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The pitfalls of loyalty programs

The pitfalls of loyalty programs

Loyalty programs can be a helpful way to save money, but without organisation they can easily blow out.

18 February 2020 · 3 min read

Loyalty programs are generally marketed to consumers as an opportunity to save money on consumer products, access exclusive deals or take advantage of member only sales.

While these are all great perks of loyalty program memberships, they can come at an unexpected cost to you as a consumer and loyalty program member. Here's what we think are the major pitfalls of loyalty programs, plus some insights to help you navigate your way around them.

1. New members > existing members

Ever see a great deal online, only to discover moments later it’s for new members only?

Existing customers and members of loyalty programs usually find themselves missing out on offers that are aimed at incentivising new member sign-ups, with limited offers available to existing members. This is because loyalty programs are happy to give great deals in the short term to new sign-ups, as they have the potential to become new sources of income for the loyalty program business.

To take advantage of deals and offers, see if the loyalty program you’re a member of offers referral incentives to existing members. If they do, you may be eligible to receive deals, offers, store credit or discounts by referring a friend or family member to the loyalty program.

2. Overspending

Spending more than you set out to can reduce or eliminate the savings you would have otherwise made from taking advantage of the loyalty program.

Loyalty programs may incentivise members by offering them deals such as ‘free shipping’ or a bonus item if they spend a minimum amount in one transaction. By doing this, loyalty programs ensure members will shop more often or spend larger amounts than they otherwise would have.

Similarly, offers such as 'buy two, get one free’ are classic examples of marketing that are used to incentivise members or consumers into spending more, while helping clear stock for the business.

In order to avoid being coerced by these deals, it's a good idea to make sure you have planned out what items you will buy before you start shopping. This will help protect you from being drawn into any offers and in the long run will help you save money rather than spending it.

3. Point expiry

Loyalty programs are generally designed to keep members continually spending money with or purchasing goods from the same company.  Some points-based programs may require a member to maintain their existing points balance. In other words, a member must earn points over a set period of time or all of their points will expire.

Like some loyalty program points, gift card balances can also expire.

Gift cards, in our opinion, are the ultimate form of loyalty towards a brand, because the purchaser essentially pays an amount upfront in exchange for the same or more dollar value on a gift card. This gift card is then used to purchase goods or services at some point in the future. Earlier this year, federal legislation was passed to enforce a minimum three-year expiry term on gift cards sold in Australia. Keep an eye on any gift cards you have and when they expire.

4. Point caps

Some loyalty programs may limit the amount of points a member can earn over a specified period. This would be particularly disappointing if members spent hundreds of dollars in one-off purchases and found they had exceeded the cap on points earned.

Check if your loyalty program limits how many points you can earn in a certain period, or if you can only earn 'scaled back' points after a certain threshold.

5. VIP memberships

VIP memberships may be a handy way to save money when you shop, however they can lock you into spending at one retailer. If a competitor of that retailer has a sale, you may be unable to take advantage of it without signing up to additional loyalty programs. VIP memberships generally cost money to join, therefore if you decide to take advantage of competitor sales, both companies have made money from you, costing you more overall and possibly causing you to miss out on savings.

In the end, loyalty programs may vary significantly, so it is important that you read the fine print to understand what the advantages of the program are and how to best take advantage of them. If you’re a member of a loyalty program, make sure you are on top of all the ins and outs.

The information in this article is prepared by Spaceship Capital Limited (ABN 67 621 011 649, AFSL 501605). It is general in nature as it has been prepared without taking account of your objectives, financial situation or needs.

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