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Thread: Loyalty programs - are they worth it.

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    Site Caretaker Dave A's Avatar
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    Loyalty programs - are they worth it.

    Reading the article below, there seems to be a heavy price attached to getting air miles on your credit card loyalty program.
    You have to spend, on average, a massive R196 460 over six years to qualify for a "free" return flight between Johannesburg and Cape Town or vice versa, according to research by Virgin Money.

    And over the course of those five years, the average cardholder is hit with R1 441 in annual card fees, the study found.

    However, if you booked five months before your departure, you could purchase a return flight between Johannesburg and Cape Town for R898 with 1Time, R498 with Mango or R496 with Kulula.

    Air Mile programmes award you a certain number of miles or points in return for your credit card spending. You are required to spend a specific amount of money to accumulate each mile or point. You qualify for your "free" flight once you have accumulated the required number of miles or points.

    The spending per mile varies between the different credit cards but usually ranges between R5 and R12.50 per mile. The number of miles or points needed for a return flight between Johannesburg and Cape Town varies from 18 000 miles in the case of the South African Airways (SAA) Voyager card to 30 000 miles with Standard Bank to fly on British Airways.

    Many people fail to take into account that the "free" flights offered by rewards programmes exclude airport taxes, which can cost between R300 and R750, according to the study by Virgin Money.

    The low-cost flights with Kulula, Mango and 1Time quoted above all include airport taxes.

    Furthermore, when you do eventually qualify for a "free" ticket, you are not assured of a seat on the flight of your choice. This is because you have to navigate your way through the terms and conditions to fully understand the exclusions and "blackout" periods.

    In simple English, you probably will not be allowed to use your free flight over long weekends, public or school holidays, Christmas, Easter or any other peak periods.

    Virgin Money's calculations were based on industry figures showing that the average South African credit cardholder spends about R3 000 a month on his or her credit card, Gavin Muller, the group's credit product director, says.

    According to the study, the Nedbank Greenbacks miles programme, with SAA Voyager as a partner, tops the list in terms of cardholder spending required to earn Air Miles.

    The study found that you would need 27 100 points to qualify for a return flight from Johannesburg to Cape Town on SAA through the Nedbank programme. At one mile earned per R12.50 spent, this means you have to spend a hefty R338 750, which at average spending of about R3 000 a month means it will be about 9.4 years before you qualify for the "free" flight.

    In terms of card fees, the worst programme is American Express. You will pay R2 440 in card fees over the 7.5 years it will take you to accumulate enough points to earn a "free" flight.

    However, Vanessa Singh, the head of card marketing at Nedbank, says the Nedbank Greenbacks and the American Express rewards programmes are not specifically Air Miles programmes. (Nedbank operates the American Express card franchise in South Africa.)

    "These programmes allow clients to earn and spend rewards on a variety of goods and services, and although they are used to top up flight purchases, the Nedbank Greenbacks programme is not targeted at miles 'junkies'," she says.

    The Nedbank Greenbacks programme is aimed at clients who prefer everyday rewards, such as the payment of their bank and card fees, charitable donations or investing in unit trusts, Singh says.

    She points out that an indepen-dent study by research company Razor's Edge Business Intelligence last year rated the SAA Voyager premium credit card, which uses Nedbank as a banking partner, as offering the best value in the high- income category.

    However, the study by Razor's Edge Business Intelligence assessed the credit cards on value offered in terms of rebates and loyalty points, and cards were evaluated according to the value they offered in different income categories.

    The Virgin Money study also shows that the Absa Rewards programme requires 40 300 points to qualify for a Johannesburg-Cape Town return flight at a spending per point rate of R5. You would have to spend R201 500 over 67 months or 5.6 years, incurring R518 in annual costs. However, Chris Sweeney, the managing director of Absa Card, disputed these figures. "You only need 25 000 points to qualify for a Johannesburg-Cape Town return flight, and at R5 a point, that equates to expenditure of R125 000," he says.

    One of the things you need to watch out for in the fine print is that sometimes the Air Miles you have accumulated so carefully must be used within a certain period of time or else they expire. This means the onus is on you to keep track of how many air miles or points you have accumulated and to make sure you claim them timeously.

