Where rewards are concerned, it pays to read the fine print and understand exactly how the program you're signing up for works. It also pays to be a smart shopper instead of relying too heavily on your rewards card to save money.
About 75 percent of U.S. consumers belong to one type of rewards program or another. Of the top retail programs, grocery rewards were among the first to gain widespread acceptance in the U.S. If you shop for food, chances are you have a grocery rewards card. You probably also recognize some of the pitfalls of relying too heavily on one card for all your groceries. Here's why: Most of the major chain grocery stores offer rewards cards, but many bargain grocers and independent markets don't. There's a good reason for this. Major chains offer really good advertised discounts, but their regular prices can often be higher than those of the discount markets. Discount markets operate on lower margins, so they may not have dramatic advertised bargains, but they can have lower everyday prices on many of the items you buy most often.
If you're a loyal chain grocery store customer, you're saving big on the loss leader items (products sold at little or no profit to attract business), but unless you're careful, even with your rewards card discount, you may be paying more for regularly priced goods. The quick fix is to shop your purchases among a number of markets, and maintain rewards cards at more than one store. Take advantage of sales, but shop the best price for other merchandise wherever you find it. Of course, you may be reducing the volume you purchase at any single store and could lose out on a great coupon for your next coffee purchase or holiday ham, but that's the risk.
There may be other risks, too. When you give out information on a rewards card application, it may seem pretty innocent, but after you start buying goods from that retailer, there's an excellent chance it's keeping close tabs on what, when and how much you buy. If you receive an e-mail containing a cat food coupon just when you need a case of kitty's favorite dry food, don't be too surprised. If the goods in question happen to be tissues and vitamins, there's probably nothing to worry about, but do you really want everything you buy listed in a database somewhere?
Sure, discount coupons are great when they're for things you'd buy anyway, but what happens when you start getting other kinds of discount offers -- like for lingerie (from that specialty store rewards program), or expensive imported chocolate (from that high-end department store rewards program). If those items are guilty pleasures you're trying to control, are the offers helping or hurting your budget? Rewards programs encourage you to buy, even when making additional purchases isn't necessarily in your best interest. Retailers can use the information they garner from your buying habits to pressure you when and where you're the most vulnerable. Of course, the quick fix for this is to stick to a budget and resist the urge to splurge. Rack up rewards points buying items you really need, and then splurge after you have a store rewards credit in hand.
We should add one last important note, here. Rewards programs can take some time to manage. Some involve points that accumulate when you purchase certain things or spend a specific amount within a particular timeframe. The rewards themselves may be store credits that expire or begin to decrease after so many days or months. Whatever the specifics, rewards that aren't limited to immediate register discounts should be monitored closely, and the more cards you have, the more administration is required.
As an example, if you're planning to buy tires, the price at the local big box store may be a little more than what's being offered at the auto store down the road. The purchase may put you over the yearly buying requirement for a 5 percent rebate on your big box rewards card, though, essentially paying back the membership fee and adding a tidy profit, too. It pays to understand how each rewards card works to help you recognize where to make the best use of your buying power.
- Aaronson, Jack. "Reward Programs: Common Strategies." 6/3/05. (9/26/11). http://www.clickz.com/clickz/column/1698314/reward-programs-common-strategies
- Consumer Reports. "Loyalty Programs That Pay." 7/2010. (9/26/11). http://www.consumerreports.org/cro/2010/07/product-loyalty-programs-that-pay/index.htm
- Consumer Reports. "Plastic That Pays You." 6/2010. (9/26/11). http://www.consumerreports.org/cro/2010/06/plastic-that-pays-you/index.htm
- First Data. "Grocery Rewards Programs - Consumer Insights." 2007. (9/26/11). http://www.firstdata.com/downloads/thought-leadership/fd_groceryrewardsprograms_research.pdf
- Holmes, Elizabeth. "Why Pay Full Price." The Wall Street Journal. 5/5/11. (9/26/11). http://online.wsj.com/article/SB10001424052748703834804576301221367302288.html?mod=WSJ_hpp_MIDDLE_Video_Top
- Hunt, Mary. "Understanding Rewards Programs." 6/17/10. (9/26/11). http://www.womansday.com/Articles/Life/Money/Understanding-Rewards-Programs.html
- Tuttle, Brad. "Retailer Loyalty Reward Programs Mean Never Having to Pay Retail." 5/5/11. (9/26/11). http://moneyland.time.com/2011/05/05/retailer-loyalty-reward-programs-mean-never-having-to-pay-retail/
- Worthington, Steve. "The hidden side of loyalty card programs." Monash University Josh Fear, The Australia Institute12/2009. (9/26/11). http://www.buseco.monash.edu.au/centres/acrs/research/whitepapers/hidden-side-of-loyalty.pdf