Everybody loves free stuff, which is one reason the average American household participates in a whopping 18 consumer rewards programs. But while more companies are offering points, miles and cash-back rewards than ever, that doesn’t necessarily mean each of those 18 is worth a spot in your wallet.
No one tracks exactly how many companies offer such loyalty programs, where customers get discounts or bonuses for shopping often, but experts agree they are multiplying. Once primarily the domain of the airlines, now customers can expect rewards offers from boutiques, department stores, pharmacies, and even their bank. In the past year alone, Delta Air Lines, Virgin America, JCPenney, GameStop, Rite Aid and others have rolled out or expanded their programs. “More companies are relying on these programs to compete,” says Kelly Hlavinka, managing partner at Colloquy, which tracks loyalty programs.
For the companies, certainly, the rewards can be potent. In order to earn rewards, customers must first spend money – in some cases, a lot of it, notes Brian Sozzi, a retail analyst at Wall Street Strategies. Women’s retailer Chico’s, for example, starts offering discounts after customers spend $500. In other cases, the loyalty programs act as a lure: With health care costs rising, more pharmacies are offering points for prescriptions – and betting that consumers who take the bait will shop for their other needs there as well, says Hlavinka. Others are responding to new market pressures. After the recession, many consumers turned to big box discounters, and to win them back, some department stores increased discounts and coupons within their loyalty programs.
For their part, consumers have happily signed up: In the aggregate, U.S. consumers now hold about 2.1 billion memberships, up 60% since 2007. And they’re responding just as companies have hoped they would. About one third of consumers are more likely to shop with a retailer because of a loyalty program, according to a study by business consulting firm CrossView. (Plenty also have brand allegiances even if a loyalty program doesn’t exist, especially with high-end products.) But, notes Rockwell Clancy, vice president of financial services at J.D. Power & Associates, that loyalty may be misplaced. Consumers will often pay higher prices, or stick with a service that’s unsatisfying, simply because they’ve started earning points. “These are often hostage programs,” says Clancy.
Read the full article here.