In today’s highly competitive supermarket sector, loyalty programs have evolved far beyond simple rewards systems. An extensive inquiry by the Australian Competition and Consumer Commission (ACCC) has raised concerns that the gamification of loyalty programs at major chains such as Coles and Woolworths may be influencing customer behavior in ways many shoppers do not even realise. With more than 85 percent of Australians now belonging to at least one loyalty program, these initiatives are not only shaping purchasing decisions but might also be obscuring the true value of deals offered to consumers.
The Evolution of Loyalty Programs
Historically, supermarket loyalty programs were straightforward: customers earned points for every dollar spent, which could then be redeemed for discounts or special offers. Over the years, however, these programs have become increasingly complex. Today, companies like Coles and Woolworths have transformed their schemes into sophisticated data-driven marketing tools that leverage advanced analytics and gamification techniques to drive consumer engagement.
The ACCC’s final 441-page report on the supermarket sector highlights that loyalty programs have shifted from being mere rewards mechanisms to becoming powerful customer engagement platforms. Supermarkets are now using these programs to create an illusion of value while simultaneously encouraging consumers to spend more than they might otherwise. For instance, the report notes that excluding bonus point offers, a customer needs to spend around $2,000 to earn a discount of just $10—a conversion rate equivalent to 0.5 cents off every dollar spent.
How Gamification Influences Spending
One of the most striking findings of the ACCC inquiry is the role of gamification in shaping consumer behavior. Gamification refers to the incorporation of game-like elements—such as point systems, challenges, and rewards—into non-game contexts. In the context of supermarket loyalty programs, these elements are designed to trigger the “goal gradient effect,” where consumers increase their spending as they get closer to reaching a reward threshold.
READ MORE: ‘Limited Incentive’ for Coles and Woolworths to Compete on Price, ACCC Finds
This psychological phenomenon can lead shoppers to adjust their spending habits without fully understanding the underlying costs. When faced with the challenge of accumulating points, many customers may make impulsive purchases or choose to shop more frequently at these supermarkets, even if it means spending more than they would if offered a transparent discount. The ACCC report warns that the complexity and opacity of these programs make it difficult for consumers to determine if they are truly getting a good deal.
Lack of Transparency: The Need for Plain-English Disclosures
The report recommends that Coles and Woolworths provide “simple, plain-English” disclosure summaries for their loyalty program members. These summaries should clearly outline:
- The monetary value of points and other benefits earned by the member.
- The monetary value of points and benefits redeemed.
- The total amount the customer has spent over a specified period.
Such transparency would empower consumers to make informed decisions and understand exactly how much value they are receiving from the program. Currently, the use of points as a currency makes it challenging for many customers to assess the true benefits of their spending, leading to potential overestimation of value.
Impact on Competition and Market Dynamics
While the ACCC stopped short of declaring that grocery prices in Australia are “excessive” or that Coles and Woolworths operate as a duopoly, it did note that the supermarket sector is distinctly oligopolistic. The report emphasizes that the limited incentive for these two giants to engage in aggressive price competition is a significant factor in the rising earnings margins seen in recent years.
The ACCC’s findings reveal that both Coles and Woolworths have increased their product margins, with the rise being particularly stark on branded products compared to private labels. This trend has implications for suppliers as well, many of whom are subjected to “monopsony” power—meaning there is effectively only one buyer for their products. The report highlights that such market concentration can force suppliers into less favourable contracts, where they may be required to offer discounts or incur additional costs such as freight and promotional charges.
Consumer Behavior: Conditioning and Lock-In
Another key issue raised by the ACCC is that loyalty programs might condition consumers to associate their shopping experience with a continuous cycle of rewards and incentives. By constantly reinforcing the idea of “surprise and delight,” these programs may inadvertently lock customers into a pattern of behavior that benefits the supermarkets more than the shoppers.
This consumer lock-in can have the unintended consequence of reducing competition. As customers become increasingly reliant on the rewards and benefits offered by Coles and Woolworths, they may be less likely to explore alternative options—whether that means shopping at discount retailers like Aldi or seeking better deals elsewhere. In essence, the loyalty programs create a self-reinforcing cycle that makes it harder for consumers to break free from the dominant market players.
Industry Response and Future Review
The ACCC has recommended that the current practices of supermarket loyalty programs be reviewed again in three years to assess whether they are ultimately harmful to consumers and competition. This review will focus on various factors, including:
- The transparency of discount conversion rates.
- The impact of bonus point offers on consumer spending.
- The overall influence of these programs on market competition.
In response to the report, both Coles and Woolworths have stated that they will review the recommendations in detail. Coles has already taken steps to provide clearer information on its promotions, while Woolworths Group chief executive Amanda Bardwell emphasized the company’s commitment to making it easier for customers to find value amid rising living costs.
The Broader Implications for Supermarket Practices
The influence of loyalty programs extends beyond the immediate discounts offered at the checkout. These programs are part of a broader strategy that leverages customer data to drive marketing decisions and tailor promotional offers. By analysing spending habits and shopping patterns, supermarkets can not only enhance their product offerings but also manipulate pricing strategies to maximise profit margins.
This data-driven approach has significant implications for how consumers perceive value. With loyalty programs evolving into sophisticated platforms for customer engagement, the line between genuine discounting and strategic price manipulation becomes increasingly blurred. As the ACCC report suggests, many consumers are left to rely on impressions and subjective assessments rather than clear, objective information about the true cost of their purchases.
The Role of Regulation in Protecting Consumers
In light of these findings, the ACCC is calling for greater oversight of loyalty program practices. The recommended measures—such as plain-English disclosures and periodic reviews—aim to protect consumers from potential exploitation and ensure that the benefits of loyalty programs are transparent and accessible. These regulatory steps are intended to strike a balance between allowing supermarkets to use loyalty programs as a tool for customer engagement and preventing them from leveraging these tools in ways that might restrict competition or mislead consumers.
The government’s stance on the issue remains cautious. While there has been some support for increased transparency, there is no immediate commitment to enforce drastic changes. Instead, the focus is on continued monitoring and gradual improvements, with the expectation that further regulatory action may be warranted if the practices are found to have a detrimental impact on consumer welfare.
Conclusion: A Call for Transparency and Fair Play
The ACCC’s comprehensive inquiry into supermarket loyalty programs has shed light on the hidden influence these schemes have on consumer behavior and market dynamics. As Coles and Woolworths continue to dominate the grocery sector, their sophisticated loyalty programs are shaping how Australians shop, often without consumers being fully aware of the costs involved.
While these programs can offer genuine benefits—such as rewards, discounts, and personalized offers—they also have the potential to obscure true value and create consumer lock-in, thereby reducing competition in the market. The ACCC’s recommendations for clearer, simpler disclosure summaries and regular reviews of these practices are a call to action for both regulators and industry leaders to ensure that consumers are not left in the dark.
As the supermarket landscape continues to evolve, the need for transparency and fair play becomes ever more critical. Consumers deserve to know exactly what they are getting in return for their loyalty, and regulators must ensure that market practices promote competition rather than inhibit it. In the coming years, it will be crucial for both policymakers and industry players to work together to create a more transparent and consumer-friendly environment—one where loyalty programs enhance the shopping experience rather than manipulate it.
