Loyalty programs could continue, but there’s gray area around personalized offers. | Photo: Shutterstock
A California bill aimed at reining in “surveillance pricing” is raising some concerns in the restaurant industry because of how it might impact loyalty programs — even though such programs are specifically excluded from the bill.
Introduced in February, AB 2564 would prevent businesses from using customers’ personal data to set prices, i.e., charging two people two different prices for the same product based on their zip code or their age.
This is a form of dynamic pricing, a practice that is not widely used in the restaurant industry. Some brands flirted with the idea a couple of years ago, most notably Wendy’s, but it never took off.
The bill was approved by the Assembly in May and is now working its way through the Senate. If passed, it would be the first federal or state law of its kind, according to a press release unveiling the bill.
So what does it have to do with loyalty programs? According to the bill, they are not the intended target. Lest someone try to argue that special discounts for loyalty members constitute surveillance pricing, the bill includes a carve-out for “loyalty, membership, or rewards program[s].” That means California restaurants and other businesses would still be able to use those programs to offer discounts to people who voluntarily enroll.
And yet there is some language in that carve-out that is making some in the industry anxious, including the California Restaurant Association (CRA), which is opposing the bill. The CRA argues that the bill “threatens the ability for merchants to use [customer data] for loyalty programs, memberships, and discounts.”
The CRA did not respond to multiple requests for comment on its position. But, according to the bill, loyalty discounts must be “uniformly offered or made available to all consumers” who are eligible to join the program. Some operators have interpreted this as a curb on personalized loyalty campaigns.
These are campaigns that deliver different offers to different loyalty members based on characteristics like their visit frequency or ordering preferences. Though not yet widespread, personalization is an area of growing interest among restaurant marketers because it allows them to present customers with offers they are more likely to want.
Some operators are concerned that AB 2564 would make this practice more risky, if not illegal.
“We just worry that the personalized rewards are going to be super hard to offer because we’re going to be afraid to get sued” in highly litigious California, said Fred Glick, brewpub chieftain at San Diego-based Karl Strauss Brewing Co. “I offered John pizza, and that was $10, but then I ordered Sally a salad, and that was only $8. And so I’m somehow discriminating against her because she likes salads.“
Glick, who is also a CRA board member, added that loyalty programs are designed to charge customers less, not more, and that the legislation could limit restaurants’ ability to offer people that value. He has paused plans to upgrade Karl Strauss’ loyalty program until he can get more clarity on the bill.
Zach Goldstein, CEO of restaurant loyalty provider Thanx, said that while gray area in legislation is never ideal, he does not believe the bill is intended to stop restaurants from giving different groups of loyalty members different offers.
“Even if those segments are super narrow, that seems very safe as drafted,” he said. “We’re monitoring but not concerned at this point.”
Dan Bejmuk agreed with that interpretation. The CEO of LA-based marketing agency Dreambox said that as long as customers opt in to sharing their data with a restaurant through a loyalty program, the program could continue under AB 2564, even on a personalized level.
“What this law is designed to do is to avoid a scenario where someone is receiving discounts based on information that’s gathered electronically that they did not opt in to the use of,” he said.
But, like Glick, he is concerned that the bill could expose restaurants to potentially frivolous litigation because it would allow individual consumers to file claims, similar to ADA laws.
“What I’m more worried about is a scenario where a well-meaning staffer provides a discount to someone, and then it turns out that difference in pricing is then used by a shakedown attorney,” he said.
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