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Inside Australia’s loyalty industry: what the ACCC report revealed

16 January 2025
Amy Gavagnin
Loyalty Program Reviews

Banana Republic Rewards stands out as one of the most comprehensive offerings in the fashion retail space. From special birthday perks to exclusive shopping events, this program offers more than your typical points offering.

If you’re considering applying for a Banana Republic credit card or simply want to maximize your shopping rewards, this article provides a comprehensive overview of how the program operates, covering everything from earning points to achieving Icon status.

Understanding Banana Republic rewards basics

The Banana Republic program is a straightforward points-based system where members earn points for their purchases. It is also part of an integrated program that combines both credit card and loyalty benefits across all Gap Inc. brands19. This unified approach is particularly beneficial for shoppers who frequent multiple Gap Inc. stores such as Old Navy, Athleta and Intermix.

Key program benefits overview

We’ve identified several standout features that make this program particularly valuable:

Credit card members will earn even more, with the program offering a bonus 5 points for every $1 spent at Gap Inc. brands and 1 point per $1 spent at any other establishment. Points can then be redeemed against future purchases, with each point valuing at 1 cent per point7.

This structure effectively balances accessibility for casual shoppers while offering substantial benefits for loyal customers. The program has proven particularly successful, with more than 37 million combined Cardmembers and Rewards members participating in the loyalty program20.

How to join Banana Republic rewards

The process of joining Banana Republic’s rewards program is straightforward. To get the most out of your experience, we recommend considering your shopping habits before choosing between the regular membership and credit card options.

Sign up process walkthrough

Joining the regular rewards program is simple and free. Here’s how to get started:

  1. Visit the Banana Republic website
  2. Choose between email or text signup
  3. Provide your contact information
  4. Accept the terms and conditions
  5. Confirm your account

Note: By signing up for text notifications, you’ll receive automated personalized messages like cart reminders and marketing updates21.

Choosing between regular and credit card membership

We advise shoppers to carefully evaluate both membership options. The Banana Republic Rewards Mastercard® offers significant advantages:

Account setup and activation

After choosing your preferred membership type, the account activation process begins. For credit card members, you’ll need to wait for your physical card to arrive. Eligible cardholders will also have the opportunity to unlock Icon status (upon earning 5,000 points). Icon status members receive more exclusive benefits including key highlights such as:

  • Quarterly bonuses of 500 points7
  • Free 2-3 day shipping on purchases over $507
  • Complimentary basic alterations on qualifying Banana Republic items7

We recommend setting up your online account immediately after joining to track your points and access member-exclusive offers. Your membership becomes active right away, allowing you to start earning points on your very first purchase.

Earning points with regular membership

Let’s explore how to maximize your earnings with the Banana Republic rewards program.

Points earned via purchase

The basic earning structure is straightforward. Regular rewards members earn 1 point for every $1 spent across all Gap Inc. brands6 instore and online.  Online shoppers will also access the added benefit of free shipping on all orders above $50.

Special promotions and bonus points

The program also offers various opportunities to boost your earnings through special promotions. Our analysis shows these valuable earning opportunities:

One unique feature we appreciate is the ability to donate points through the “Do Good” initiative4. This option allows members to support charitable causes while shopping, adding a meaningful dimension to the rewards program.

For those seeking to maximize their earnings, we suggest timing your purchases during bonus point events and cross-brand promotions. Icon members especially benefit from exclusive earning opportunities, including double rewards redemption days6.

Remember that points earned through regular membership can be combined with other promotional offers, creating opportunities for substantial savings. Based on our experience, members who strategically plan their purchases during these special events often see their points accumulate much faster.

Credit card rewards and benefits

Our analysis of the Banana Republic credit card reveals some compelling benefits that set it apart from standard retail cards.

Credit card points multipliers

The earning structure stands out with its generous multipliers. As previously mentioned, cardholders earn 5 points for every $1 spent at Banana Republic and other Gap Inc. brands7. This translates to a 5% return on your shopping at these stores. For purchases outside Gap Inc. brands, you’ll earn 1 point per $1 spent4.

Extra perks and privileges

Beyond the basic points structure, the card offers notable benefits:

  • 20% discount on your first purchase (must be used within 14 days)7
  • Free fast shipping on orders over $504
  • Early access to select sales
  • Digital wallet integration with Apple Pay® and Google Pay®4
  • No annual fee4

Navigating reward tiers and status

The three-tier structure makes Banana Republic rewards somewhat unique in retail loyalty. Understanding these tiers can help maximize your shopping benefits.

