Wednesday, December 7, 2011

Loyalty Points as Currency

The top bid so far in the charity auction for a guest post on Michael James on Money is $100. See here for more details on the auction. Keep those bids coming.

Credit card companies, retailers, and other businesses have jumped on the loyalty points bandwagon. We accumulate all sorts of different points, and some of us manage to redeem points for various goods and services. I tend to look at these points as a kind of currency.

Businesses are issuing their own brand of currency that they give their customers in return for making purchases with actual money. The problem for consumers is that these businesses control the rules for this currency and can devalue it at any time by adding various restrictions and changing the number of points needed to redeem a “reward”.

Viewed this way, it becomes apparent that many reward points systems aren’t worth the bother, but this isn’t likely to change consumer behaviour. The innumerate masses love their points. It’s true that some points systems have real value and are worth the trouble, but this is the exception rather than the rule.

4 comments:

  1. To be fair - all currencies can lose their value.

    I agree however - Now I only use cash back rewards.

    Show me the $$!

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  2. @mike: True, but I think it's trickier for a governemnt to get away with devaluing its currency than it is for a company to suddenly double the number of points it takes to get a "free" crock pot. I'm definitely with you on a preference for getting cash back.

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  3. The CFL has a rewards card and for just 509,260 points you can go to the Grey Cup (2 tickets, flight, 3 nights hotel).

    You can earn 1 CFL point for every dollar spent. Wow, it would only take me 17 years to save up enough points for this reward! By that time, they'd probably double the number of points required.

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  4. @Echo: You could always step up your spending. Maybe buy a house on your credit card :-)

    ReplyDelete