Cashing in on reward cards
Thursday, 12 February 2009 12:47
Loyalty schemes are growing in popularity as consumers cash in on points to gain rewards.
The downturn has encouraged consumers to make the most of their money by taking advantage of discounts by becoming members of loyalty schemes, offered by credit card providers and retailers.
Sarah Routledge examines an emerging bonus point culture and looks at how it can benefit you.
Customers can redeem points accrued in these schemes for a wide range of discounts on grocery shopping, days out and flights.
Airline Virgin Blue is even offering the chance to win a trip into space for point-earners.
Although most loyalty schemes will not take you this far, they can certainly help with the costs of day-to-day living.
Points become popular
In these uncertain times, consumers are taking a different attitude to credit cards. Figures from the British Banking Association (BBA) show in December, £200 million more was paid off on credit cards than put on, sending net lending into negative figures.
As cheap credit runs out, consumers are looking for other benefits to carrying plastic, leading to a surge in consumers claiming reward points.
John Lewis & Waitrose partnership cardholders claimed £23.3 million in reward vouchers last year - significantly up on the £19.8 million issued in 2007, John Lewis says.
The card offers two points for every £1 spent in John Lewis and Waitrose stores, and one point for every £1 spent elsewhere. Every 500 points is worth £5, which are turned into vouchers to be spent in John Lewis and Waitrose outlets.
"The fact that such a high number of the vouchers awarded to partnership card cardholders have been redeemed shows that partnership card is offering a service that's highly relevant to customers, particularly in the current environment," John Lewis & Waitrose director of card services, James Furse, says.
"The high redemption rate of the reward vouchers in 2008 highlights the extent to which consumers are now committed to making the most of discounts and reward schemes to help ease their financial burden."
Mr Furse says while in the past there has been a small segment of the market reluctant to make use of discount vouchers, they have now become "mainstream" and an accepted currency among customers.
Several other stores operate similar schemes, including rival Marks & Spencer which offers one point for every pound spent in store and a point for every £2 spent elsewhere.
M&S converts 100 points into a £1 voucher and sends these out four times a year.
Airmiles, the British Airways-owned travel rewards scheme, has also seen an uplift in customers collecting points.
Andrea Burchett, director of relationship marketing and insight at
Airmiles, says: "In this tough economic climate people are looking for ways to make their money work harder for them and get the best value. Loyalty schemes are ideal for making your money go further."
According to an Airmiles survey, 96 per cent of Brits are already a member of a loyalty scheme and two thirds say they will take advantage of more loyalty schemes this year to help stretch out their wages.
Nearly half of those surveyed (41 per cent) said that holidays, free flights, and days out rewards will be most valuable.
"We predict that some members who may have forgotten about their Airmiles balance will return to the scheme and more members will join up in 2009 as they see the benefit of getting free flights and other travel rewards just by everyday spending," Ms Burchett adds.
Lloyds TSB offers a credit card - and even a mortgage - enabling consumers to collect air miles, while points can be gained by shopping with several partners. More information on the scheme can be found here.
Who do they benefit?
"Generally reward cards are more suitable for people who are paying off their balance in full," advises Samantha Owens, spokesperson for Moneyfacts.
"If you are the kind of person who pays off in full, these are the best kind of cards as they provide something for nothing."
Moneyfacts recommends tailoring your choice of card to suit your lifestyle - so if you do most of your shopping at Sainsbury's for example, a Sainsbury's card is most likely to benefit you.
"But there is nothing stopping you from having more than one," Ms Owens adds.
Once you have chosen a reward card, it is important to keep an eye on its benefits as you use it, Moneyfacts advises.
Ms Owens says: "Companies can change the points they award on cards, so make sure you are still getting the best deal."
Reward cards are not suitable for everyone, however. They come with "middle-of-the-road interest rates" Moneyfacts points out, so bear in mind these cards are really only for making purchases rather than using for a balance transfer.
If you are not sure you will be able to pay the balance off in full every month, you could end up losing any benefit from saving money by paying more in interest.
Maximising your points
Not only are more shoppers choosing to earn points through shopping by taking out a reward card, they are also making the most of how they spend them.
Nectar director Jan-Pieter Lips says: "We've seen an increase in applications for the Nectar credit card recently. All the evidence we are picking up from our customers and market research shows people are focussing on their loyalty programmes.
"We are also seeing people use their points in more considered ways."
Rather than simply using their points to get small discounts on their grocery shopping, consumers are becoming more creative, Mr Lips says, and saving them up to significantly reduce the cost of their Christmas shop.
Customers are also finding they can make their points stretch further by choosing what they spend them on carefully - many find spending their points on a DVD rental from Blockbuster rather than getting money off on their grocery shopping represents better value, Nectar says.
"If you make the most of it, it's much more rewarding," Mr Lips explains.
"If you use your Nectar card with a Nectar credit card, you can double the points you earn."
The scheme has also expanded its list of partners, with Nectar eStores, an online shopping portal. Nectar points can now be earned on purchases from over 200 online retailers including Amazon.co.uk, eBay.co.uk and play.com accessed via nectar.com.
"People are getting smarter and getting the right reward," Mr Lips says.
Using a Nectar credit card to build up points quicker and saving them for bigger rewards can pay off, according to cardholder Simon Murray.
Simon, 30, says: "The main thing I use it for is money off hotels and travel. I recently got a 15 per cent discount off a hotel for a weekend in Paris, which got me £150 off the bill.
"So rather than getting £2.50 off my grocery bill, I try to use it for things like that and really get my money's worth."
According to Simon, it only takes a couple of months to build up a significant number of points if you use both cards for day-to-day spending.
"If you don't pay off your credit card every month, you should think about the interest rate - but if you do, it is worth getting something for nothing. The points stack up quickly," Simon adds.
As money becomes tighter and consumers find cheap credit has run dry, reward credit cards seem set to become more popular.
Provided you can be sure you can pay off your bill every month, these cards could help consumers keep many of the luxuries they might otherwise have given up.
Sarah Routledge
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