Core member benefits

The entry-level Core membership requires no minimum spending and is free to join. Besides the basic earning rate of 1 point per dollar spent, Core members receive:

  • Quarterly cross-brand purchase bonuses
  • Birthday surprise rewards
  • Free 3-5 day shipping on orders over $503

Luxury member advantages

Moving up to the Enthusiast level happens when you reach $500-$999 in annual spending3. In addition to Core benefits, Enthusiast members enjoy:

  • Exclusive member-only offers
  • Enhanced shipping options
  • Special cardmember privileges (for credit card holders)

Icon status perks

The pinnacle of the program is Icon status, which members can achieve through two paths:

  1. Spending $1,000+ annually
  2. Earning 5,000 points in a calendar year7

Once you reach Icon status, you’ll unlock premium benefits:

  • Quarterly bonus of 500 points7
  • Free 2-3 day shipping on purchases over $503
  • Free basic alterations on qualifying Banana Republic items7
  • Double Rewards Redemption Days3
  • Choose Your Own Sale Day privilege7

What makes this program particularly valuable is its flexible point redemption structure. Members can redeem rewards in $1 (100 point) increments3, whereas previously, members were required to redeem in 500-point blocks. This change makes the program more accessible and allows for quicker reward utilization.

The Banana Republic rewards structure offers substantial value at each tier level. The progression from Core to Icon status provides increasingly valuable benefits while maintaining achievable spending thresholds.

For shoppers who frequently visit Banana Republic and other Gap Inc. brands, reaching higher tiers becomes notably easier since purchases across all affiliated brands count toward status qualification3. This cross-brand integration represents one of the program’s strongest features.

Rewards summary

The path to maximizing rewards involves reaching Icon status to access it’s many benefits, with key offers including:

  • Quarterly bonus of 500 points7
  • Free basic alterations on qualifying Banana Republic purchases7
  • Create Your Own Sale Day with 15% off8

 The card carries a variable annual percentage rate (APR) of 33.99%4, making it crucial to pay your balance in full each month. 

For shoppers who frequently visit Banana Republic and other Gap Inc. brands, this card offers substantial value through its multipliers and exclusive perks. Nonetheless, it’s essential to strategically use the card to maximize benefits while avoiding interest charges.

Redeeming your rewards

Understanding how to maximize your reward redemptions can significantly enhance your shopping experience.

Converting points to rewards

The point conversion system follows a straightforward structure. For every 1,000 points earned, you receive a $10 reward certificate1. This means each point essentially equals one cent in reward value. This makes it easier to track the actual value of your earnings.

Here’s the basic conversion breakdown:

  1. Regular rewards conversion: 1,000 points = $10
  2. Minimum redemption: $5 value
  3. Maximum single reward: $50 value
  4. Points have no cash value9

Where to use rewards

Your Banana Republic rewards offers flexibility in terms of redemption locations. These rewards can be used:

  • At any Gap Inc. brand store (except BR Home)
  • Through online shopping platforms
  • Via phone orders
  • During sale events

To redeem in stores, present your rewards at checkout. For online shopping, sign into your account and apply the reward code during checkout9. You can combine up to three reward certificates for in-store purchases and five for online orders1.

Expiration and limitations

Points and rewards do come with some important time restrictions. Points expire after 24 months of account inactivity1. Likewise, reward certificates have specific expiration dates printed on them.

Key limitations to remember:

  • Rewards cannot be used for:
    • Gift card purchases
    • Taxes or state fees
    • Shipping charges
    • Charitable donations
    • Gift wrapping services9

When returning items purchased with rewards, the dollar value is converted back to points and credited to your account within two billing cycles1. The value of your reward will be prorated across purchased items and shown on your receipt9.

For optimal value, we recommend:

  • Tracking your point expiration dates
  • Combining rewards with promotional offers
  • Using rewards before their expiration
  • Keeping receipts for potential returns

Remember that while points cannot be exchanged for cash or credit, they can be combined with one promotional offer per purchase1.

Digital tools and features

Let’s explore the digital tools that can make managing your Banana Republic rewards easier than ever. The brand has embraced modern technology to enhance the shopping experience through various digital platforms.

