Should you participate in a loyalty program? 7 things to consider

By | May 26th, 2011

Whether you’re collecting credit card rewards or frequent flier miles, you probably already know that loyalty programs can lead to compulsive buying behavior.

Question is, should you participate – or shouldn’t you?

Full disclosure: I spend a lot of time covering travel-related issues, and for years, I have been a lone voice in the wilderness warning people against diving headfirst into frequent flier and frequent-stayer programs.

Why? Because at the end of the day, they’re better for the company than they are for you. They also force you to engage in what can amount to destructive purchasing behavior, in a pointless effort to gain coveted elite status.

But instead of treating you to a rant about loyalty programs, I thought I’d ask the experts what you should know before jumping into the loyalty game. Here’s what they told me.

Do the math.
Loyalty program expert Bill Hanifin says you have to run the numbers to make sure membership is right for you. Pay close attention to the rate at which you can earn value in the program, earning velocity and the attractiveness of the rewards.

Make sure it’s the right company for you.
That’s an important, and often overlooked consideration in an era of dominant businesses. “Even if you are earning points, if you don’t like the products or services the company offers, you will eventually switch and take your loyalty elsewhere,” says Shep Hyken, author of the book, The Amazement Revolution. “That means you may lose what you have accumulated.” Better to find a company you like and do business with it, and consider the rewards a byproduct of that loyalty.

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Don’t let it control you.
This merits repeating: “Don’t spend at levels you can’t afford,” says Daniel Olson, a managing director for Wunderman, an advertising agency that manages several high-profile loyalty programs. “Don’t buying things you don’t need simply for the points.”

Make sure the program is listening to you.
A good loyalty program engages its members, says Mark Johnson, President of Loyalty 360, a loyalty marketing association. “I think consumers want and need to have programs that encourage participation and create engagement that leads to loyalty,” he says. “You have to find programs that you want to engage with as much as the brand wants to engage with you.”

Don’t do it if it complicates your life.
Tom Burgess, the CEO of the loyalty program developer Clovr Media, says you should look for simplicity in a program. “For example, adding another credit card or loyalty card to your already full wallet, or adding another step to your transaction or purchase, adds complexity,” he says. “Join the loyalty programs that have a clear focus on making your life easier, while still empowering you to develop a mutually beneficial relationship with your chosen company or brand.”

Read the privacy policy.
That’s the advice of Neil Raphel, author of The Complete Idiot’s Guide to Loyalty Marketing. “You don’t want to be bombarded by third-party advertising,” he says. Trust is important, and the privacy policy is the first indication of whether a company can be trusted. If it isn’t a long-term relationship based on mutual respect, “the point accumulations may become worthless.”

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If you’re an infrequent customer, just say no.
A lot of businesses will pressure you to become part of their loyalty program on your first purchase by offering a discount. It’s a terrible idea, says Michael Zipursky, co-founder of Vancouver-based Business Consulting Buzz. “It probably isn’t in your best interest,” he adds.
Remember, loyalty can be a one-way street. “Just because it’s called a loyalty program doesn’t mean that the company is loyal to you,” says Leslie Kossoff, founder of The Kossoff Group, which advises executives and entrepreneurs. “They want you to be loyal to them so that they make money. It doesn’t work both ways.”

Personally, I’m still not keen on most loyalty programs, even with these expert warnings. A hard look at most of them will reveal they’re intended to turn you into a compulsive customer who is blindly loyal to a company and its products.

And while that may be great for the company, it isn’t necessarily the best thing for you.

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