The true cost of loyalty programs

They're not so crash hot for the rest of us.

The truth is that loyalty reward schemes are not designed to reward loyalty at all. They're a chance for retailers to milk more money out of high-value customers.

And they work. Take knowITall, a customer loyalty program for pharmacies. Its website claims that members spend 40 per cent more than others.

That's partly because regular customers are more likely to bother signing up, but it's also because loyalty members get bombarded with more advertisements through email campaigns, direct mail, and even text messages.

There's very little that loyalty programs can't do on a technical level. Your profile can be linked to the location of your smartphone so you get spammed when you're in physical proximity to a store.

It can also integrate with retargeting ads online. This is where you click on, say, a pair of shoes on a retailer's site and then ads for that exact pair of shoes start following you around the internet.

Even the birthday offers, which could be a genuine opportunity to thank loyal customers, are carefully calibrated to profit rather than rewards. Almost one in four loyalty members will take up a birthday offer, according to knowITall. This generates $20,000 in additional monthly sales, about three times the value that the retailer puts in.

Sometimes advertising messages are useful to consumers. I do like knowing when my favourite brands are having a sale - it helps me keep my family replenished with socks and underpants at a reasonable cost, for example.

The problem is I've let too many brands into the tent, and now my personal email in-box is a hot mess of advertising emails. I regularly try to unsubscribe but it feels like I'm fighting the Hydra, the many-headed serpent of Greek mythology.

I've previously abandoned my Hotmail and Yahoo! accounts for being too full of junk, and now I fear my Gmail is going the same way.

I'm definitely not the only one.

The Australian Privacy Commissioner last year reported that nearly nine out of every 10 Australians are a member of a loyalty program. The For Love or Money 2016 report by marketing agency Directivity puts the number slightly lower at more than four out of every five adults.

There are more than three times as many loyalty cards as there are credit cards in Australia, analysis from comparison website Finder.com.au suggests. There are more than 58 million rewards cards in circulation compared with nearly 17 million credit cards.

The For Love or Money survey found that more than half of people joined rewards programs simply because they already shopped with a business and thought they might as well. Only about a third joined because they actually looked at the program and decided the rewards were worthwhile.

Just over half of people believe they are taking advantage of their loyalty program benefits, but nearly a third believe they are not. The rest aren't sure.

That casual approach means that we are giving up a lot more than we gain.

My favourite loyalty program is for a local toy shop. I shop there a few times a year for birthday and Christmas gifts, and each time I get a discount using points from the previous purchase. I've unsubscribed from their marketing emails so I know I'm not getting sucked in.

I also love getting every 10th coffee free at my local cafe, but only because it's still paper-based. It's not worth fiddling with an app and giving up my personal information for a 37?? discount on my coffee.

My least favourite rewards scheme was a children's shoe shop where you could get the fifth pair of shoes free. The catch was it only applied during a calendar year, so the three pairs of shoes I bought in December were erased from my tally at the beginning of January. Boo!

Don't bother with the supermarket rewards schemes - the rewards are paltry. Elizabeth Knight wrote recently about how the $3500 she spent at Coles earned her a $10 discount voucher through FlyBuys.

The bottom line is our data is valuable to retailers and most people don't really comprehend the value of what we're giving away.

It's not just about permission to receive marketing messages. It's also data about your shopping tendencies - what levers work, when you shop, how much you buy - and personal demographic data.

This information is sometimes shared with or sold to third parties - honestly, how many of us read the privacy policy closely to find out?

When your customer data is blended with other sources - such as your Facebook "likes" and the results of those ubiquitous personality quizzes - it can become downright creepy.

Manipulating voters with big data (large data sets from multiple sources) is increasingly being used in politics. A key player is a firm called Cambridge Analytica, part-owned by US billionaire Robert Mercer, a key backer of Donald Trump.

The company boasts it has psychological profiles based on 5000 separate pieces of data on 220 million American voters. It used that information to pinpoint potential Trump voters and prey on their deepest emotions, to predict and potentially control behaviour.

It also donated its services to the Brexit leave campaign, an investigation by The Guardian found. Now Cambridge Analytica is eyeing an Australian move.

It may not seem like a big deal to scan another card, or approve a third-party Facebook app so you can do a fun quiz.

But the true value of your personal information is not what you can do with it, but what other people can.

Caitlin Fitzsimmons is the editor of Money. She writes regular columns about the psychology of money, and our lives at work. Find her on Facebook and Twitter.