Mobile app capabilities

The Banana Republic mobile app serves as your personal shopping assistant, offering a curated world of style at your fingertips10. The app provides several key features:

  • Express checkout options
  • Push notifications for exclusive offers
  • New arrival alerts
  • Search and filter tools
  • Direct access to rewards and promotions
  • Customer support integration
  • Personalized shopping recommendations

The app streamlines both shopping and rewards management, making it simpler to track your points and redeem benefits10.

Online account management

Managing your Banana Republic rewards account online offers comprehensive control over your shopping experience. The platform allows you to:

  1. Track points and rewards balances
  2. View purchase history
  3. Access exclusive member offers
  4. Update personal preferences
  5. Manage communication settings

The online platform also includes personalized shopping features that customize your experience based on your preferences and shopping history11.

Digital wallet integration

Banana Republic has introduced digital wallet compatibility to enhance payment convenience. The program now supports both Apple Pay® and Google Pay®4, offering several advantages:

  • Seamless checkout process
  • Enhanced payment security
  • Quick access to rewards
  • Integrated loyalty tracking
  • Contactless payment options

The digital wallet integration extends beyond mere payment processing. 51% of consumers express interest in using digital wallets for additional functions like loyalty program management and accessing exclusive promotions12.

These digital tools become even more valuable for Icons members, as they can immediately access their benefits and track progression toward quarterly bonuses13.

The platform incorporates AI-powered chat capabilities, allowing members to receive instant responses to questions about their rewards and benefits13.

Special perks and exclusive offers

We’ve identified several exclusive perks that make the Banana Republic rewards program stand out in the retail landscape.

Birthday rewards

Banana Republic celebrates your special day with exclusive birthday rewards14. These birthday perks include:

  • Special bonus point offers
  • Exclusive birthday discount
  • Extended redemption period
  • Personalized birthday messages
  • Bonus rewards for Icon members

Member-only events

Throughout the year, members gain access to exclusive shopping events and promotions. One of the most valuable perks is the Friends and Family sale, where cardmembers receive early access2. These events typically feature:

  1. Stackable discount opportunities
  2. Combined savings up to 66.25% off
  3. Special card-member exclusive codes
  4. Mobile app-specific promotions
  5. Additional cashback opportunities

These events provide substantial savings opportunities beyond regular promotional offers. For instance, cardmembers can occasionally stack multiple discount codes, such as combining the Friends and Family discount with email sign-up offers2.

Early access benefits

The early access privileges represent one of the most valuable aspects of membership. Credit card holders receive priority access to select sales4, ensuring they never miss out on popular items.

Beyond standard early access, members receive:

  • First access to new collections
  • Preview opportunities for upcoming sales
  • Extended shopping windows for major promotions
  • Priority notification of special events

For Icon status members, these benefits become even more valuable. They receive enhanced early access privileges and exclusive shopping windows before other membership tiers. Hence, the combination of early access and member-only events creates a comprehensive suite of benefits that rewards loyal shoppers.

The program occasionally offers special promotions for credit card holders, such as an additional 30% off full-priced items16. 

These exclusive perks and offers  ensures that casual shoppers and dedicated customers alike find value in the program, while providing additional incentives to reach higher membership tiers.

What do members say?

After reviewing various testimonials from Banana Republic Rewards members, we’ve compiled insights reflecting real user experiences with the program.

Positive Feedback:

  • One member appreciates the high earning rate at brand stores: “Earning 5 points per dollar at Banana Republic and its sister brands makes accumulating rewards quick and easy.” 22
  • Another user highlights the Luxe status perks: “Achieving Luxe status has been rewarding with benefits like free shipping and exclusive sales access.” 23
  • A satisfied cardholder notes the seamless integration across brands: “Being able to earn and redeem rewards at multiple stores like Gap and Old Navy adds great flexibility.” 22

Negative Feedback:

  • Some members express concerns about the high APR: “The variable purchase APR is steep; carrying a balance can quickly outweigh the rewards benefits.” 24
  • Others mention limited redemption options: “Rewards can only be redeemed for purchases at Gap Inc. brands, limiting flexibility compared to other cashback cards.” 23
  • Additionally, the low earning rate outside brand stores has been a point of contention: “Earning only 1 point per dollar on non-brand purchases makes it less appealing for everyday spending.” 25

The Banana Republic Rewards Program offers significant benefits for loyal shoppers of Gap Inc. brands, especially those who can achieve Luxe or Icon status.