    BEFORE YOU JOIN A PROGRAMME
    Ask yourself the following questions before you join a loyalty programme:

    • Do you have to pay an annual fee or a linkage fee to belong to the programme? A linkage fee is paid to ensure that when you spend money, the points earned are counted by the rewards programme.
    • Do you have to pay an annual fee for the credit card to which the loyalty programme is linked?
    • Does the status of your card influence the size of the reward or the time it will take you to accumulate the Air Miles?
    • Are the rewards limited to availability or capacity restrictions? For example, can you get on to the flight of your choice?
    • Are there any thresholds or amounts you have to spend before you start earning points or miles?
    • Do your points expire after a certain time period?

    from Personal Finance here
    So, when is a loyalty program worth it? How does one get best value out of the various loyalty programs?
    The trouble with opportunity is it normally comes dressed up as work.

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    Times have changed! Nedbank greenbacks now gives you double greenbacks. The american express card and visa card are linked to the same account. If you spend R84000 on the Visa card you will get 16800 greenbacks. Since American Express is also linked, you will get 33600 greenbacks. Total = 50400.
    Redeem for miles (divide by 2.8) and you get 18000 miles which should get you a local SAA ticket.

    The requirement of 25000 miles is for kulula, not SAA.

    Even so, kulula credit card better, 'cos only need to spend R30000 which can be redeemed for R1000 ticket.

    Still, greenbacks is good for international flights. The double greenbacks offer makes it better than SAA Voyager in the long run.

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    Platinum Member Marq's Avatar
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    I'm glad you guys know how this all works. All I know is that after spending a fortune, using my absa card, I can get a free toaster - woopeee.

    As a card merchant I also know that I am paying for all these free miles and toasters through higher than need be rates on the numbers going through my business.

    So intent are some users in obtaining voyager miles (on diners cards) that I have had a few pay me the difference in cash, between mastercard card rates and the diners card rates, when I have told them that I prefer the master and visa cards to be used. I am missing the logic in this - does anyone know why they would do this? surely they could put that difference towards a ticket rather than pay me.

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    an efficient 'cash back' loyalty program

    a 'cash back' loyalty program rewards customers with cash when they purchase a product, in other words it's a discount system based on a simple scheme: you get a direct discount when you purchase.

    such direct discounts are given to registered customers and this is the reason why we have so many discount cards in our wallet.

    the goal being of course to ensure you won't go to the competition but, since the competition offers exactly the same advantage, you actually have no benefit from having all these discount cards in your wallet.

    in other words, running such a loyalty program is totally ineffective but you have to do it in order to follow the competition.

    how to get rid of this non productive marketing?

    well, in an environment in which merchants can easily copy the discount strategy of the competition, the key is to offer distinct advantages, something the competition will not be capable to offer, at least not too quickly.

    the key is to offer cash to your customers, cash they can spend exclusively at a partner shop.

    note the distinct advantage: the partner shop.
    note the reward: exclusive cash.

    this implies on one hand a deal between you and the partner shop, or even better with several partner shops, and on the other hand the technical infrastructure to manage the all thing.

    far too complex? not really because the infrastructure designed to deal with such cash management is an ewallet, simply. so, to reward your customer you credit its ewallet and when your customers want to make a purchase at your partner shop, that's again with the ewallet. thus, technologically speaking, what you have to manage is the sending of a payment order (the reward for your customer) from your web server to the ewallet server, and of course there is a ready-to-use script to do that.

    in conclusion, what you actually need is one or more partner merchants.

    in terms of cost, the rewarding merchant (you) must buy an amount of cash to its partner merchants and the partner merchants support a transaction fee on the purchases made by your customers.

    in other words, such a loyalty program is free to use as only the partner merchant supports a little fee in exchange of the business deal he made with you to guarantee a certain amount of sales in advance.

    practically speaking, i am looking for merchants (both types) willing to benefit from such a loyalty program scheme to gain a competitive advantage in their business sector.

    on my side the technical part is 100% functional.

    pls. let me know here.

