Rewards Points, Loyalty Programs, Rate of Return On Spending

in LeoFinance2 years ago

Hi there. In this finance post, I cover the topic of rewards points and loyalty programs. There is some mathematics involved.

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Topics


  • Loyalty Programs & Rewards Points
  • How Much To Spend To Redeem Rewards With Examples
  • Notes

 

Loyalty Programs & Rewards Points


The main purpose of these reward programs with the points is to encourage more spending at the same store in order to get rewards. For the business, this is a customer retention strategy in an effort to influence their customers to keep shopping at their stores. For the customer, they earn more rewards which can turn into store credits when they shop at their favourite stores.


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How Much To Spend To Redeem Rewards With Examples


In this section, I cover a few examples of places that have rewards points with the math calculations involved.

Local Grocery Store

Before the COVID lockdown, I lived in a few rentals in the Toronto area for a few years. There was this Korean grocery store that I enjoyed going to for groceries. They had a simple rewards system where the enrollment was free. In this rewards system, every dollar spent in cash gave you 2 points. After 2000 points, you can redeem $20 in store credit in exchange for 2000 points.

How much do you need to spend in order to get 2000 points?

What is the rate of return after paying $1000 CAD?

A 2% return is not great but it is on with no-fee loyalty grocery store card.

 

Nordstrom Rewards Canada

The rewards system for the Nordstrom retail stores in Canada is called The Nordy Club Canada. It is free to join as a member. Regardless of payment method, members earn 1 point for every dollar (CAD) spent. Every 1000 points can be redeemed for a $10 Nordstrom Note. The Note can be spent for online purchases or in stores at Nordstrom locations or Nordstrom Rack Canadian locations.

With 1000 points for $10, the rate of return is 1 percent.

There are also bonus points events throughout the year.


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Plum Rewards Indigo/Chapters

This next example is a bit more complicated. Indigo Books & Music Inc or Indigo is a Canadian bookstore chain. They sell a large selection of books, home décor, stationery, magazines, music accessories and gifts.

They have a rewards system called plum rewards which is free to join. The rewards structure is not that simple as you can earn more rewards with less points depending on the number of rewards points you have. For every 1 dollar (CAD) spent, you earn 5 points. Here is the rewards structure below. Website Source

  • 2500 points for $5 reward
  • 4500 points for $10 reward
  • 8500 points for $20 reward
  • 20000 points for $50 reward
  • 35000 points for $100 reward

 

This rewards system is not as simple as 1 point for $1 since it is 5 points for $1 CAD spent. It just looks confusing and intimidating for many. Let's look at how much spending is required to earn these rewards. I have included a table with the columns for points, amount spend to obtain the points, rewards amount and the rate of return. Note that the rate of return is the amount spent to obtain the rewards divided by the in-store rewards amount.

PointsAmount Spent To Obtain Points (CAD)In-Store Rewards AmountRate of Return
2500$500$51%
4500$900$101.11%
8500$1700$20About 1.176%
20000$4000$501.25%
35000$7000$100About 1.428%

 

The highest rate of return is 1.428% if you have obtained at least 35000 points from spending at least $7000 CAD.


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Notes


Reward programs and points are great for the shopper if they shop a lot at a certain store. Enough points can be accumulated for redeeming in-store rewards.

Do keep in mind that it does take a lot of time and money to accumulate a lot of rewards points. I don't recommend buying so much just to get rewards. In my opinion, instead of trying to spend so much to get $10 in rewards why not trying to find items you want to buy at a discount.

 

Thank you for reading.

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I don't tend to buy things from merchants because of their loyalty programs. However, I do sign up for them and use them because I figure that I'm leaving money on the table. People who don't sign up pay 2% more to my thinking.

I do find the credit card rewards, in combination with merchant rewards more compelling. I was big into AMEX rewards. However, I started seeing the limitations where I could spend them. They usually are good for more expensive hotels, car rentals, or airlines. Now, I've gone more towards cash back cards, which added to merchant loyalty programs, coupons, or promo codes can offer significant savings. Plus, I'm not locked in to buying specific products at inflated prices.

Cash back rewards are redeemed by lowering my balances or sweeping them into the Crypto.com debit card, which itself pays 3% cash back in CRO token.

These are small percentages. But, a 1% management fee on your investment portfolio can be a massive drain on your long-term gains, if you run the numbers. Similarly, I see these small savings as a long-term play. Over time, 2% becomes real money.

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