How does it rate against Loyalty & Reward Co’s Essential Eight Principles?

As experts in the global loyalty consulting industry, Loyalty & Reward Co have identified Essential Eight® Principles that feature in all best-practice loyalty programs. We use them to guide the program design or audit process to identify areas for improvement.

Let’s see how Banana Republic Rewards rates:

Is it Simple?

The program demonstrates a straightforward simplicity in its core structure. Following customer feedback, Banana Republic streamlined their point system to allow redemptions in $1 (100-point) increments, rather than the previous 500-point threshold5. This modification makes the program notably more accessible for members.

The use of digital tools such as chatbots, digital wallet and online account management have also helped to simplify the UX experience, enabling members to navigate the program queries and concerns easily.

Is it Valuable?

Looking at value proposition overall, the program delivers many ways to access value. Naturally, the most substantial benefits are available for credit card members and high-status members such as Luxe and Icon. Credit card members earn 5 points per dollar at Gap Inc. brands7, whereas regular members earn 1 point per dollar17. Furthermore, the program includes practical benefits like free shipping on orders over $50 and complimentary alterations for Icon members17.

However, when compared to the wider credit card programs available in the market, the BR Mastercard value proposition falls short in categories such as earn and burn flexibility, and having a higher APR. Unless members are an avid BR or Gap Inc. shopper, they may find other credit card offerings may potentially provide greater value.

Is it Stimulating?

In terms of engagement, the program effectively motivates ongoing participation. The three-tier structure (Core, Enthusiast, and Icon) creates clear progression paths17. Additionally, quarterly cross-brand purchase bonuses and double reward redemption days keep members actively engaged. The ability to track points progression also visually stimulates members to continue towards their next goal or achievement.

Is it Emotional?

The emotional connection is fostered most notably through the “Do Good” component, which allows members to donate points to five different charitable funds6. This initiative aligns with growing consumer interest in brands that demonstrate social responsibility18.

The Banana Republic program structure allows members to enjoy various monetary rewards; however, there is potential to enhance the program by adding more experiential benefits that can create a stronger emotional bond with customers. This could include unexpected surprises or unique, one-of-a-kind experiences.

Is it Complementary?

From our analysis, the program excels in complementing the overall shopping experience. The integration across Gap Inc. brands creates a unified experience, with over 37 million members benefiting from this cross-brand approach17. This seamless integration also enhances the overall value proposition.

Is it Differentiating?

The Banana Republic program ranks moderately in differentiation. Credit card programs are very common and competitive in the US market, with the Banana Republic offering providing a valuable but relatively standard offering in terms of points earn and redemption.

However, unlike other brands, Banana Republic has the unique advantage of uniting with its sister brands. Consequently, the Banana Republic program distinguishes itself through its extensive integration across other Gap Inc. brands while still offering brand-specific benefits. For Banana Republic specifically, unique features include:

  • Free basic alterations for Icon members
  • Style Cash conversion options
  • Exclusive community experiences

Our analysis concludes there is still opportunity for Banana Republic to explore more unique reward offerings, potentially through their styling services to create memorable experiences for top tier members.

Is it Cost-Effective?

The program demonstrates strong cost-effectiveness through its tiered structure. By starting members at the free Core level and providing enhanced benefits at higher tiers, it creates a balanced value exchange. The recent streamlining of point redemption5 has made the program more efficient without compromising its value.

Is it Evolving?

Perhaps most impressively, the program shows continuous evolution based on customer feedback and market trends. Recent improvements include:

  1. Simplified point redemption structure5
  2. Enhanced digital integration with mobile apps
  3. Introduction of the “Do Good” charitable component6
  4. Expanded cross-brand benefits

The program has shown remarkable adaptability, with Gap Inc. enrolling more than 19 million new customers in less than 12 months after relaunching their loyalty program6. This growth demonstrates the program’s ability to evolve with changing consumer preferences.

Through our expert analysis, we observe that the Banana Republic rewards program effectively meets most of the Essential Eight Principles. The program’s strength lies in its balance of simplicity with comprehensive benefits, although there’s always room for further refinement in the digital experience and emotional appeal.

