January 5 2011|01.16 PM UTC

Fonda Chen

The Cost of Being VIP: A Look at Loyalty Programs

Category: Personal Finance, SRTags: , , ,

My coworker’s wallet has a Safeway card, a United Mileage Plus card, a Starwood Preferred Guest card, a Hyatt Gold Passport, a Marriott Rewards card, two “punch” cards for his local coffee haunts — and too many more to count. He’s lugging around two inches of plastic. It’s like in that great Seinfeld episode where George saves one too many Exxon card and his wallet becomes what Jerry calls “morbidly obese” because it packs “more cow” than a burger. In the end, George’s wallet explodes.

Costanza's Exploding Wallet

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Costanza's Wallet Explodes

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In re-assessing what deserves the real estate in my wallet, I’ve started to wonder: can you actually save money with loyalty rewards programs or are they more of a hassle? Let’s take a look at the ideas behind loyalty programs and what they should mean to us.

The Evolution of Loyalty Programs

For nearly a century, American retailers have found increasingly sophisticated ways to gift exclusive rewards, specials, and deals to customers. Originally evolved as a response to the surge in mass-market advertising, loyalty programs target communications with proven customers. “You’re not just any customer. You’re my customer. Stick with me and I’ll treat you right,” they seem to say.

In the 1930s, S&H introduced Green Stamps, which customers collected from participating merchants and later redeemed after the “alternative currency” had attained a certain value. In the 1960s, supermarkets offered discounts without stamps. This cutting of the middleman laid the groundwork for American Airlines to launch its AAdvantage rewards program in the 1980s. American Airlines integrated technology into its rewards program: it tracked the number of miles that members flew and awarded fliers according to their flying frequency (Wharton).

S&H Green Stamps

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Frequent flier programs and similar travel industry initiatives took off. Pair the rewards that members receive with their revenue contribution to the company and it’s easy to see that the company and the customer both win. What’s not to love? Since then retailers of every type, from Neiman Marcus to Godiva Chocolatier, have joined in the loyalty programs trend with their own rewards programs. Developments like electronic cards and e-mail alerts have made taking advantage of exclusive deals much easier, of course. Can you imagine pasting stamps in a booklet or calling Amazon customer service everyday to get updates on their upcoming specials?

Plastic rewards cards give retailers the chance to give better, smarter deals, too. Because customers will want to swipe their rewards cards at checkout to collect points, retailers can track what customers buy and offer better deals on preferred purchases. Tailoring shopping experiences to customers’ behavior and even demographics means more spend and the holy grail of retailers — happy, returning customers.

plastic cards

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In turn, however, we customers lose some of our privacy. Should we care if Safeway knows that we buy condoms, Nicorette, or Diet Coke? For me, I don’t really mind the potential invasion of my privacy since I don’t feel that what’s in my grocery bag compromises me much in the grand scheme of things.

Can These Programs Save You Money — For Real?

Yes, but you have to manage them.

Registration, research, and an organized system for keeping tabs on the latest and upcoming offers are necessary to use rewards programs for cutting costs on purchases. Retailers do want to offer rewards customers who are good to them and keep them coming back, but the rest is up to you. And that labor may be more than it’s worth.

For instance, many a customer has a GapCard. But does every GapCard user know about GapCard 10% Tuesdays, let alone plan shopping dates on Tuesdays to get 10% off purchases?

Southwest Airlines offers Rapid Rewards, which gives you one free flight for every 16 one-way flights you make in a two-year period. An entire plane ticket — for free — sounds great. But before you fly exclusively Southwest and potentially pay more on a flight in an effort to get that freebie, consider if you will you actually fly eight times this year. If not, comparing ticket prices with other airlines would definitely be worth your money.

Those who keep track of loyalty program account numbers, coupon expiration dates, and current points totals undoubtedly reap rewards and cut costs. But like most good things in life, using rewards takes work. VIP status costs you time, energy, and convenience.

And If You’re Getting Tired of All the Work?

You wouldn’t be the first.

More than 75% of today’s consumers have at least one loyalty card and the average US household is enrolled in more than 14 loyalty and rewards programs. But Americans actively use fewer than half of the rewards programs in which they’re enrolled (Entrepreneur).

Getting perks is great, but convenience is king. You wouldn’t go out of your way to get your hands on 10% off your next movie ticket, would you? And instead of patiently sifting through an Entertainment coupon book for deals that look good, wouldn’t you rather the book come automatically sorted with specials from your favorite retailers laid neatly on top? The preferred loyalty reward program is a smart system that uses technology to save the customer from having to take extra steps in the redemption process. Here at BillShrink, we’ve been creating some cool ways to help people save while eliminating the need for those stacks of loyalty cards. (Check out CNNMoney’s article “9 Ways Your Money Is Going Sci-Fi” that shows a preview of BillShrink’s new StatementRewards technology.) We will soon announce partnerships that will offer these hassle-free loyalty programs to people across the country, and we’re excited to tell you more. Stay tuned!

Do you use loyalty cards and love the rewards? Or does their hassle leave a bad taste in your mouth? I’d love to get your thoughts and stories.

For more tips and tricks, please visit our blog Shrinkage is Good. You’ll find articles like
The 12 Biggest Ripoffs in America
20 Tips To Stay Within Your Holiday Budget
Deciphering Durbin, the Newest Card Legislation: Is Your Debit Card About To Be Freed Up from So Many Fees?

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