Avoiding a lawsuit; Loyalty Comment
As customers become more knowledgeable about their loyalty programme rights, so the danger of a class action to claw back perceived points losses becomes more likely. In the US this month, AutoZone had to pay almost $50 million to settle a class action over changes the company made to its loyalty program.
According to the complaint, vehicle parts company AutoZone promised consumers that they would receive a credit for every purchase of over $20, and that once they accumulated five credits, they would receive a $20 reward. A few years after the plaintiffs enrolled in the program, though, AutoZone changed the terms so that credits would expire after 12 months and rewards would expire after three months. The plaintiffs claimed they unknowingly lost credits and rewards, as a result of this change.
AutoZone argued that the program terms specifically permitted them to make changes, including changes to the “period of time members have to use credits to earn rewards, and the period of time members have to use rewards.” Moreover, AutoZone argued that it took various steps to inform members before it made changes. The plaintiffs, however, argued that they did not see the notices and that AutoZone did not adequately disclose the program’s limitations in ads, even after the changes were made.
Although AutoZone denied the allegations, the company agreed to settle the case, a little over three years after the complaint was first filed. As part of the settlement, AutoZone will reinstate rewards and pay additional costs for an estimated total of just under $50 million.
This case sets an interesting precedent, and although the full details of the case are not known, it would be surprising if it did not lead to a flurry of similar cases. Companies frequently face complaints when they make changes to loyalty programs that adversely affect members.
Avoiding a lawsuit
There are a number of steps that companies can take to reduce the likelihood that those complaints will turn into lawsuits. Among other things, companies should give some thought to whether their terms are enforceable – in any country they are operating in – and ensure that their marketing clearly communicate material limitations. Also, that those limitations are regularly reminded to customers. There is nothing that enrages a loyalty saver more than to find out they have lost hundreds of thousands of points due to inactivity or an expiry date that went over the deadline by a few weeks. Especially when this deadline has only recently been introduced.
Loyalty Magazine would also be unsurprised if regulators begin to examine the fairness of programmes that expire points or change their values. Currently, loyalty points remain the property of the company. If this is forced to change, the rules of Loyalty will also need to be rewritten.
In the meantime, it is a differentiator for a loyalty programme to operate in a transparent and customer focussed way, that puts the needs and goodwill of its customers before that of its shareholders. Unrealistic? Let’s wait and see.