The integration of sustainability initiatives and social responsibility components18positions the program well for future growth, as these elements increasingly influence consumer loyalty. Coupled with the program’s demonstrated willingness to evolve based on member feedback, these factors suggest a strong foundation for continued success.

Conclusion

Banana Republic rewards stands out as one of retail’s most comprehensive loyalty programs. Through our analysis, we’ve seen how this program excels by combining straightforward point earning with valuable perks across all Gap Inc. brands.

The three-tier structure rewards members at every level while offering compelling reasons to reach Icon status. Credit card holders particularly benefit from accelerated point earning and exclusive perks, though regular members still enjoy significant value through free shipping, birthday rewards, and special events.

Whether you’re a casual shopper or dedicated fashion enthusiast, this rewards program offers substantial value. Members who strategically time their purchases during bonus events and take advantage of cross-brand shopping opportunities will find their rewards accumulating quickly.

Our review confirms that Banana Republic rewards delivers on its promise of meaningful benefits while maintaining program simplicity.

Loyalty & Reward Co’s Essential Eight Principles™

Want to know more about the Essential Eight™? Read our whitepaper.

Do Loyalty Programs Work?

Looking for examples of best-practice loyalty programs from around the world that have delivered outstanding results? Check out our ‘Do Loyalty Programs Work?’ series.

References

[1] – https://bananarepublic.gap.com/Asset_Archive/BRWeb/content/0009/730/095/assets/legal.html
[2] – https://www.reddit.com/r/frugalmalefashion/comments/fgf6mr/banana_republic_friends_and_family_early_access/
[3] – https://www.gapinc.com/de-de/articles/2021/07/gap-inc-announces-launch-of-new-integrated-rewards
[4] – https://cards.barclaycardus.com/banking/cards/banana-republic-rewards-mastercard/
[5] – https://www.forbes.com/sites/sharonedelson/2021/07/22/gap-inc-deepens-connection-to-consumers-with-new-loyalty-program/
[6] – https://www.gapinc.com/en-us/articles/2021/07/gap-inc-announces-launch-of-new-integrated-rewards
[7] – https://www.nerdwallet.com/article/credit-cards/banana-republic-credit-card
[8] – https://wallethub.com/edu/cc/banana-republic-credit-card-review/25980
[9] – https://www.gap.com/Asset_Archive/AllBrands/Loyalty/terms/terms-conditions_090631.html
[10] – https://apps.apple.com/us/app/banana-republic-shop-apparel/id342797197
[11] – https://bananarepublic.gap.com/customerService/info.do?cid=80745
[12] – https://lisnr.com/resources/blog/digital-wallet-and-retail-loyalty-integration/
[13] – https://www.retaildive.com/ex/mobilecommercedaily/banana-republic-factory-pilots-mobile-loyalty-chat-to-enhance-in-store-shopping
[14] – https://www.shopwestcountycenter.com/store/banana_republic/deal/blt0c055571c26a8bad
[15] – https://bananarepublic.gap.com/browse/info.do?cid=1066225
[16] – https://www.instagram.com/genevacommons/p/DAqubeSv6ml/
[17] – https://loyaltyrewardco.com/gap-inc-bridging-the-gap-between-transactional-and-emotional-loyalty/
[18] – https://thebrandhopper.com/2023/04/26/fashion-forward-a-deep-dive-into-the-marketing-strategies-of-banana-republic/
[19] – https://www.gapinc.com/it-it/articles/2021/07/gap-inc-announces-launch-of-new-integrated-rewards
[20] – https://sourcingjournal.com/denim/denim-brands/gap-inc-intergrated-rewards-program-do-good-old-navy-athleta-banana-republic-292482/
[21] – https://bananarepublic.gap.com/customerService/info.do?cid=1098875

[22] – https://www.nerdwallet.com/article/credit-cards/banana-republic-credit-card

[23] – https://www.mybanktracker.com/credit-cards/expert-reviews/banana-republic-credit-card-review-254014

[24] – https://www.gobankingrates.com/credit-cards/retail/banana-republic-credit-card-review/

[25] – https://www.forbes.com/advisor/credit-cards/banana-republic-credit-card

ACCC logo

Drawn from the report Loyalty & Reward Co produced for the Australian Competition and Consumer Commission, June 2019.

