It is not often that you get something for nothing, but when retailers, banks and other businesses really want your business, they are often prepared to give you something back to thank you for your business. This is known as a loyalty programme.
From a business point of view, the aim of a loyalty programme is twofold. First, it is to encourage you to spend your money with them rather than with their competitors, and second it is an opportunity for the business to really get to know your spending habits. The better the marketing department of a company knows its customers, the more accurately it will be able to tailor its marketing strategy to gather and use customer purchasing data to attract, retain and grow its customer base.
Once you have joined its loyalty programme, the company hopes that the benefits of belonging to it will entice you to place the majority of your business with them and be less concerned about the price or benefits of products offered by competitors.
Depending on the programme, you may be able to spend your loyalty rewards on fuel, groceries, luxury items or lifestyle purchases such as travel, accommodation or spa packages. Other programmes may offer you cash-backs, discounts, gym memberships, frequent flyer miles or the use of facilities such as airport lounges.
Not all loyalty programmes are the same, and it is important for you to understand how a programme works before signing up. It is also important to evaluate how the rewards can be earned and spent and whether they expire after a certain period. Often there are no explicit direct costs to the user, whereas in some schemes there are up-front joining fees, monthly or annual membership fees, and other hidden costs. There are often tiered levels of membership where the real rewards only kick in at a higher level of spend. At the entry level, the benefits on offer may hardly be worth the effort and cost associated with being a member of the scheme.
Loyalty programmes have been responsible for changing the way people exercise, the way they drive their cars and how and where they spend their money. It is estimated that there are more than 100 loyalty programmes in South Africa with over 10 million South Africans belonging to one or more of them. The benefits or rewards are not taxed in South Africa, as they are currently regarded by SARS as a type of “discount” offered by the provider.
A loyalty programme is never “free” as the cost of the programme is inevitably built into the cost of doing business. Participants subsidise these programmes and those who choose not to participate will be losing out if they do not take advantage of the built-in benefits when shopping, banking, booking flights or doing other day to day transactions. This may be as close to a free lunch as one can get!
Rands and Sense is a monthly column, written by Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth. His Financial Planning Office number is 046 622 2891