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.
Still, savvy consumers can save hundreds of dollars a year with loyalty programs, says Hlavinka. Despite cutbacks that have sullied the reputations of loyalty programs over the years, more companies are now making it easier to save by eliminating expiration dates on points like Delta did last month or rolling out more cash-back rewards, like Bloomingdale's did over the past year. These programs are free to enroll in and most aren't pegged to a credit card. Of course, for savings to materialize consumers must be buying things they actually want or need, rather than just buying to rack up points, she says. But if that's the case, we found loyalty programs in six categories that are truly rewarding so you can ditch the other 12.
For years now>, many frequent fliers have been frustrated by blackout dates, rising rewards thresholds, and limited seat availability. But as corporate travel dropped during the recession, some airlines expanded their loyalty programs to hold onto leisure travelers. The tactic worked: Airline loyalty memberships have grown by 17% since 2009, according to Colloquy.
The most generous don't require members to spend thousands of dollars to earn a free ticket and let members redeem points for seats on any flight. Other perks to look for include upgrades to first class and access to VIP airport lounges, plus the ability to use rewards points for hotels, car rentals and cruises, says Jay Sorensen, president at IdeaWorks Company, a consumer research firm.
Members of Virgin America's program can get a free seat after spending at least $500 on airfare less than the cost of two average round trip tickets. And as of this month, some members in Southwest's loyalty program can qualify for a free seat after spending $1,000 less than the cost of four average round trip tickets. But both airlines serve small markets within North America. And Southwest's program has come under fire from customers who can't retrieve their rewards information, which a company spokesman says it's addressing.
Overall, the biggest drawback with airline rewards is that consumers neglect to comparison shop between carriers for the cheapest flights and instead book a pricier flight just to earn the points. Travelers who aren't loyal to one airline can sign up for an alliance program like Star Alliance or SkyTeam, which include about 26 and 12 airlines, respectively, that travel to nearly every country. Each airline sets the threshold for redemption, though, so in some cases what might get you a free seat on one airline won't necessarily get you where you want to go.
For free nights>, some of the most generous programs aren't based on points and aren't tied to any hotels. Instead, they're available at discount travel sites, like Hotels.com, which gives a free-night voucher to rewards members who book 10 nights through its site. Hotel guests receive a credit equal to the average amount of money they spent on previous hotel stays, and they can use it at more than 65,000 hotels. But choose a room that costs less than the credit and the remaining credit amount is lost.
At the same time, many hotel rewards programs are also extending their reach to include properties with different price ranges in many countries: InterContinental's program includes Crowne Plaza and Holiday Inn. Members who spend at least $1,000 can get a free night; that's the lowest of all major hotel chains, says Hlavinka. For consumers who travel mostly within the U.S., Stash Hotel Rewards launched last year and members can earn a free room with at least 3,800 points, or $760. Around 120 independent hotels participate in the program. That's not many there's no participating hotel in Las Vegas, for example, or Dallas or Philadelphia -- though the company says it's expanding its offering, says a spokeswoman.
Casinos are now expanding their rewards programs too -- guests are more inclined to spend money playing poker if they can end up with a free room, says Hlavinka. The most generous allow players to receive points for all gaming not just slots and to redeem on expenses including rooms, dining and entertainment. MGM M Life players club, which launched in January, offers these options in Las Vegas, Detroit and Biloxi, Miss. points earned at one casino are transferrable to other locations. And Harrah's Total Rewards is used in casinos in about a dozen U.S. cities and abroad. The programs are free to participate, but the cost may still be too steep for some: They require gambling, which comes with its own risks.
Clothes and Shoes
Clothes and Shoes
Walk up to> a register at most retail stores and chances are a salesperson will pitch the company's loyalty program. Retail rewards account for 40% of all loyalty memberships, up from about 29% just two years ago, according to Colloquy. More companies are promoting them to customers as they face competition from discounters, says Hlavinka.
The best programs for consumers are roughly equal to a steady 5% to 15% discount. At shoe retailer DSW, customers get a $10 certificate for every $150 spent on regular-priced merchandise. At women's retailer Chico's, it's a 5% discount after spending $500. At Chico's, 90% of sales come from customers in the loyalty program though Robert Atkinson, vice president of investor relations says its objective isn't to make them spend more than they intend.
