I feel neutral to negative on the topic of rewards credit cards. I believe in keeping my finances idiot-proof — that is, as simple as possible. I know I’m more likely to make good financial decisions when they’re not motivated by something external such as earning a few points here or there.
So you may not be surprised to hear that I’m not a big fan of customer loyalty programs either.
These are the incentive programs that your grocery store, coffee shops, airlines and hotels are always asking you to sign up for. They may be as small as a punch card at the local coffee shop or as big as a “platinum level” travel rewards program that requires you to spend hundreds of dollars a year.
As the technology website PandoDaily has reported, the average American household has 18 loyalty program memberships, of which fewer than half are active; these carried a combined $50 billion in cash equivalent “points” in 2010.
Here are five good reasons to put all of those punch cards and key fobs back in your junk drawer:
(1) They can lead to signing up for too much credit.
During back-to-school shopping, you may have faced multiple offers to sign up for a store credit card in exchange for a 10 or 15 percent discount. But having too many credit-card accounts can just get you deeper in debt in the long run.
(2) You may buy things you don’t really need, just to get points.
Corporations structure rewards programs carefully, like a game, with multiple points, and levels like gold, silver and platinum. There is an entire science devoted to creating “illusory progress.”
They are using basic psychology to get you to buy their products even if you don’t need them, just for the short-term pleasure of building up points and reaching new rewards levels. The biggest offenders are probably warehouse grocery stores, which sell food in such large amounts that much of it ends up wasted.
(3) You stop comparison-shopping when you take your business to just one company.
The marketing wizards don’t offer loyalty programs just to thank you for being such a good customer. They want to ensure that you automatically choose their car rental company, pharmacy or grocery store without hunting around first to see if you can get a better price. The “lock-in” effect makes people into less effective shoppers, and it is the retailers, not the customers, that benefit from that.
(4) You will be the target of nonstop marketing efforts, junk mail, spam and maybe privacy violations.
Privacy considerations have been very much in the news lately, but it’s not just on the Internet that you have to worry about computers tracking your every move. Keep in mind that when you sign up for a loyalty program, you are voluntarily handing over vital personal information. With the use of that little key fob in the checkout line, a company like Starbucks has the ability to track everything you’ve ever purchased and use that information to market to you in the future or even sell it to other marketers. That means more spam, junk mail and telemarketer calls for you.
(5) Businesses that don’t offer loyalty programs are often better businesses.
In a recent article in Slate magazine online, Brian Palmer pointed out that loyalty programs thrive in markers where there are very few important differences among competitors, such as your average chain grocery store. By contrast, Palmer argues, Whole Foods and Trader Joe’s don’t have any loyalty programs. They inspire loyalty the old-fashioned way: quality, service, selection and, in the case of Trader Joe’s, low prices.
Anya Kamenetz may be contacted at firstname.lastname@example.org.