Almost 80 per cent of Australians belong to at least one loyalty program. That figure, from Mastercard research,1 shows how deeply loyalty programs are woven into Australian consumer life. It does not tell you how much value members actually receive, how the largest programs earn their profits, or what the design choices behind the points mean for competition. Those questions are harder to answer, and until 2019 no one had answered them in public.

In 2019, the Australian Competition and Consumer Commission (ACCC) commissioned Loyalty & Reward Co to produce the first comprehensive, publicly available report on the Australian loyalty industry. The report examined the major programs with more than one million active members, most of them coalition programs, and set out how they are designed, how they are monetised, how they use member data, and what effect they have on competition and on consumers. You can read the full report on the ACCC website. The findings remain a useful reference for anyone designing or operating a program today.

This article summarises what the report found, and what each finding means for program operators.

A market that reaches into almost every industry

Loyalty programs have operated in Australia for several decades and now appear across almost every consumer industry. Estimates of how many programs the average Australian belongs to range from four (Adam Posner, For Love or Money 2018)2 to 6.1 (Mastercard).1 The report concentrated on the four largest coalition programs, Qantas Frequent Flyer, Woolworths Rewards, Velocity Frequent Flyer, and flybuys, because their scale and partner networks give them influence over a large share of Australian spending. A coalition program is one run by a central operator, where a network of partners rewards members with a common currency such as points.

The modern coalition program traces back to 1980, when American Airlines launched AAdvantage, the first frequent flyer program built on a reward currency of miles. Qantas Frequent Flyer followed in 1987 using points. Over the following decades, hotels, banks, supermarkets, and retailers built or joined coalition networks of their own.

Much of the recent history is a contest between two competing partnerships. In 2009, Woolworths partnered with Qantas Frequent Flyer, which grew the supermarket’s member base and gave Qantas a large population of members who rarely flew. Coles took full control of flybuys in 2011 and relaunched it, using cheaper points and supplier-funded bonus offers to compete. When Woolworths relaunched as Woolworths Rewards in October 2015 and replaced Qantas Points with a new currency earned only on selected products, members responded with sustained criticism, and the supermarket reversed much of the change within a year. By 2016, the industry had settled into two camps, Woolworths Rewards with Qantas Frequent Flyer, and flybuys with Velocity.

For operators: a currency change removes something members already value, and members tend to feel that loss more sharply than the gain meant to replace it. The Woolworths experience shows how quickly members react when a redesign reduces perceived value.

The psychology built into program design

The report set out the behavioural research that underpins program design. Several findings are worth knowing.

Operant conditioning (Skinner, 1948)3 holds that behaviour which is reinforced tends to be repeated. Bonus points for a specific action encourage members to repeat it. A related insight is that not all points are equal: the large airline, bank, supermarket, and hotel currencies are desirable enough to change where members choose to shop.

Social identity theory (Tajfel, 1978;4 Bhattacharya and Sen, 2003)5 holds that people fold the brands they identify with into their sense of self. Status tiers apply this directly. A Platinum frequent flyer receives lounge access, priority boarding, and upgrades, and that recognition can build an emotional connection to the airline. Status also raises switching costs, which can keep a member spending even when a competitor charges less for the same product.

The endowed progress effect (Nunes and Drèze, 2006)6 was demonstrated in a car wash study. Members given a card with two of ten stamps already filled redeemed at 34 per cent, against 19 per cent for members given a blank eight-stamp card, even though both groups needed eight stamps. Artificial early progress increased persistence toward the goal.

The goal-gradient effect (Hull, 1934;7 Kivetz, Urminsky, and Zheng, 2006)8 holds that effort increases as a goal comes closer. Members have been observed to accelerate their spending as they approach a status threshold.

Size heuristics describe how one hundred points can feel more rewarding than the one dollar of value it represents. Points let a program present value at a low cost to itself.

Surprise and delight can lift satisfaction well beyond what met expectations achieve. Berman (2005)9 reported that a delighted Mercedes-Benz customer had an 86 per cent likelihood of buying again, against 29 per cent for a merely satisfied one.

For operators: these mechanics work, and that is why they carry a duty of care. Design that manufactures progress or leans heavily on status can drive engagement, and it can also erode trust if members later feel the value was overstated.

