Monday, November 28, 2016

Loyalty Points Battles

The latest battle over expiring Air Miles prompted Robb Engen to call for a law banning loyalty point expiration similar to the ban on gift cards and pre-paid cards. This is sensible in that it removes one method loyalty point programs have to devalue points. However, it doesn’t solve the whole problem because there are many other methods.

The most obvious way to devalue points is the slowly increase the number of points it takes to get rewards. Aeroplan has been doing this for years with their miles. Another commonly-used way to devalue points is to place arbitrary restrictions on when points can be redeemed.

Clever businesspeople can certainly find other inventive ways to reduce their liability once the number of points they give out swells. One explosive way would be to set up a corporate structure so that the liability rests with a corporation starved for cash that goes bankrupt. This is similar to the way fitness clubs used to renege on multi-year pre-paid memberships.

So, is it all just hopeless for the consumer? Not at all. Just keep all this in mind and protect yourself. For example, when comparing two programs, one with points and one that gives back dollars, discount the points somewhat before comparing. I’d rather get 2% cash back monthly on my credit card than get 3% in the form of points. (Even better would be if credit cards stopped giving anything back and charged merchants less, so that all prices could go down.)

Another way to protect yourself is to use up points as quickly as possible. Getting gift cards for a place where you routinely shop works well. I do this with Aeroplan miles (although it takes more miles to get a $100 gift card each time.)

An important way to protect yourself is to not let loyalty points change the way you shop. Spending money you wouldn’t have spent otherwise to collect more points is throwing away dollars to get back pennies. And once you have some points, if you wouldn’t have bought a Santa cuckoo clock for cash, then you’re not getting ahead buying one with points.

Loyalty point program rely on the fact that we get excited about seemingly free stuff without ever doing the math, or accounting for future changes in rules. But you can count on the fact that companies offering loyalty points are doing the math.


  1. Hi Michael, thanks for the link. Despite all of the flack I've given Air Miles, I actually think their Cash Miles reward system is pretty good. As you said, you get a bit less value (10.5 cents per mile instead of 13-15 cents on the travel side) but the rewards are instant and often for more useful items such as groceries and gas, rather than travel and merchandise, which have higher perceived value until you actually try to redeem your miles.

    1. @Robb: The most important part of the difference here is the "instant" part. Any points held for a long time are subject to risk.

  2. I always see these arguments as this - the more points you have means the more money you spent in getting them. It's a good cycle for businesses but bad for the consumer.


    1. @Mark: There's a lot of truth in what you say. However, the financial negatives aren't spread equally among us. For example, I don't even think about whether I'm receiving points when I'm deciding whether I have to make a purchase. Points represent a small amount of bonus cash I made no plan for. At the other extreme are shopaholics who use collecting points as an excuse to buy crap they don't need. They waste money on the crap, waste money on credit card interest, and get back some points. Yet these same people get excited when they get some "free" item with their points.