Are Loyalty Programs Good for the Consumer?

Jeff Graham

Are all those enticing frequent flier miles really worth it for the consumer? The answer is… it’s a mixed bag. According to Congressman Alan Grayson, there should be Federal oversight of loyalty programs in the United States. Congressman Grayson tells us loyalty programs are susceptible to changing terms and conditions which can rob consumers of value.

Grayson’s actions have re-invigorated an important debate around loyalty points… are they really worth it? The answer is that loyalty points can be worth it, but you’ve got to understand how the game works as a consumer. It’s key to know how points benefit you, how they benefit businesses, and to know some do’s and don’ts as a consumer.

Here’s why loyalty programs are good for the consumer:

  1. When they’re at they’re best, loyalty pograms enrich the customer experience by providing tailored offerings, discounts, rewards and special treatment. Good customers get perks, and it’s an age-old practice that any good business does.

  2. If the company you’re dealing with has a loyalty program, you might as well take advantage of it if you’re a regular customer… because you’re already indirectly paying for the rewards.

  3. Money spent on loyalty marketing directly benefits customers through rewards, as opposed to mass marketing.

Here’s why loyalty programs are good for businesses:

  1. A good loyalty program will nurture the relationship between a customer and a business, and give a business the ability to provide smart, targeted offers to their customer base.

  2. Loyalty points (like gift cards) have a very high rate of breakage. In other words, there is a tendency for customers to collect points and then not use them.

  3. Loyalty programs have very low startup costs because the points exist as funny money until they are redeemed by the customer.

  4. Loyalty programs are an incredibly valuable source of data, and can be used for everything from location planning and product offerings to targeted email campaigns.

  5. The cost of loyalty rewards are, by their nature, at wholesale prices for the business. For instance, when Starbucks offers a “free drink” worth up to $5, Starbucks doesn’t pay $5 for that reward - they pay whatever it costs them to provide the beverage.

  6. Collectors tend overestimate the value of points, giving businesses a more cost effective tool to promote their offerings than a cash discount.

Do’s and Don’ts for Consumers

  1. Do sign up for a loyalty program if you’re a regular customer of a particular business. You’re paying for the rewards anyways, you might as well take back some of what you’re entitled to.

  2. Don’t make purchasing decisions based on the points you’ll collect. Only collect points on products or services you were going to buy anyways.

  3. Do take some time to ask the business about how your personal information is handled. Asking over social media channels like Twitter and Facebook is a great way to go about doing this.

  4. Don’t make the mistake of overvaluing your points. Whenever possible, select the product or service with the best price.

  5. Do redeem your points! If you have the ability to spend points on something you need, do it now, and take the money you would have spent and either save it or pay down debt. Use these programs to help YOUR OWN cashflow, not the cashflow of the business.

I hope that helps.