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    Site Caretaker Dave A's Avatar
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    This expose on "airport taxes" certainly puts Voyager's free flights programme in a new light too.
    Of the R400 in "taxes" one pays on a full service airline from Johannesburg to Cape Town only about 20% actually goes to airport taxes. For a return flight to London at the moment the "taxes" can cost more than the airplane ticket, however, mandatory taxes and insurances are a third of those costs.

    The bulk of these so-called taxes are actually a discretionary fee called a fuel levy. The rapid decline in the oil price has meant that the fuel levy has become a neat way for full services carriers such as British Airways (BA) and South African Airways (SAA) to promote cheap tickets -- before you read the fine print.

    Comair, which operates both Kulula and BA locally, says that one of the biggest components of these surcharges is the fuel levy, which is linked to the rand/dollar exchange rate as fuel is billed in dollars. "Therefore it is up to the airlines' discretion as to how much they charge as part of the fuel levy as it forms a large part of the business' cost base," says Glenda Zvenyika, Comair communications manager.

    Take, for example, an economy return flight between Johannesburg and Cape Town. British Airways and SAA both charge R1 200 for the flights. That looks compelling when compared to no frills, low-cost airline Kulula, which will charge R1 800 and 1Time, which charges R2 000 for the same return flights. But, once you add in the airport taxes of R951, the low-cost carriers are cheaper. Kulula charges aboutR150 for airport tax and 1time includes it in their total quoted airfare.
    The rip-off is far greater on long haul flights.

    What a con
    The trouble with opportunity is it normally comes dressed up as work.

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    Surely this is "Fraud"? by declaring it Airport Tax?

    No company is permitted to charge a "tax", without being able to substantiate the actual tax or customs duty etc. paid on the clients behalf?

    The mere wording "tax" gives the perception that the "cost" is beyond the airline operators control. This is evidently not the case.

    If they still call it "Airport Tax" Why is there no refund of the airport taxes portion, if the passenger has been unable to take the flight and has had to forfeit the cost of the ticket?

    Yvonne

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    Bronze Member Sieg's Avatar
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    Rewards programs

    I have a Kulula credit card. They give one "moolah" redeemable on flights. The problem is that these "moolah" thingies expire at a rate faster than politician's promises.

    I wrote to them last week after receiving another one of those statements telling me how many "moolahs' have expired or are about to expire.

    This is what I wrote to them:

    "9th May 2009

    Kulula.com
    Jetsetters section
    P O Box 7015
    Bonaero Park
    1622

    Per fax: 011 388 24 63

    Dear Sirs / Ladies

    Profile: Siegfried Heiriss

    I keep receiving stupid e mails like the attached one from you.

    Your “rewards” program is a foefie. That, in case you don’t understand the word, means “gimmick” or just a plain “racket”. You “give” these rewards but take them away. I have other credit cards where my rewards are not taken away. In fact, I have just received a voucher on the one card which is being migrated to another bank, and did not lose any points even after many years. Your “scheme” is like that other well known con-show, Voyager.

    So, keep your points, take them back: I do not want them. And please stop irritating me with those pesky and annoying e mails from Jetsetters. Please delete my details and unsubscribe me from this trash.

    I will use my Nedbank Greenbacks credit cards where my rewards are for “real” and have some lasting value. I will over time also phase out my use of the kulula credit card.

    Yours faithfully,
    S.K. Heiriss"

    No reply received as yet.

    Sieg

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    Site Caretaker Dave A's Avatar
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    It'll be interesting to hear their response, if any.

    I confess I've got that rip-off feeling about Voyager too right now. At least they haven't been "bugging" me with regular statements to add insult to injury, although I suspect it might be less to do with keeping me uninformed and more to do with saving on postage costs.
    The trouble with opportunity is it normally comes dressed up as work.

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    Nedbank Greenbacks

    Nedbank has changed the programm, you now need 5 greenbacks in order to get only 1 Voyager Mile. I have cancelled my Nedbank Credit Cards as the points are really worth nothing now.

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    Platinum Member Marq's Avatar
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    I have cancelled my Nedbank Credit Cards
    Well done - Nedbank deserves every cancelled account they get. It is time they realised that their marketing bullshit does not live up to just good honest reliable banking service without the need to tick a box that says we want to send you crap about all our other services, insurance and useless banking bullshit and offers.
    The cost of living hasn't affected its popularity.
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