The cashback card: there is no such thing as a free lunch

People who look at Lyoness may wonder how it could possibly be bad to obtain a free discount card and use this to get 'cash back on every purchase'. It has been often argued by Lyoness adherents that the Lyoness cashback card can save the average consumer a lot of money on its every day purchases, and is not that something we all want?

From the very start of the Lyoness story, Freidl and his accomplices have used the same strategy in every country their company expanded to. This strategy is divided up into three phases, phase 1 being a legal check, phase 2 being a search for 'premium members' and phase 3 being the time in which the cashback card becomes truly free, anyone can join, Lyoness will start traditional marketing campaigns and the earlier-found premium members get rewarded for their trust during phase 2.

As can be derived from the above, Lyoness is at least not completely free before a country enters phase 3. There is only a limited amount of countries in which that has happened, and it does not seem like it is going to happen in many more countries to come. During phase 2, prospects need to put in an advance payment on future discounts of at least 150 euros, but preferably immediately 2000 euros, just like the 'premium members'. Nevertheless, Lyoness already markets its cashback card as free, because 'the money one pays in advance, remains the property of that invester'.

Even when the cashback card does not require you to pay anything directly, it is doubtful whether it can be called 'free' - there is no such thing as a free lunch. Just like with many promotional campaigns, Lyoness hopes to get a chance to persuade these members to pay the fees in any case. Additionally, so intelligently pointed out by David Brear here, Lyoness uses the alluring bait of free discounts to gain access to a considerable amount of personal information, and may ask you to provide the contact details of your acquaintances too - so that they can be approached for a 'free cashback card' as well. As was shown by the ORF Report broadcast, particularly by the part in which Freidl said the system is about 'positions, positions, positions, positions', Lyoness has little to no interest in their cashback card and adjacent discount system. 99.67% of its income comes from the advance payments of 'premium members' and all activities undertaken by Lyoness, its instigators and adherents, are aimed at enrolling more paying members into Lyoness.

It was already calculated that if Lyoness had indeed an annual turnover of 1 billion euros last year (as the Austrian MP Gerhard Huber claims), the 2.7 million participants would have had to shop for a 100 billion euros in one year to provide this turnover, amounting to more than 370.000 euro per member per year. When these calculations are taken further, one can infer that since 0.33% of this billion came from the actual cashback card system, 3.3 million euro was made from the cashback card by Lyoness last year. Since Lyoness takes merely 1% of every purchase made with the cashback card, the total spending with the cashback card last year amounts to 330 million euro, a fairly considerable amount by any standard.

However, when taken into consideration that these spendings came from 2.7 million members, this means that the average member spent a little over a 122 euros per year at Lyoness loyalty partners. Taking the average direct cashback of 2-3% into consideration, this means that the average Lyoness cashback card holder has received between 2.44 and 3.67 euros in direct discounts over the entire last year.

It also means that with an average indirect discount (i.e. disappearing in the position system) of about 10% (and that is a high estimate), one would need to spend 500 euro to fill one position of 50 euro (on the lowest tray of the position system). Taking the previous calculations into consideration, this means that the average consumer would take a little over 4 years to fill one of such positions.

Indeed, a much faster way to fill these positions is by just purchasing them directly, as is also explained in most of the internal Lyoness communication. It seems apparent that the Lyoness cashback card is mainly a smokescreen designed to disguise the obvious pyramid scheme lurking behind this web of lies.

1 comment:

  1. All this can nicely summed up by the old French proverb:

    'You don't use vinegar to trap flies.'