Consumers Missing Out On Their Just Rewards

Newcastle Herald

Thursday November 6, 2008

By LESLEY PARKER smh

THE benefits of rewards programs can be modest at best. It's important for consumers to weigh up a mix of factors before signing on to a scheme that suits them.

Consumers making Christmas gift lists and summer travel plans on tightened budgets amid their own personal credit crunch stand a good chance of being bitterly disappointed if they turn to rewards programs for help.

Research shows the benefits of such schemes can be modest the equivalent of a 1 per cent discount, on average for general rewards schemes and in some cases illusory.

Rewards schemes are in the midst of a significant revamp, becoming financial products in their own right as businesses selling everything from cornflakes to designer fashion seek not only to repay customer loyalty but to extract further profits.

According to research by Cannex, you have an even chance of losing money on a general rewards program (it analyses frequent-flyer programs separately) if you spend $1000 or less a month on your card.

Of the 80 general rewards programs it analysed 41 had a negative "net reward return" after fees if you spent $12,000 a year. For these people, it cost 39 cents a year on average to belong to a program.

If you spend $24,000 a year on your card, you are more likely to move into positive territory, with an average reward return of $91.

At $60,000 a year, you're the sort of spender businesses want to court, and in this category the net reward return spikes to $360 a year. However, all these returns are before any hidden costs.

Encouraged to shop in certain places, to earn general rewards or frequent flyer points, you may not be getting the best possible price. And by using a card you may miss out on a discount for cash.

A spokesman for consumer group Choice, Christopher Zinn, points out that "the perception of something for nothing is a very powerful one".

You may even end up going deeper into debt over time, lured by the prospect of more points.

"[These programs] are allegedly to reward loyalty but of course they're also to stimulate us to spend," Zinn says.

The principal of MWE Consulting and a former senior manager of ANZ's credit cards business, Mike Ebstein, says rewards programs have diminished in value over the past decade. They're much less straightforward than they were and you're no longer assured of earning one point for every dollar spent.

The first question to ask yourself, Ebstein says, is how much you spend "because unless you spend a fair whack, you're better off not getting a rewards card".

Cannex analyst Frank Lopez says a return of less than 1 per cent means you shouldn't be changing your spending habits in order to earn points.

"Would you go out of your way to shop for a 1 per cent discount?" he asks.

Even with the Myer Visa card, which has the equivalent of a 3 per cent discount, he says the return is hardly "life-changing".

Another question to ask yourself is whether you have the discipline not to ramp up your spending just to obtain reward points.

"It would be irresponsible consumer behaviour to increase your overall spending simply to get reward points," Ebstein says.

"However, it would not be considered irresponsible to change your payment behaviour."

For example, you might spend $50,000 a year on household items, half in cash, half on your card.

Then there's the issue of whether you'll actually get to use your points. How many points do you have to accumulate before you earn the reward you want?

SMH

© 2008 Newcastle Herald

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