Loyalty Points Aren’t Worth What They Used to Be

The more popular they are, points programs become less generous

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Episode Transcript

Speaker 1 (00:00):
Loyalty points aren't worth what they used to be by
Helen Chandler Wilde read by Mara Finnerty. Two decades ago,
Nick Ouin was flying around once a month from his
home in Las Vegas to see his girlfriend, who was
a graduate school in Florida. This was an expensive habit
for two people at the start of their careers, but

(00:20):
there was a solution. Points miles were a great way
to afford it, he says. Owen describes this period as
his introduction to the game of collecting and earning as
many loyalty points as possible. He currently has twenty five
open and active credit cards, each picked for its unique
suite of rewards. He has used points to travel the

(00:44):
world for free, including flying first class on Cathay Pacific
to Bali. He knows of a way to pick up
Delta points at Starbucks. I would guess I'm getting twenty
thousand dollars to twenty five thousand dollars in value in
return per year with points, says Uwen, who now works
advising people on how to use loyalty schemes as senior

(01:05):
editorial director at the website The Points Guy. Loyalty points
have seeped into every area of our lives. You can
collect them on your morning coffee, your commuter train ticket,
your lunchtime sandwich, the spin class you go to after work,
the food you buy at the supermarket, as well as
the flights and hotel for your summer break. Around ninety

(01:26):
percent of British adults are currently collecting points, with seventy
one percent reporting that it was part of their daily routine,
according to a survey commissioned by Virgin Red, and the
number we are collecting is huge. Loyalty points are the
world's third most circulated currency, after the dollar and the euro,
but you're not imagining it. As points proliferated into more areas,

(01:51):
they have also often become less generous. Last year, hotels
dot Com slashed its loyalty scheme, cutting its value from
an effective ten percent of money spent minus taxes and
fees to just two percent. Late last year, British Airways
announced it would overhaul its flying club system to dole

(02:11):
out rewards based on how much a customer spends rather
than the distance they fly, knocking out the possibility of
beating the system by scouting for good deals. Other airlines
have rethought the generosity of their programs too, including Delta,
which said that before twenty ten, ninety percent of seats
in its first class cabins were occupied by people paying

(02:33):
with points or who had been upgraded. Even points on
more incidental purchases have become less generous. British pharmacy Boots
cut down the number of points you earn per one
pound spent. You now need to spend more to unlock
Gold status at Starbucks, rising from the equivalent of one
hundred and fifty pounds to two hundred and fifty pounds.

(02:53):
Flight points are worth much less. Owen's first class trip
to Bali cost one hundred and thirty five thousand points
at the time, but he says a similar journey would
be two hundred and twenty thousand to day. When they work,
companies love points schemes, which create happy and loyal customers
through what is essentially a marketing ploy offering insider data

(03:16):
about client habits. They understand how customers are behaving and shopping,
and they can provide targeted products to them, says Adam Daniels,
chief executive of IAG Loyalty, which runs the Auvio's Points program.
Points can therefore make a sizeable difference to revenue. The
Tesco Club Card, likely the UK's biggest point scheme with

(03:38):
over twenty million members, increase the frequency of visits to
Tesco stores by sixteen percent in less than a year.
Giving a little bit back is worth it, says Jill Doyle,
Managing director of United Airlines Mileage Plus. We want them
to choose United time and time again. That drives long

(03:58):
term value for us. There is plenty of psychology at
work here. Yu'lti, a company that offers loyalty programs, says
that points are a form of positive reinforcement training. Just
like giving a dog a biscuit when it sits, you
train the customer to do what you want, namely spending
money by giving them a little treat when they do it.

(04:20):
That treat could be points or an upgrade to a
higher tier of service, which unlocks our natural desire for
social status. Once you get status, and see what that unlocks,
like extra baggage allowance, that can be a really nice
feeling and it creates emotional attachment to airlines, says UIN.
Customers get a little dopamine hit as they feel like

(04:42):
they're winning or cheating the system and getting more for less,
says Amy Knight, a personal finance expert for the blog
nerd Wallet. The money we put into collecting points also
leaves people feeling locked in. Sure, we might have wasted
a decent chunk of money buying f lights from a
more expensive airline, but will keep doing it anyway, at

(05:04):
least until we've finally reached that promised reward. Another reason
customers sign up for point schemes even when they're not
worth their while is that the promised rewards might look
more appealing from the outside than they really are. Perhaps
your credit card offers thousands of bonus points for new customers,
but what can that be spent on. It's actually quite

(05:27):
difficult to work out the monetary value of points, says Knight.
The process of earning and spending points is almost designed
to be deliberately confusing. She says this can lead to
a phenomenon called spaving, where a customer ends up spending
more than they intended to under the illusion that they're
saving money by earning points. However, all that emotional attachment,

(05:50):
which was so helpful to companies and driving loyalty in
the first place, can create big headaches when companies rethink
their schemes. The British Air Wway's Club overhaul sparked a
major backlash, which eventually led to BA watering down the
plans by making it possible for flyers taking at least
twenty five flights a year to crack into higher tiers

(06:13):
regardless of how much they spent, as well as offering
bonus points for bookings made this year to smooth the
transition to the new program. Our members have a deep
emotional connection with our loyalty scheme and their status means
a lot to them, said Chief Commercial Officer Cullum Lacy
in a statement. To cash in on the hurt feelings

(06:34):
of BA customers, Virgin Atlantic offered them a deal. Switch
to us and will match whatever status you used to
have over there. The company was surprised to see so
much emotional feedback from customers who made the switch, says
Kelly Best, a managing director at Virgin Red. It's a
very emotive subject, she says. Best is herself a megapoints

(06:58):
collector who has hundreds of thousands of Virgin Points. Although
she won't give an exact number, we could holiday for
a while put it that way, She says. Feelings about
loyalty programs are so strong that they sparked an investigation
last year by the US Department of Transportation, which looked
into the evaluation of airline points, dynamic pricing, and hidden fees,

(07:21):
as well as whether the programs were reducing competition. Point
systems like frequent Flyer miles and credit card rewards have
become such a meaningful part of our economy that many
Americans view their rewards points balances as part of their savings,
said then US Transportation Secretary Pete boodage Edge in a
statement announcing the probe. That view is confirmed by Daniels

(07:45):
of IAG, who says he notices customers acting uncomfortable if
they spend through their points on a holiday and often
purchase points to boost their balance again. They see it
a bit as a savings account. They feel uncomfortable if low.
He says, points reward loyalty, But the loyalty of both
consumers and brands has been wearing thin in recent decades,

(08:09):
says Owen, as it has become easier for people to
shop around. Customers need to be program agnostic, book the
best ticket that is convenient and affordable, and not be
too loyal to any one company. He says his family
sits down each year to crunch the numbers on what
they've spent to check that it's all been worth while.

(08:30):
Most of us won't be that diligent.