Loyalty Landscape in Canada
Loyalty programs are incredibly popular in Canada, with more than 90% of Canadians enrolled in at least one program. This rate is far higher than in most other developed countries. Most consumers report belonging to multiple loyalty programs, with some major programs including Air Miles, Shoppers Drug Mart Optimum, and Loblaw’s PC Plus. While penetration is quite high in Canada, satisfaction is low, with less than half of members highly satisfied with their program. Financial information provided on these programs below are in Canadian dollars, unless otherwise noted.
Single retailer loyalty programs offer consumer rewards for shopping with one brand. The second largest loyalty program in Canada, Optimum by Shoppers Drug Mart, is an example of a single retailer loyalty program. Two-thirds of Canadian households currently participate in the program. The program is free to enter and offers rewards at a rate 15 points for every $1 spent at a Shoppers Drug Mart-owned location. There was previously an option to receive a MasterCard associated with the program, which accrued points at a slower rate when used for other purchases. This program has subsequently been discontinued. Points can be redeemed for discounts in-store or donated to charities through an online portal.
Unlike single retailer programs, coalition loyalty programs offer incentives for customers to shop at multiple businesses. Consumers then earn points that are redeemable for a common currency (such as air miles). The single largest loyalty program in Canada is Air Miles, which boasts 11 million consumers. This program is a prime example of how a coalition program operates. When customers spend money with any of 220 partner businesses (called sponsors), they earn miles on their accounts. These miles can then be redeemed for cash rewards (either in-store with a partner business or online) or specific purchases like flights, merchandise, or concerts. Customers earn miles at an approximate rate of 1 mile for every $20 spent, but this can vary, depending on the policy of individual retailers within the program. Air Miles' parent company, Alliance Data, reported that in 2016, the program brought in US$7.1 billion in revenue. This is significant when compared to Aeroplan, a Canadian company that runs a coalition program similar to Air Miles, who reported revenue of $2.2 billion in 2016.
Coalition loyalty programs offer a major advantage to retailers as well: they can see consumer data across a range of industries. This data allows them to better understand their customers' buying habits and demographics, which gives them the ability to better tailor promotions and products to their customers.
The biggest advantage coalition plans offer consumers is flexibility. This flexibility comes in terms of where consumers can shop — coalitions often include over 100 partners — and in terms of what they can do with their rewards. Although programs like Air Miles and Aeroplan are obviously building on the success of airline reward programs, they offer a variety of rewards, including cash, electronics, gift cards, event tickets, and even vacation packages, in addition to miles.
In turn, this flexibility offers consumers ease of use. Instead of having to balance a dozen different loyalty programs, a coalition program only requires consumers to remember one set of information. This leads to higher rates of use across the board. Retailers then see increased purchases while consumers see rewards accrue faster. Increased engagement, higher brand value, and stronger brand-specific loyalty have also been seen in coalition programs.
Although Canada has some of the highest loyalty program membership rates in the world, experience with them is decidedly mixed. On the positive side, over 90% of Canadian consumers report belonging to a loyalty program, and many belong to three or more programs. For Air Miles specifically, 81% of Canadian households have at least one member who participates in the program, for a total of 11 million active members. In addition, growth in the coalition loyalty membership has surpassed other loyalty programs in recent years. Between 2014 and 2016, loyalty memberships of all types grew by 35% in Canada. Coalition loyalty programs grew twice as fast, increasing by 78% to 27.2 million members.
While they only account for 16% of the loyalty program marketplace as measured by membership, this rapid growth suggests that Canadians are interested in the value these programs add. The percentage of people who modify their buying habits to increase their rewards points has also increased, up to 68% of consumers in 2016.
In contrast, Canadians also display consistently negative attitudes towards their loyalty programs. Only 16% of female and 8% of male consumers reported that their loyalty programs "are meeting their needs." Another study from Bond Brand Loyalty indicated that only 16% of consumers were "very satisfied" with their coalition loyalty program, compared to 42% for credit card reward programs. This low-level of satisfaction is largely due to unhappiness with customer service and customization options. The rate at which consumers redeem rewards had less of an impact on satisfaction for coalition programs than other programs, but redemption still plays a significant role in consumer satisfaction.
In summary, approximately 90% of Canadians are enrolled in at least one loyalty program, making these programs more popular in Canada than in most developed countries. Popular programs include Air Miles, Shoppers Drug Mart Optimum, and Loblaw's PC Plus, with Air Miles being the largest single loyalty program in Canada. Coalition programs are increasing in popularity in Canada, despite overall dissatisfaction with these programs.