Rewards Schemes - Are They Worth it?
The second thing I discovered is that it would seem loyalty cards work - for retailers. When Shell became a Fly Buys retailer in the 1990s they were number three in the market behind Mobil and BP. After joining the Fly Buys scheme, they steadily climbed over five years, to be number one. It seems people will go out of their way in order to avail themselves of a rewards scheme.
Now, many who read this will say, “That’s okay. I only use my card to buy things I would have purchased anyway, from the store I would have purchased them, and so the points are a bonus.” And, if that is the case, then they are indeed a bonus. But not all people treat these schemes in that way. For instance, on the Fair Go programme the interviewer spoke to a senior lecturer at the Auckland University School of Business. He talked about the way people responded to such lures as a triple Fly Buys promotion at their local department store. People will flock to them to buy goods because of the extra points.
But is it worth it? Let’s say you purchased an item worth $500. Remember we had calculated that you receive about 90 cents per $100 spent? Well, you would gain 5 times 90 cents, tripled. Hence, you would normally have gained $4.50 worth of purchasing power, but because it was a triple points promotion, you’d get $13.50. Even during a triple point promotion, you gain the equivalent of a 2.7% discount.
And that’s the important point – if you could get that $500 item from another store for $486 or less, then you are saving money to forego your points and buy from the other store. And that is with TRIPLE points. Without the promotion you are saving only about $4.50 or 0.9%.
This is even more critical if you are one of the many people who will go to a more expensive grocery store to do your weekly shop because you get points there. You are saving less than 1%.
What this means is, customers should calculate the savings they will make or value of the gifts they will earn through rewards schemes, otherwise they could be wasting money. If you really want to save points to gain an overseas holiday, it may be quicker to purchase goods elsewhere and put the cash you’ve saved into a high earning bank account.
Here’s a few other things I learned;
►At least a third of all the points earned by New Zealanders are never claimed. Often this is because the points expire before they can be used – Fly Buy’s expire after three years and One Card after six months. Sometimes it is because people forget to use them.
►The biggest thing I learned, though – like I already said, it pays to shop around. Chances are, you can save money by going to a retailer that may not offer points, but sells the goods cheaper than the stores that belong to loyalty schemes.
►Very few consumers have worked out the true value (or lack of) of these rewards schemes. For instance, Consumer magazine warns that shoppers have to spend as much as $4750 to earn a $15 reward through New Zealand's Fly Buy’s. That's the expense required to rack up 95 Fly Buys points and that's enough points for a fitness DVD similar to titles available on the Internet for $15.
►If you do use Fly Buys or One Card, link all the accounts in your house – that way all your purchases are combined and points accumulate faster.
►If you are committed to a reward scheme such as these, it pays to check out the various promotions and bonus schemes attached to each one. For instance, by using a Fly Buys-earning credit card at a Fly Buys-earning retailer you can get double your points.
Click here to read our article on The Importance of Saving.