And while higher-end retailers often reward loyal customers in other ways, offering sneak peeks at new collections for example, Bloomingdales and Saks Fifth Avenue roll out seasonal rewards programs that give shoppers store gift cards for every few hundred spent. At Saks shoppers could earn $450 for $3,000 of purchases equal to 15% cash back. (Some high-end brands, like Chanel for example, are excluded.)
With gas prices> up 13% in the past month, consumers won't find the most generous rewards at gas stations. Instead, supermarkets that sell gas tend to offer the best deals for frequent customers. Those who use the store's loyalty card free to sign up for -- earn points for in-store purchases that can be used for a discount on gas. At Kroger, drivers could get up to 40 cents off per gallon; Giant Eagle and Safeway offer up to 10 cents off the gallon. On a 25-gallon fill-up, that could be a $10 savings. Still, these programs can kill a consumer's instinct to comparison shop, which means they could end up paying more for grocery items that could be found cheaper elsewhere just to earn the points for discounted gas.
Aside from supermarkets, loyalty programs that help consumers save at the pump are limited to credit cards. The most rewarding are pegged to specific gasoline brands, according to CardHub.com. Cards from Shell and BP offer 5% rebates or 20 cents off gas at $4 per gallon. Drivers who aren't loyal to a gas brand might consider Capital One's No Hassle cash rewards card, which offers 2% cash back for gas purchases at any station. Credit card issuers can offer these rewards because gas stations pay larger interchange fees than other retailers, says Odysseas Papadimitriou, CEO of CardHub.com.
But consumer advocates encourage consumers to be especially careful with these cards. The interest rates can be up to 24% -- which will eat away at that gas savings if you carry a balance. One strategy: Swipe for gas only, and pay the balance in full each month.
Even banks have> gotten into the rewards game, offering consumers cash-back for debit card use for now. There's no telling how much longer these programs will exist. Many banks have cut back on rewards and more could follow, says Greg McBride, senior financial analyst at Bankrate.com. That's partly because the Durbin amendment to the financial reform bill goes into effect in July and limits how much banks can earn when shoppers use debit cards. Already in February, Chase, whose 3% cash-back debit card was one of the more generous options, closed the program to new customers.
For now, the best rewards are 2% cash back for debit-card purchases, though there are often conditions attached. Online bank PerkStreet Financial offers that rate, but only for non-PIN swipes and a $5,000 minimum balance in a 0% interest account. To break even, debit-card users would have to swipe for $250 of purchases each month to earn about the same if they left $5,000 in a high-yield savings account at today's rates. (The bank offers 1% cash-back for customers with lower balances.)
In lieu of cash rewards, other companies give by not taking, eliminating ATM fees. Customers with a checking account at Charles Schwab or Fidelity get reimbursed for fees charged by ATMs, which could be as much as $230 a year, according to calculations based on data from the TowerGroup. But if customers overdraw, the company might take the amount of the overdraft from cash or money market mutual funds in their brokerage account.
Consumers on average> pay $29 in co-pays for each prescription, according to the Kaiser Family Foundation. That's up 76% over the last decade, and rising, experts say. That money should get you something, and in limited instances it can: at Rite Aid and CVS, members of the stores' loyalty programs earn points for all purchases including prescriptions, which can then be applied to discounts on non-prescription goods. (Other drugstores exclude prescriptions from their in-store loyalty programs.) At Rite Aid, customers can qualify for free cholesterol and glucose screenings.
Health-related rewards programs are also growing among employers. About 43% of employers with at least 10,000 employees offer incentives including lower premiums -- to employees who participate in weight loss programs, smoking cessation initiatives or other health programs, according to human resources consulting firm Mercer. That's up 7% since 2009. And consumers who've purchased private health insurance policies can get discounts on gym memberships, weight loss programs and even yoga classes, says Russell Robbins, a senior clinical consultant for Mercer. Aetna and Cigna offer policyholders up to 30% off Jenny Craig, NutriSystem and some health books.
Correction: An earlier version of this story misstated how much a customer would have to spend with a debit card to make up for lost interest with the Perk Street Financial cash-back rewards program. Also, details about Bank of America's Keep the Change program have been removed from this article.