True value of your reward points: 11 point rule

Reward points like any loyalty program are part of the corporate’s gamification strategy. The goal being to keep you away from the competition, make you spend more and shift your consumption pattern to high margin goods and services without adding much cost to the company. Hence, do not be surprised if you spend more time in comparison between various offers, schemes, fine print, coupons & options by various websites than selection of your best travel destination. The loyalty programs by design to make the price comparisons difficult.
Here are some common sense rules:

  1. Perceived vs actual values: If you cannot use a coupon code/voucher because of the point redemption then the points are coupons in disguise. (eg: dominos)
  2. Action modification: If the points are valid only on certain category of items and not valid on low margin items (eg: big bazaar on sugar, oil, aata etc.) then you know how much your points are worth. Similarly a lot of stores use loyalty programs to shift your consumption to their private labels which are priced much higher than the unbranded good that you would find elsewhere.
  3. If you need to pay a redemption charge when you want to consume the points, then discount them from the value. (most airlines & sbi credit card) Remember this forces you to accumulate the reward points, which is the money that the company can keep interest free and risks some/all the point’s lapse at expiry.
  4. Refunding restrictions: Paytm cashback is like pure money. You can spend it on a zillion things or even wire it back to your account. On the other hand gocash (goibibo) has so much restrictions that you will end up spending 50-100k just to utilize the 3000 odd gocash balance. Naturally, one should value the points based on how useful it is for you.
  5. Tier based rewards: One of the biggest trap and hardest to let go. MakeMyTrip requires you to book 4 times before unlocking the rewards. BigBasket & American express have benefits linked to relationship value. The trap here being that one ends up overspending. Also if you are 80% there, then there is a tendency to frivolously spend to reach the mark.
  6. Expiry: One should be mindful of the expiry date. As a personal rule, I consider anything expiring in the next 90 days as coupons, which if not exercised immediately will turn worthless.
  7. Clubbing: I was wowed by MakeMyTrip’s recent experience where I was able to redeem my icici bankcard reward points (payback) and my Citibank reward points in the same booking. It really allowed me to afford a luxury for Valentine’s Day, which was beyond my budget. Similarly the cashback of the wallets have very few usage restrictions.
  8. Tax invoice value: Often the reward points don’t show up in the final bill, allowing the customers to claim higher reimbursements (income tax or employer) than what they truly borne. The reward points can now be used for personal expenses. Although not unethical, this practice is used by many to unlock the high tier rewards/upgrades that would otherwise be unaffordable.
  9. Time: often ignored, but the most important concept. It is not possible to manage a zillion store programs. One does not buy a car because of the attractive free gift the sales person offer, it is a good product and the gift is icing on the cake. Treat your loyalty programs with the same detachment.
  10. Social cost: If the reward needs you to spend a zillion second clicking/liking various company promotions, send invites/emails to everyone in the contact list, then probably it will only end up wasting your time and ostracizing you as a spammer. Similarly
  11. Enrollment fee: the benefits are elusive and sometime in the future, but this expense hits you on day one and is probably charged annually. So one needs to intelligently to a cost benefit analysis.

Gone are the days when a simple price comparison between two websites could dictate which is the most economical. The goal today is to spend the least time deal hunting and yet not overpay.

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