In today’s “Money Mondays” segment, Mellody Hobson discusses loyalty programs.

Good morning, Mellody. Today on Money Monday we are talking about loyalty programs.

 We are! Last week, Delta Airlines announced that it will change how its loyalty program members accrue rewards, and not only did it got a ton of coverage, but it got me thinking, and it has spurred me to talk to our listeners about the story of the loyalty programs out there, whether they are frequent flyer programs or your local grocery store’s shopping program.

 I have never really thought about these programs. Are they any good?

We have to remember that they are called loyalty programs for a reason – the point is to lure people back and turn people into frequent customers who spend money – they are not there to help you save it. This is why Delta announced the changes to its plan – it was over-rewarding non-loyal customers. They are now going to focus on customers who spend the most money. So it is important to keep that in mind. But it is also important to break it down by how they create loyalty. Airline programs are very different from the one at your local pharmacy – and these differences really determine their value to our listeners.

Break it down for us – the good, the bad and the ugly.

 So here is the deal – the good, the bad and the ugly are really dependent upon how you are rewarded. But I will tell you up front that most of them are bad. However, it is possible to find a diamond in the rough, but they are rare!

Customer loyalty programs seek to hook consumers in different ways, from time-of-purchase discounts or buy-one-get-one deals, to future purchases and points accrual systems. The ONLY programs that are of any value to you are the ones where you save you money at the time of purchase – and these almost only occur at grocery stores or general goods stores and pharmacies. They are worthwhile programs because the rewards are immediate.

Now the bad, and this is a large category. Any program that requires you spend money to save money, or spend money to receive future benefits, falls into the bad bucket. Arguably the original loyalty programs, the frequent flyer programs are the worst. The reason for this is because they are restrictive, future-based rewards that almost always cost you more money in the long term, and this will continue to be the case as airlines consolidate. Delta’s announcement is an admission of that. The problem is that they are based on accruing thousands of miles – each of which is worth less than a cent –in order to MAYBE redeem them for an airline ticket in the future. Additionally, that ticket – or any other redemption of these miles – must be on that airline or their select partners. That is a LOT of restrictions. Beyond that, in most cases you have to pay more for your next trip if you want to accrue those miles on that specific airline, rather than simply taking a cheaper flight! So unless you spend A LOT of time travelling, and someone else is picking up the cost of the ticket, you should reconsider your days as a frequent flier program member. This is the case for any program where you are accruing benefits that are restrictive and future based.

Finally, the ugly, or maybe the risky: Credit card benefits. Unlike the time of purchase benefits at the supermarket or the Walgreens, you aren’t immediately saving money. But unlike those frequent flier programs, if you are smart about it, and you are not restricted to a specific kind of purchase, you might be able to get discounts on purchases or credits to your bill. Some cards also allow you to use your rewards points to pay for the annual membership fee or other fees associated with the cards themselves. However, these benefits are all predicated on being responsible and paying your bill on time. As you have heard me say before, NO CREDIT CARD DEBT.

Beyond saving money, is there a reason for these programs?

For consumers, not really. This is where the frequent flier programs come back in to play. In their case, these programs are no longer about getting free travel, or even discounted travel – they are about achieving certain conveniences. Most of the major carriers have different tiers, which allow may allow you a separate check-in line, it may allow you to choose a better seat or check a bag without having to pay for it, or some other convenience. But most of these conveniences are really only worth it if you are a business traveler, not if you are traveling for leisure and picking up the bill.

Ok, so what is the big takeaway here?

 The bottom line, Tom? I am not a fan of loyalty programs. Sure, some loyalty programs can be good, but it really boils down to the effort required and how they are rewarding you. To save money, you have to be careful in selecting the program. For immediate rewards, such as discounts at grocers, they are probably worth it if they are in your apartment building or somewhere else close by that you return to time and again. Beyond that, they probably are not worth it. Do not sign up for rewards programs that make you spend more to save more, and don’t bank on future rewards. And always keep in mind, every program out there is an effort to make you a loyal customer – so don’t sign up for one if you don’t like the company!

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