Nashville, TN – Loyalty programs are everywhere: from airlines to the grocery store and gas station, companies are seeking your loyalty in exchange for discounts. These programs may look simple: collect your points, get some deals, and save some money. But as a new analysis reveals, the reality is that many loyalty programs function as data-harvesting machines. These programs track what we buy, how we search, and even how we navigate our cursors across a screen – building hyper-detailed profiles that companies can use to gauge and direct how much each of us is willing to pay.
The analysis, from Vanderbilt Policy Accelerator senior fellow Stephanie T. Nguyen and UC Berkeley Center for Consumer Law and Economic Justice senior fellow Sam A.A. Levine, reveals how loyalty programs – once simple tools for clipping coupons and collecting points – have transformed into powerful engines of surveillance pricing
“A tempting coupon at checkout can quickly become a path for companies to raise prices or rip off unsuspecting consumers. The growing prevalence of loyalty programs across our economy portends troubling tactics like AI-driven surveillance pricing,” said Stephanie T. Nguyen, senior fellow at VPA. “Policymakers need to pay close attention to the ways that rewards programs can not only fail to deliver any actual rewards, but break the law.”
“Our phones and computers are giving more and more valuable data to corporations looking to raise prices and make an extra buck, and loyalty programs can supercharge these efforts,” said Sam A.A. Levine, senior fellow at the Berkeley Center for Consumer Law & Economic Justice. “States have an array of tools and laws already on the books to rein in unfair or deceptive practices, and should be aggressive about using them.”
The analysis traces the devolution of loyalty programs in three stages: the Hook, the Hack, and the Hike.
-
The Hook: Companies devise a compelling way to entice consumers with upfront benefits and discounts to attract and keep them engaged.
-
The Hack: Companies extract deep insights into consumer behavior – including purchase patterns, how often they shop, and how much price pain they will tolerate – so they can experiment with rewards, segment customers by willingness to pay, and steadily ratchet up data extraction.
-
The Hike: Firms can raise fees, cut benefits, and deploy coercive upselling–flipping the bargain so that loyalty programs cost consumers more, all while creating barriers to exit.
The result is dollars transferring from consumer wallets to corporations, under the umbrella of “loyalty.” The analysis warns that the stakes extend beyond rewards programs. As companies shift from uniform pricing to personalized, data-driven pricing, loyalty programs serve as a proving ground for models that threaten affordability and fairness across the economy.
Importantly, Nguyen and Levine argue that states already have the power to address abusive and deceptive practices in loyalty programs. By enforcing existing consumer protection, competition, and privacy statutes, regulators can challenge deceptive practices, ensure rewards are transparent, and prevent loyalty programs from becoming backdoor avenues for unfair pricing practices. The analysis also offers a 50-state privacy law survey and references to the “bona fide” loyalty provision in each bill.
Click here to read: “The Loyalty Trap: How Loyalty Programs Hook Us with Deals, Hack our Brains, and Hike Our Prices.”