How the largest programs earn their profit

A small number of coalition programs are highly profitable. Qantas Loyalty reported revenue of $1,546 million and earnings before interest and tax of $372 million in 2018.10

The report set out the standard coalition model with a worked example. A member spends $1,000 and earns 1,000 points. The program invoices the retailer at around 1.5 cents per point, so the retailer pays $15. When the member later redeems, the program values each point closer to one cent, or $10 for the 1,000 points. The program keeps the difference, roughly $5, a margin of about 33 per cent on that transaction. Across the hundreds of billions of points a large program can sell each year, those half-cents accumulate.

Two further mechanics matter. The first is breakage, the industry term for points that expire unused. Programs set expiry rules, for example 18 months of inactivity for Qantas Frequent Flyer, 24 months for Velocity, and 12 months for flybuys, and higher breakage translates directly into higher profitability. This is why some programs employ actuaries to model it. The second is deferred revenue. A program sets aside enough to cover future redemptions, and a holding of several billion dollars is not unusual for a large Australian coalition program, earning interest in the meantime.

Redemption value also varies by reward. A point redeemed on a flight might be worth one cent, on a gift card half a cent, and on a toaster around 0.25 to 0.35 cents. Pricing steers members toward redemptions that keep cash inside the business.

For operators: breakage and value-steering improve margins, and they sit in tension with member value. A program that optimises breakage too aggressively risks the disengagement that produces breakage in the first place.

The data behind the points

A loyalty program is one of the most effective ways to build a marketing database, because it links transactions to an identified individual over time. The report traced how far that data capability now extends.

Woolworths bought a half-share in analytics firm Quantium in 2013, gaining the ability to turn data from around 8 million loyalty cards into personalised offers. Data exchanges such as Data Republic, backed by Qantas Loyalty, Westpac, NAB, and ANZ, connect a broad network of organisations for secure data sharing. Data brokers can match a single member against tens or hundreds of external datasets, and one broker cited in the report, Rokt, described using billions of user records to personalise offers in real time.

For operators: members increasingly expect transparency and control over their data, a point the report emphasised. A program that collects widely without explaining clearly risks the trust that makes personalisation acceptable in the first place.

The competition question

The report examined whether loyalty programs affect competition, and the evidence points in more than one direction.

Consumer behaviour shows the effect is real. A 2018 Canstar Blue survey found that 21 per cent of shoppers who switched supermarkets did so to earn reward points, and 54 per cent of those who did all their shopping at one supermarket did so because of points.11 International research reaches similar conclusions. Lederman (2003)12 linked frequent flyer enhancements to gains in airline market share, with larger effects at hub airports. Cairns and Galbraith (1990)13 argued that programs raise switching costs and act as a sunk cost that a new entrant must match to compete. McCaughey and Behrens (2011)14 found frequent flyer members in the Netherlands willing to pay a premium of up to 6 per cent. Reichheld (1996)15 found that programs can reduce a member’s sensitivity to competing prices.

The concern is sharpest for smaller companies and new entrants. In a market of dominant duopolies, when the leading players both run large, engaged programs, the competitive tension between them can be neutralised while the barrier facing a new entrant without a comparable program rises. Norway took this seriously enough to ban the earning of points on domestic routes for a period, lifting the ban only in 2013 once domestic competition was judged robust.16

The evidence is not one-sided. Caminal and Claici argued that loyalty pricing can enhance competition by steering business between firms and lowering average transaction prices.17 Aldi, meanwhile, has campaigned directly against points-based programs, arguing that members who chase points routinely spend more, which suggests competitors view those programs as effective.

For operators: a program is a genuine competitive asset, and that same strength invites scrutiny where it raises switching costs or dampens price competition. Designing for real member value, rather than lock-in alone, is the more durable position.

Are members getting what they are promised?

The report closed on the question that matters most to members: the value they actually receive.

Value varies widely. Members of some programs receive as little as half a cent for every dollar spent, while others return 10 per cent or more. Some programs have also reduced value quietly over time. A $100 Barbeques Galore gift card that cost 13,500 points on the Velocity store in 2009 later cost 18,000 points, a 33 per cent increase. A $100 Myer gift card on the Qantas Store rose from 13,500 to 17,770 points, a 31 per cent increase, for a product whose value had not changed. Those increases outpaced the roughly 9.5 per cent inflation over the same five years, and members were not notified.

