Are Loyalty Programs Beneficial Enough To Be Loyal?
When Does Loyalty Pay Off
We probably all have a loyalty program card in our wallet or glove box. Consumers are always looking for a deal, but are loyalty programs really beneficial. I think the easy answer is, sometimes.
Determining when they are and when they are not doesn't take a lot of time, but can be worth the effort. In this HUB I want to give you something to think about and how to look at loyalty programs differently.
Buy Ten Get One Free
I think these are the easiest to determine, because for the most part they are beneficial if they do not expire and they don't change your behavior.
Personally, I enjoy a good cup of coffee and will typically drink Starbucks. There is a Starbucks that is within a 3 minute walk from my office door and there is another that is about a three minute drive from my house.
There are a couple of other coffee places that are close to both also, but I actually prefer Starbucks over them. Starbucks has a loyalty program where if you buy 15 drinks your 16th is free. Now comes my qualifications for this type of program. Do they expire and do they change my behavior.
The expiration on this doesn't apply. I actually don't know if they expire or not because I hit the free drink market about every month. So even if they do have an expiration date it wouldn't apply to me. But if they did expire I might want to reconsider this as it wouldn't benefit me.
The other is, does it change my behavior. In other words, am I buying more coffee to try and get the free one. Because my drink, a Grande Americano, cost $2.55 per drink. It cost me $38.25 to get my free drink. It doesn't make much sense to try and get to the free one since the free one costs me far more than an individual drink.
If the loyalty card is doing what Starbucks wants then I will buy more coffee then normal. For me this is not the case. I buy the exact same amount as I would if they didn't have the program. How do I know? For one I typically give my free drinks to my daughters or their friends.
Cash Back Benefits
Many loyalty programs have a cash back type feature. One that has always intrigued me is Costco's upgraded membership. Just for the record, I like Costco. There is a Costco that is even closer then Starbucks to my house. We buy 95% of all our gas through Costco, most of the meats that we eat, and some other items.
But is their Executive Gold Star Membership worth the $110.00 cost? Really, it just depends. First of all their normal no thrills membership is $55.00, so you are going to pay double this cost to get the 2% cash back. Sounds good doesn't it?
Let's crunch a couple of numbers. First of all you have to spend $5,500.00 per year to just break even on the cost of the membership. That's a little over $458 per month, but you can't include any cigarettes, tobacco products, gasoline, alcohol, and a few other items. Do you spend that much?
I'm sure the answer is that some do and some don't. If you are going to get a Costco membership anyway then you will spend $55 for their normal membership. This cuts the number in half because if you save the additional $55.00 expense then you at least didn't lose any money. Under this scenario you would need to spend $2,750 or $229 per month. That is still a lot. I know that I don't spend this much which is why I just have their basic membership.
In all fairness there are a few other benefits that one would have to check into to see if they use. Personally, none of them would benefit me. There is also a maximum cap as to how much cash back you can received which is $750.00. Of course if you were paying $110 and getting $750 back it would definitely be worth it. Unless you buy for your business I would question your spending habits if you are getting the maximum back.
Another program that Costco offerings is through American Express. While I don't advocate credit cards unless you have the discipline to pay it off every month this particular card gives you tiered rebate depending on what you spend using this card. The best part about it is that it is free so anything you get back is increase to you or at least a reduction in your expenditures. If you can't pay your balance off each month you will be a big time loser on the interest you will pay.
Fly For Free
Airline loyalty is an interesting concept. There can be a vast difference in the price of an airline ticket so should I go with the cheaper price or become a loyal customer?
Again there are variable that would make the answer be, "It depends." Personally, I fly a lot and I have found, for me, that there is a benefit in loyalty. If at all possible I will fly United Airlines. Sometimes I will change my favorite carrier because of what they are offering, but I have been with United for a few years now.
United offers one mile for ever mile flown. Once you hit 25,000 miles you move up to their Silver status. Now, to get 25,000 miles you have to fly quite a bit so you have to know that you are going to fly this much before the benefits really make a difference.
In addition, beyond moving to Silver status you can get a free domestic flight for as low at 25,000 miles, but many times it is more like 50,000 miles. You have to fly at least once every 18 months to keep your miles from expiring. Therefore, you have to fly enough to really make any of this worth your while. If you don't fly that much you are better off finding the best valued flight.
On the other hand if you are a frequent flier some of the benefits that you receive starting at Silver status is free luggage check in, priority seating, express security lines, better seating and upgrades, and increased accumulation of miles received.
All of these benefits can make airports and flying much more enjoyable. But the reality is most people are not going to hit the levels needed to make the benefits work for them. Think about it. It is a little over 2,000 flight miles between Los Angeles and New York. Round trip is a little over 4,000. You would have to fly across country six times to get near the silver status.
Doing a little math, figuring out how much you will really use a program, and the likelihood of cashing in the points is worth the effort.
Use It or Loose It
There was a study done from Colloquy, a marketing firm in Cincinnati, that revealed a startling statistic. It revealed that about 33% of the 48 million rewards points earned by American consumers each year go unused. The value of this unused portion is $16 billion!
If you aren't going to use the program then look for the best deal. When my girls were in college I spent less than $500 to fly them home during breaks a total of 8 times each because I worked the points using my airlines mileage along with a credit card that built mileage with it.
Loyalty programs can save you money or cost you money, it is all dependent upon you. Americans are notorious for having good intentions and poor performance. Be real, will you use it? Will you cash it in? Will it benefit you? If you do the math you will come out ahead.