Read this before you sign up for a loyalty program

luchnyu/Shutterstock
luchnyu/Shutterstock
For years, consumer advocates like me have been warning consumers like you that loyalty programs aren’t the “win-win” propositions companies claim they are.

To which loyalty program apologists, whose judgment is too often distorted by the intoxicating Kool-Aid of points and miles, countered: Prove it!

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Well, now we have that proof.

A new study of hotel frequent-guest programs suggests that, far from costing companies money, the programs increase their share of room nights by anywhere from 150 percent to 500 percent. Just over 7 of 10 guests purchased at least one additional room night with real money, according to the study by Phoenix Marketing International.

The researchers even came up with a clever catch-phrase for the trap. They called it the loyalty program continuum. (Queue the eerie music, please.)

“As a person moves up this loyalty activity continuum, from becoming a member to being an active member to achieving elite status, the share of room nights they give to hotels in a particular loyalty program increases dramatically,” says Greg Diaz, a vice president at Phoenix.

This was no fly-by-night poll. The company surveyed more than 12,000 frequent-guest program members in 11 countries and measured the impact that the programs have on hotel usage. Its findings reflect other studies, which suggest guests spend an average of 40 percent more on a company when they are active loyalty program members.

Maybe you stopped reading this story when you saw the headline and my name, because when it comes to loyalty programs, you won’t believe a word I write. That’s fine, by the way. I’m an unapologetic loyalty program critic, and you are not my audience, so feel free to click away now.

Everyone else, listen up: Loyalty programs are “win-lose” propositions. Unless you are willing to not just study endless program rules, but to spend hours on end keeping up with the frequent changes, you will almost certainly lose. Here are the areas where they can stick it to you:

You’ll probably spend more than you expect. Several airline loyalty programs now require a minimum spend level per year in order to reach their coveted “elite” status. What do you get in return? Oddly, many of the “perks” you get were given to all customers just a few years ago, such as having your bag included in the price of your ticket (or, as they somewhat dishonestly call it, checking a “free” bag).

It will change the way you consume (and not necessarily for the better). Whether you’re a member of a grocery store loyalty program or a hotel program, membership will almost certainly affect your future purchasing decisions. You’ll give your business to the company, often when it isn’t in your own best interests. This form of blind loyalty is the Holy Grail for programs — making consumers so fixated on earning points that they ignore the fact that they’re buying a terrible product.

They’ll move the goalposts without telling you. Points and miles expire. Rules and redemption levels change. Don’t believe me? Read your program agreement. I hear from unhappy readers on an almost hourly basis who are trying to recover expired points or redeem miles for a ticket they’ll never get. So what is loyalty? It’s whatever a company says it is right now, and tomorrow it may change.

I’m not saying you shouldn’t participate in any loyalty program. Obviously, if you already spend a lot of money with a gas station, bookstore or grocery store, why wouldn’t you also collect some of the perks that go along with being a frequent customer? What I am saying is: Mind the pitfalls. Loyalty programs are rigged to favor the company. They’re designed to manipulate you into spending more and short-circuiting your common sense.

And if you really drink that Kool-Aid, you’ll defend a program when it moves the goalposts and allows your points to expire. Sounds crazy, I know, but watch the comments and you’ll see the apologists line up to tell me how wrong I am.

So now you know that loyalty programs are profit centers for many companies and that they’re designed to turn you into a mindless purchasing zombie.

So what are you gonna do about it?

Who benefits more from a loyalty program?

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