Some advertising also risks over-promising. The report noted a Qantas credit card campaign using the line “Latte, Latte, Latte, London”. Taken literally, a member would need to buy 20,000 to 40,000 cups of coffee to earn a flight to London, which at one or two cups a day could take up to 55 years. No reasonable consumer would read it literally, and that is the point: broad promotional claims can imply that value is more accessible than it is.

For operators: transparency around expiry, devaluation, and realistic earn rates protects the trust a program depends on. Members forgive a modest return far more readily than a value promise that does not hold up.

What the report means today

Australia’s loyalty industry is sophisticated, profitable, and built on well-understood behavioural science. The ACCC report showed that the same features which make programs effective, the psychology, the data, the coalition scale, and the points economics, are also the features that deserve the most care. A program earns durable loyalty when its design, its data practices, and its promises all hold up to a member reading them closely.

Loyalty & Reward Co produced this report as the loyalty consulting experts, and have since delivered more than 160 loyalty projects for leading brands worldwide. For the full detail, figures, and sources, read the complete report on the ACCC website.

References

Primary source: Shelper, P., Lyons, S., & Savransky, M. (2019). Australian Loyalty Schemes: A Loyalty & Reward Co report for the ACCC. Loyalty & Reward Co. Available at: accc.gov.au

The numbered sources below are cited in the article above. Full footnotes for every industry, media, and program source referenced throughout the report are provided in the ACCC report itself.

  1. Mastercard (2018). Achieving Advocacy and Influence in a Changing Loyalty Landscape.
  2. Posner, A. (2018). For Love or Money 2018, edition 6.
  3. Skinner, B. F. (1948). “Superstition in the pigeon”, Journal of Experimental Psychology, Vol. 38, pp. 168-172.
  4. Tajfel, H., & Turner, J. C. (1978). “An integrative theory of intergroup conflict”, in The Social Psychology of Intergroup Relations, pp. 33-47.
  5. Bhattacharya, C. B., & Sen, S. (2003). “Consumer-company identification: a framework for understanding consumers’ relationships with companies”, Journal of Marketing, Vol. 67, pp. 76-88.
  6. Nunes, J., & Drèze, X. (2006). “The endowed progress effect: how artificial advancement increases effort”, Journal of Consumer Research, Vol. 32, No. 4, pp. 504-512.
  7. Hull, C. L. (1934). “The rat’s speed of locomotion gradient in the approach to food”, Journal of Comparative Psychology, Vol. 17, pp. 393-422.
  8. Kivetz, R., Urminsky, O., & Zheng, Y. (2006). “The goal-gradient hypothesis resurrected: purchase acceleration, illusionary goal progress, and customer retention”, Journal of Marketing Research, Vol. 43, pp. 39-58.
  9. Berman, B. (2005). “How to delight your customers”, California Management Review, Vol. 61, No. 1, pp. 129-151.
  10. Qantas (2018). Qantas Annual Report 2018.
  11. Canstar Blue (2018). Consumer survey on supermarket switching and reward points, as cited in the ACCC report.
  12. Lederman, M. (2003). Do enhancements to loyalty programs affect demand? The impact of international frequent flyer partnerships on domestic airline demand, mimeo, MIT.
  13. Cairns, R., & Galbraith, J. (1990). “Artificial compatibility, barriers to entry, and frequent-flyer programs”, Canadian Journal of Economics, Vol. 23, pp. 807-816.
  14. McCaughey, N., & Behrens, C. (2011). Paying for status? The effect of frequent flyer program member status on airfare choice, Monash University Department of Economics.
  15. Reichheld, F. (1996). The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value, Harvard Business School Press.
  16. OECD (2014). Airline competition: note by Norway, Directorate for Financial and Enterprise Affairs, Competition Committee.
  17. Caminal, R., & Claici, A. (2007). “Are loyalty-rewarding pricing schemes anti-competitive?”, International Journal of Industrial Organization, Vol. 25, pp. 657-674.
<a href="https://loyaltyrewardco.com/author/amy/" target="_self">Amy Gavagnin</a>

Amy Gavagnin

Amy is a Senior Strategy Consultant at Loyalty & Reward Co, the leading loyalty consulting firm. Loyalty & Reward Co design, implement and operate the world’s best loyalty programs for the world’s best brands. She has worked in various areas of marketing, previously supporting departments at Westfield Scentre Group and Harvey Norman Commercial Division. Amy applies her skills across all aspects of the business, including promotional campaign management as well as loyalty program design, strategy development, and market research.​

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