Your guide to the biggest loyalty tricks and traps
28 February 2018 David Ross
The most valuable thing you can ever give to a business is your loyalty. Problem is, being a loyal customer is pretty much always a mug’s game.
Research shows it costs a business around five times more to acquire a new customer than to keep one, but that fact is almost never reflected in loyalty program benefits.
“Businesses very often neglect loyal customers, they leave them on high price points, or old packages,” director of the Centre for Workplace Leadership Simon Bell told Domain.
New customers are more expensive to a business for the simple reason that they get the good deals, while the loyal chumps are kept in the dark paying higher rates.
What does that mean for customers? Shift often, and make yourself an expensive acquisition.
That said, there are a few finer points to be aware of between the various types of loyalty program.
Should you be loyal to your bank?
When it comes to transaction accounts and mortgages, two things separate banks from the other sections in this article:
- They tend not to match competitor rates.
- Aussies are remarkably loyal without seeing any real benefit.
Around one in five Australian mortgage holders are with the same bank they were with as a child – a huge number considering doing nothing usually means noticeably higher rates.
Those customers, and the ones who are with the same bank as their parents, pay an average of 20 basis points more in interest than those who have shifted, according to a recent uno Home Loans report.
Furthermore, financial comparison site Mozo found Aussies who switch from the average home loan rate to the cheapest on the market could save $1764 a year.
Moving banks is a hassle, and that’s just the way our country’s biggest businesses like it.
Should you be loyal to your insurer?
Most Aussies now have a handful of different sorts of insurance – home, car, health, phone, even pet – and the key for all of them is to stay vigilant. A good insurance plan can become a bad one overnight.
How often do you want to recheck your insurance? Rarely, if ever. That’s why the alluring contracts to get you to stick around or join are, in some ways, a trap.
They’re called “sweetheart deals”, which roll back to an uncompetitive rate after a set period of time. Most customers forget about it and spend the bulk of their insured time on more expensive rates, so watch out.
Health insurers are the least willing to budge on plans, while car insurers will, in some cases, bend over backwards to keep or attract a customer – they’re the best ones to apply pressure on, according to Canstar.
Should you be loyal to your energy provider?
This is the big one. Energy bills have skyrocketed in recent months and years, which means the terms of service have become much more important than they used to be.
Switching energy retailers can save you up to $650 in Victoria, or $545 in NSW, according to analysis from Mozo.
Many retailers won’t offer you their best deals on first contact, but will often offer discounts up to 40 per cent if you threaten to leave or actually jump ship.
The danger is staying put when those “sweetheart deals” mentioned in our insurance section run out, according to Mozo’s Kirsty Lamont, with retailers able to make a killing from customers who don’t question their bills.
“Not all discounts last forever, some do have a cap so that they only last for two years,” she said.
“It’s really important at the end of that period you don’t forget to go out to the marketplace.”
Should you be loyal to a supermarket?
If you take one thing away from this article: don’t bother grocery shopping to maximise your rewards, the discounts are small and occasional.
Many loyalty programs run by the big retailers have been found to pay back only a tiny fraction of what you put in. In some cases we’re talking about a pithy 0.5 per cent discount for your loyalty.
In exchange for all your spending data, major supermarket loyalty programs sometimes offer around $10 in vouchers after as much as $2000 is spent.
Should you be loyal to your telco?
Bouncing around between the providers is the best way to go. No loyalty whatsoever.
Mobile and broadband comparison site Whistleout publisher Joseph Hanlon told Domain telcos aren’t interested in contacting loyal customers.
He said, “what they’re trying to do is steal customers from their competition.”
But that can mean the best deals are only available to new customers, which means it’s usually best to switch to a different provider every time your contract finishes.
He said loyalty doesn’t pay, as deals are rarely if ever aimed at existing customers, but if you do find a better deal the best thing to do is look to the golden rule: Will they match it?
Should you be loyal to an airline?
This is where some loyalty might actually make sense.
Regular interstate flyers will see some benefit from picking a team and sticking to it. Building up points by comboing their frequent flying with one of the many credit cards that offer bonus points.
But there is a word of warning: these cards come with high annual, cash advance, interest and late payment fees. The trick is to use them strategically and redeem the points only on flights.
You’re also best not to be 100 per cent loyal when using these points as you could find yourself cashing in many more points for a flight than you’d pay if you just shopped around for a better price.
You might find yourself dropping more than $3000 worth of points on what could cost $100.
Date: Feb 25, 2018