Retirement Income

Thu, 17 Jan, 2019Courtney Allan

What you need to know about loyalty card and royalty reward schemes

What you need to know about loyalty card and royalty reward schemes

It can be hard figuring out whether or not your loyalty cards have tangible rewards or not. At this point, you’re on autopilot when your local grocery stores ask whether or not you have a loyalty card.

Gary Mortimer, Associate Professor at the Queensland University of Technology Business School, says we’re not alone.

"If you're a bit like me and habitually, passively scan your loyalty card without really thinking about what you're doing, then it's probably not worth your time having one," he says.

"All you're doing is simply providing the retail with free information and free data on your shopping behaviour."

However, if you’re clever about the way you use your cards, you can redeem points for other products and flights.

Supermarket and store loyalty cards

We’ve all seen them across the larger grocery retailers and throughout smaller businesses as well. They’re rewarding you for your repeat business, and sometimes, it’s not that bad of a deal. A free eyebrow wax? Sure, why not!

However, Jason Pallant, who is a lecturer in Marketing at Swinburne Business School has warned us of the pitfalls when it comes to repeat consumer behaviour.

"I certainly don't think there is often great value in changing your behaviour or deliberately buying something you didn't need or want just to get loyalty benefits."

Dr Pallant adds, "If you're doing it anyway, get rewarded. But don't change your behaviour hugely because of a loyalty program."

There are some benefits to having loyalty cards, as you can get special offers and discounts that non-card holders don’t. However, you have to spend a lot to get a little back and you might not end up earning enough points for a reward just based on your normal spend.

Credit card reward points

Credit cards with reward programs, including cards that are offered by stores or airlines, might sound similar to loyalty cards but they couldn’t be more different.

As credit card issuers use reward programs in order to attract your business, the people that generally use them can fall into two camps, according to Steve Worthington, who is an Adjunct Professor at Swinburne University’s Faculty of Business and Law.

"You can divide credit card holders into two basic camps — there's transactors, that is those who use their card and pay off in full every account period, so they never pay interest," Professor Worthington says.

"Then there's the revolvers who do pay interest because they don't pay it off in full and they therefore have to pay interest.

"If you're a transactor, you might be able to use a reward card and do fairly well out of it. But if you're a revolver, I would argue that you need to concentrate on not paying interest, rather than collecting reward points."

For some, the allure of combining points with airline point systems is the whole reason they’re using the reward system. For others, cashback once you reach a certain amount of points is enough to keep them with the reward program.

The cons are more straightforward, with high annual fees, not all spending being eligible for reward point collection, as well as feeling like you’re encouraged to spend more to earn points.

Airline points 

With the promise of free travel and upgraded seats, for those who travel a lot, airline points seem like a no brainer.

However, before you dive right into it, it’s a good idea to check how many free points need to be redeemed for a free flight. You might find it’s an astronomical amount.

Dr Pallant encourages people to be aware of the hierarchy programs often attached to airline point systems. These programs often encourage members to spend more than they would usually in order to obtain the next level of membership available.

"I know people who have taken trips because it was coming to the end of their 12-month cycle," he says.

"It's interesting because you can pay for the things that having the higher status gives you, such as a seat choice and more luggage, and often it'll be cheaper [to purchase these with your own money] than all the money you spend to get the status."

Do you use any loyalty cards or royalty reward schemes? Do you think it’s worth it? Let us know in the comments.