Every loyalty program promotes flexibility. The idea is that you can use your points or miles for free flights, hotels, merchandise, gas and more.
And while there are more redemption options than before, the value of those rewards isn’t always equal. Consumers have started to catch on and are looking for how to get the most value when they redeem their rewards.
Flexibility in the traditional sense
Generally, travel and bank rewards programs offer the best value when you redeem your points for travel purchases. Even though you can redeem your points for other things, such as merchandise or gift cards, it’s usually a lower value.
For example, it might cost you 1,000 points to save $10 on a flight. However, if you want a $10 gift card at select merchants, it could cost you 1,300 points. It should be obvious where the better value is, but it’s not always that simple.
A reader recently told me that he preferred to redeem his American Express membership rewards points for Air Canada gift cards. He figured this gave him maximum flexibility, since he could use the gift cards as he pleased and didn’t need to worry about the value of his points or any potential blackout dates.
While this makes rational sense, I had to inform him that he was essentially devaluing his points twice. With American Express membership rewards, you can choose to redeem your points for a $10 statement credit – where you apply your points directly to a purchase you’ve made on your card, such as one with Air Canada. Since a gift card costs more points than a statement credit, redeeming points for a gift card is a poor value.
Additionally, you can transfer your membership rewards points to Aeroplan at a 1:1 ratio. With Aeroplan, getting a value of 1.5 to two cents each for your points is easy, and there are no blackout dates.
Once he knew about the better options, the reader said he wished loyalty programs were less complicated and the value easier to understand. Loyalty programs aren’t trying to hide the best redemptions, but they’re certainly banking on the fact that some consumers aren’t very good at math since they keep the programs profitable.
How loyalty flexibility is evolving
With so many loyalty programs around, consumers want the flexibility to transfer their points between programs to maximize their rewards. And while expecting every loyalty program to have multiple partners is unrealistic, we’re starting to see many more collaborations.
Both American Express membership rewards and RBC Avion rewards have had airline partners for years. Aeroplan just announced that Elite Status members can transfer their points to Marriott Bonvoy at a 1:1 ratio. On the gas and retail front, Air Miles is partnered with Shell; Petro-Canada/Petro-Points is with Triangle Rewards (Canadian Tire); and PC Optimum has Esso.
This loyalty arms race is incredibly valuable for consumers as it allows them to collect and consolidate rewards. You can focus on the programs you like and use their points on meaningful or high-value redemptions.
From a loyalty perspective, having more partners is never a bad thing. The programs can share consumer data, and the hope is that, with programs offering a good network of partners, consumers will continue to be loyal. With the right coalition of partners, consumers may be less inclined to see what else is out there.
The cost of flexibility
One might think this new flexibility is a win-win for everyone, but it’s not that simple. In fact, it can be pretty complicated, since it now requires customers to know the ins and outs of multiple programs.
Not only do you need to understand the base value of the rewards so you can compare them with your existing programs, but you also need to determine what redemptions offer the best value. No one will advertise the best return, so you will need to do a lot of research.
Additionally, you need to know the transfer ratios between the programs. In some situations, it may be better to keep your points in your existing currency, as transferring them elsewhere may devalue the points. That said, if you’re transferring your points specifically to take advantage of a good redemption, you could come out ahead.
There are also credit cards to consider. Using a co-branded loyalty credit card allows you to earn points on every purchase, but with so many partners available now, you might wonder if there’s a better card to get.
The gamification of loyalty points will continue to grow, and if you’re willing to play, you can reap the rewards. That said, you don’t need to know everything about loyalty programs to come out a winner. Just focus on two or three programs that complement each other and your goals.
Barry Choi is a personal finance and travel expert at moneywehave.com. He was previously affiliated with American Express, RBC, Aeroplan, Marriott, Air Miles, Triangle Rewards and PC Optimum but currently has no relationship.
