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Use Loyalty Cards.

Please read on.

Sign-up and show your loyalty card at the checkout and you'll collect points which you can use later to buy goods.

A smashing way to save money at your favourite store or the biggest high-street con trick of them all?

Please read on.

There are a variety of loyalty schemes.

From the humble Greenshield Stamp to more recently introduced Airmiles, gift vouchers, tokens of many and various sizes, club cards, Nectar cards, loyalty discounts, frequent flyer clubs, store cards, credit accounts and referrer bonuses, golfing weekends and the hospitality industry. There are many techniques organisations deploy to maximise customer loyalty and to keep customers coming back to the same place.

It generally costs more to persuade a new customer to try you the first time than to persuade an existing customer to return. Successful customer acquisition and retention are essential if you intend to grow a business so it is not surprising so much effort is expended on many and various loyalty schemes.

The aim of loyalty schemes

The central premise of most of these schemes is that loyalty can be rewarded which it is hoped will in some way persuade people to remain loyal. And the more the customer spends, the more points they tot-up, or vouchers they get, so the more the customer saves in the long run. It's like a supermarket saying, "Hey, Mr/Ms Customer, because it costs us half as much to retain you as it does to get a new customer in, we'll split the saving with you as an inducement to stay."

Is it worth being a member of a loyalty scheme?

Hmmm. Short answer: Never.
The actual saving made by the customer, the scheme member, is very small. The likelihood that savings can be made by shopping around, even if you use precious petrol as the transportation fuel, is very high, easily outweighing the loyalty scheme benefit. We all know where the best places are to shop for bargains, or if we don't, we quickly learn. Loyalty is never actually rewarded by organisations because a captive market isn't looking for a cheaper alternative.
This can be seen in banking, with yesterday's headline savings rate becoming today's mediocre rate once enough accounts are opened.
This is seen at retailers, where the trouble of splitting shopping between stores to get the absolute cheapest goods, and of lazily staying with what you're used to, makes loyalty schemes effective.
This is seen in massive state monopolies like British Telecom or British Gas, who have seen customers run away in their thousands to cheaper alternative suppliers, now that the markets have opened up properly. British Gas have lost nearly 450,000 customers between January and June 2005 alone.

If you only have one good value supermarket within ten miles and you only have a cycle for transport, then signing-up is a good idea. If there is a genuine other reason for loyalty, then the scheme could save you money. Do the sums. How much do you spend on groceries each month? How much would the loyalty card save you? You might say that by not going to shop B for a few things and sticking all the time to shop A you might make a saving on fuel, time, loyalty scheme points, compared with the extra cost of goods. See the surprisingly poor percentage return on loyalty scheme purchases in our article of 24.08.04, below.

If an employee has to pay for expenses, which gets reimbursed by his or her employer, it might be worth the hassle to get some kind of cashback or loyalty reward, in a purely personal sense. The incentive to spend at more expensive retailers or hotels is obvious too. But the cost of this kickback is borne by the employer and exploited chiefly by the retailer and lastly by the card holder. Such a use is unethical and still the rewards are very limited. It doesn't make loyalty schemes any better value.

Cashback Credit Cards

As well as conventional retail-based loyalty schemes where the customer signs-up for a membership ID card, there are a variety of credit cards that hand back a percentage of the annual spending with the card at the end of the year. Cash is obviously superior to points because points can only be redeemed for the operating retailer's goods. The best cashback cards are from Abbey, Amex, Bank of Ireland, Leeds and Holbeck, More Than and despite a few very short term introductory rates, they all offer only a maximum 1 percent cashback. Typically, to get this maximum 1%, the card holder has to spend £2,000 per year.

Some cards can better the 1% of these cashback cards, but these restrict the offer to unique retailers. For example, the GM card pays £3 for every £100 spent but can only be redeemed as a discount off a new GM car, thereby locking the customer in with a retailer - a further incentive to spend, this time on a Vauxhall car only. We have read what so-called "money experts" have to say about (loyalty schemes and) cashback credit cards and they all seem to be caught up in the detail of one scheme against another, debating the transparency of cashbacks versus loyalty schemes, glossing over the fact that all these cashback cards are simply awful value and another incentive to spend.

Doubling up the rewards could significantly improve the viability of loyalty schemes: Use your cashback card at Nectar outlets, for example and the reward could be as high as just over 2% The trouble is that people fool themselves: A recent newspaper article quotes a Nectar card user as saying, "It makes you want to go to places you know will give you points - we try to buy our petrol at BP, for example, because we know it will earn us points". These people will seek out Nectar outlets first, cheapest petrol stations second and alternatives to driving the damned car third if at all. "Recently we had reached 100,000 points and we were able to buy a widescreen TV without having to part with any cash at all." Really? These people are saving about 1% on their purchases, which Money Surgery maintains is easy to better by simply shopping around and simply REDUCING the amount we spend. Just by cutting-out unnecessary purchases, a kind-of "think twice" attitude to clothes or CDs, will easily better the rubbish 1%.

To get enough points for a cheap widescreen TV will require a spend of £30,000, but to reduce your spending to £29,000 will mean that you've got £1,000 left over for three widescreen TVs. Don't fool yourselves, Patients - there is no case for loyalty schemes or cashback cards.

The Psychological Incentive To Spend

Perhaps the biggest reason for avoiding loyalty cards, whether you have debts or not, and a big reason for organisations having a loyalty scheme, is that subconsciously you know that the more you spend at Shop A, the more points or vouchers you'll get back. People subconsciously relax and spend more when they are shopping with their credit and loyalty cards. The more you spend, the more you save spend: Unfortunately, every bargain costs money.
Avoid loyalty schemes, Patients, they're the biggest high street con trick of them all.

Please read on.

Be Disloyal

(Tuesday 24th August 2004 news story)

Do you use loyalty cards of the kind offered by supermarkets and big-chain chemists?
Do they save you money?

If you answered Yes, do you know how much money they save you?

We are pretty sure that your loyalty card saves you Nothing, because the more you spend, the more you DON'T save.
At the Surgery, the only cards we advocate are: Credit Cards that offer Zero percent for Balance transfers until your debt is cleared and debit cards.

There has been some advocation of Loyalty Cards by some Money people on the Internet lately but for the most of us, most of the time, they only make you spend more. The most Reward that shoppers get from using their card is 4%, at a well-known chemist. The others offer even less. The "reward" is far outweighed by simply shopping around and getting your goods at other stores like supermarkets or "poundshops" or even through the Internet. Every time you're looking to buy something, sub-consciously you're aware that you "save" if you buy at your Loyalty Card store.

There is also an incentive to build-up your points to maximise your cashback total at the end of the year, or whenever. The stores also use the data collected every time you spend using your Loyalty Card, which can be stored on a database along with your personal details, to maximise their product positioning or to post offers to you that they feel will be most attractive to you. So you spend more again. You don't necessarily save more. You just spend more.
So ask yourself "why should I be loyal?" Big corporate stores who understand the psychology of incentives and the value of customer spending patterns are loyal to their shareholders and increase your debts to improve their profits.
So be disloyal, in the loyalty-card sense. Always shop around for the best prices and the best interest rates.

Cut-out Loyalty Cards, cut-out Debt. Like a Surgeon.

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