I've always wondered what's behind loyalty programs that offer discounts to keep you shopping at your local grocery store or help you rack up frequent flier miles with every credit card purchase. Call it consumer paranoia or just plain curiosity, but I've wanted to know why retailers use the programs. Do they really get more loyal customers? A recent article in the Wharton School's online business journal, summarizing the research of some University of Pennsylvania marketing and operations experts, answered some of my questions.
Much ado about nothing?
For example, loyalty programs don't appear to do much for retailers. Many set up them up simply to keep up with the competition. Grocery stores, for example, benefit little. Most people who shop at more than one grocer simply keep discount cards for each.
At my most paranoid, I imagine my local drugstore using information gleaned from purchasing cards to create an FBI-style dossier on my toothpaste and shampoo preferences. In actuality, the professors said many retailers have a hard time using all that consumer information to their advantage or to target their customers more effectively.
Rewards you really want
Not being accustomed to the posh, posh traveling life, I've also wondered why it's so easy to find rewards programs that shower you in hotel points and airline miles but make it hard to earn points toward everyday items. I'd be much happier if Starbucks
It seems that airlines and hotels can easily give away space that would have otherwise gone empty. Their cost to fulfill your reward doesn't hit them nearly as hard as it would for stores to give away their inventory, a more expensive proposition.
Use it or lose it
Some research shows I may be skeptical about reward programs simply because I've never really cashed in. It appears that people who have redeemed a reward appear more motivated to keep up the success than those of us who decide we just can't be bothered.
Evidently, I'm a slacker. Give me the immediate gratification, or just plain old cash back, thank you very much. That doesn't mean you should follow my lead. Plenty of people have made a profitable science of finding, stashing, and using rewards.
Our very own Tim Beyers has an ambitious plan to take a first-class overseas vacation in 2012, all on someone else's dime. He has a detailed plan and strategy mapped out that can tempt even the slackers among us. He's an expert, and he's done it before, having already financed a 12-day trip to Europe and Africa.
Avoid the point trap
To succeed at the rewards game, you'll have to be vigilant against spending money you otherwise wouldn't just to cash in on a reward. You'll also have to spend some time getting to know the details of the retailer's many temptations. Look around at the places where you're already a loyal shopper. See if you can win rewards just by signing up for the program and without changing your habits at all.
If you're looking to play the travel game, you'll need to spend some time looking for credit cards and retailer partnerships that help you rack up those points. If you have a goal in mind, you might find it easier to pick programs that work most profitably for you. Then, you'll need to invest some time tracking your earnings.
For more on rewards programs and how best to use them, stay tuned for the May issue of Motley Fool Green Light, where you'll get Fool expert Dayana Yochim's take on making the most of credit card points and other rewards programs. Sign up for a 30-day trial now and get caught up on all the rewards Motley Fool Green Light has to offer.
You can also get some more opinions and tips on reward programs in these other Foolish articles:
Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. Starbucks is a Stock Advisor recommendation. The Motley Fool has a disclosure policy.