors concluded, “These individuals seemed to ground their self-perceptions in a morally pluralistic framework, focusing on loyalty above and beyond truthfulness as a critical moral dimension in this context” (p. 90). In other words, liars can compartmentalise enough to be able to justify their lying if it serves a purpose of protecting their group.</p> <p>The final study in the series randomly assigned participants in the laboratory simulation to actor or observer role. As in the prior studies, loyal lies received the harshest judgments by observers, but not by the actors themselves.</p> <p><strong>To sum up</strong>, in answer to the article’s title, loyalty really does trump honesty in the view of the person committing the lie. Loyal liars don’t just rationalise their lying after the fact; instead, they have different standards for loyal lying than they do for honesty. Returning to the quandary you find yourself in when you feel you need to lie to get out of a prior obligation, the Cornell-Berkeley study suggests that it’s all too easy to slip into a mode where you see your lying as needed to protect your relationship. This may be fine on an occasional or extreme basis, but it’s quite likely that you can easily slip down that slope into habitual lying.</p> <p>Rather than lie to protect your relationship, then, a dose of honesty may be needed even if it seems difficult at the time. Alternatively, perhaps you shouldn’t lie at all. If you’ve made a social commitment that now seems inconvenient, consider following through on it. You may have a much better time than you realised you would, and the loyalty you show toward those in your life might just provide the basis for more fulfilling <span><a href="https://www.psychologytoday.com/au/basics/relationships">relationships</a></span>.</p> <p><em>Written by Susan Krauss Whitbourne. Republished with permission of <a href="http://www.psychologytoday.com"><span style="text-decoration: underline;"><strong>Psychology Today.</strong> </span></a></em></p>

Relationships

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5 good reasons to join a hotel loyalty program

<p>There are lots of good reasons to get with the program.</p> <p><strong>1. Earn loyalty points</strong></p> <p>Just like airline frequent flyer points, hotel loyalty programs give you points every time you make a booking. These add up and can be used to book hotel nights at any property in the group or you can spend them on extras within the hotel, like the restaurant or spa. You’ll actually find that hotel loyalty points are much easier to accrue and redeem than airline points, so you can take advantage of them straight away.</p> <p><strong>2. Get extra discounts</strong></p> <p>Everyone loves saving money! Members will be offered exclusive discounts or special rates that aren’t available to the general public. These could be sent out in a members-only email or there might be a special members’ area you can access on their website when booking direct. Never pay full price again.</p> <p><strong>3. Enjoy exclusive freebies</strong></p> <p>Even if you are just paying the standard room rate, that loyalty card still has value. Most hotels will offer members things like free Wi-Fi access, welcome drinks, breakfast, lounge access and more. These are the little extras that can quickly add up during a hotel stay, so it pays to be a member and get them at no extra charge.</p> <p><strong>4. Take advantage of the perks</strong></p> <p>Hotels want you to stay loyal to them, so they will sometimes offer members special perks when they stay with them. That could be room upgrades, a bottle of champagne in the room, free breakfast or even things like spa treatments if you are one of their top frequent sleepers.</p> <p><strong>5. Get the royal treatment</strong></p> <p>Every time you book, the fact that you are a member of the loyalty program will be noted in the system. Hotels want to keep their members happy (and keep them coming back), so they will go out of their way to make sure you have a pleasant stay.</p> <p>Are you part of a hotel loyalty program? Do you think it’s worth it? Let us know in the comments below. </p>

Travel Tips

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The downside to loyalty schemes

<p>Loyalty schemes are everywhere – petrol stations, supermarkets, clothing stores, online shopping, airlines – all offering customers discounts and rewards in return for sticking with their brand.</p> <p>But the relationship may not be so clear cut. Big business don't just join loyalty schemes to make you loyal, they collect information on what, when, and how, you make specific purchases.</p> <p>Massey University business analytics professor Leo Pass said data gives businesses an overview of your entire purchase history.</p> <p>"Not only at your company but at other companies, and that way you get a more complete picture of the person you're dealing with," he said.</p> <p>But the potential for what companies could do with purchase data is huge.</p> <p>"Many companies have these tremendously large data sets on consumers' transactions. And there's so much more they could do with our data, but they can't analyse it, you need highly statistically knowledgeable people to do this," he said.</p> <p>Companies are gathering more information on their customers' buying habits, but may barely be making use of it.</p> <p>Companies increasingly felt it they had to join loyalty schemes to attract customers.</p> <p>"There's a lot of possibilities. One is advertising directed towards the right person and predicting what people would be worth in the future," Pass said.</p> <p>"One area is lending money - banks can know whether people are going to pay off the loan, or if someone is an insurance risk."</p> <p>Do you join loyalty schemes? Or are you concerned it’s an invasion of privacy? Share your opinion in the comments below.</p> <p><em>Written by Rachel Clayton. First appeared on <a href="http://www.stuff.co.nz/" target="_blank"><strong><span style="text-decoration: underline;">Stuff.co.nz</span></strong></a>.</em></p>

Money & Banking