The sky-high charge of the mile-high card

Why do loy­alty pro­grammes re­quire cus­tomers to work so hard?

Finweek English Edition - - Openers - BY SIZWEKAZI JEKWA sizwekazij@fin­

AS SOME­ONE WHO CON­SID­ERS her­self a ra­tio­nal, sane hu­man be­ing, I’ve al­ways found the term “free flights” with re­gard to air­line loy­alty pro­grammes, a par­tic­u­larly of­fen­sive one.

The truth is, I dis­like loy­alty pro­grammes. Most of them are a cruel il­lu­sion, a gim­mick, be­cause if we are ab­so­lutely hon­est with our­selves, we know they can only be prof­itable if they take more from us than they give back.

In my opin­ion, the most loath­some of “con­sumer evils” spawned from the loy­alty pro­gramme cult is the never-end­ing bar­rage of air­line-af­fil­i­ated loy­alty pro­grammes linked to credit cards, which al­low con­sumers to ac­cu­mu­late miles through spend­ing. For months now I’ve watched like a sane pa­tient in a men­tal asy­lum as peo­ple flocked like lem­mings to get their Voy­ager and ku­l­ula credit cards think­ing that the prod­uct was some­how ben­e­fi­cial to them. But I fi­nally have con­clu­sive ev­i­dence of my san­ity.

Like manna from heaven, Vir­gin Money has re­leased a re­port on the costs at­tached to th­ese air­line loy­alty pro­gramme credit cards. Of course the re­search was not an al­tru­is­tic act by Vir­gin Money. It was, in fact, very self- serv­ing be­cause Vir­gin wanted its ex­ist­ing and po­ten­tial cus­tomers to un­der­stand why they didn’t have an earn-miles-as-you-spend loy­alty pro­gramme linked to their credit cards. But re­gard­less of Vir­gin’s mo­tives, the re­port does high­light the in­san­i­ties of such pro­grammes.

Af­ter look­ing at 11 of th­ese pro­grammes in SA linked to var­i­ous lo­cal air­lines like SAA, ku­l­ and Bri­tish Air­ways, the re­port found that you would have to spend an av­er­age of R171 324 on a credit card to earn enough miles to fly from Cape Town to Jo­han­nes­burg! And that’s just the be­gin­ning… With an av­er­age spend of about R3 000 a month on most credit cards, it would take nearly five years to ob­tain this ticket while in­cur­ring an av­er­age R1 444 in an­nual fees.

Re­mem­ber­ing that of course an av­er­age means the spec­trum will fall well above and be­low that fig­ure, the “cheap­est” credit card loy­alty pro­gramme – if we can be so bold as to de­scribe any­thing in this range as cheap – was ku­l­ula’s, which re­quired its cus­tomers to spend R33 266 to earn enough miles to fly do­mes­ti­cally. The most ex­pen­sive ticket was on Ned­bank’s Green­backs miles pro­grammes with SAA Voy­ager, re­quir­ing a whop­ping there are peo­ple out there who do spend that kind of money on their credit card ev­ery month but I am cer­tainly not one of them! I also know that there are some clever folk who know how to ma­nip­u­late the sys­tem to their ad­van­tage and get the best out of th­ese pro­grammes. One of my col­leagues in­forms me that if you chan­nel all your spend­ing through your credit card and make sure to pay off the full bal­ance ev­ery month with­out miss­ing a sin­gle pay­ment, you will even­tu­ally earn enough miles to fly to Cape Town (with your spouse) within a year with min­i­mal cost but frankly that seems like too much hard work for me. And re­al­is­ti­cally, how many credit card users pay off the full bal­ance ev­ery month? This kind of be­hav­iour is not the nor­mal bank­ing habit of an Av­er­age Joe con­sumer out there.

If I am go­ing to ben­e­fit from be­ing a loyal cus­tomer to any bank or re­tailer, I would much rather en­joy the ben­e­fit of that ar­range­ment im­me­di­ately. I don’t want to have to toil, slowly col­lect­ing what­ever in­tan­gi­ble “as­sets” a pro­gramme has cre­ated over a year or more. Just give me dis­count up­front, some­thing I can see, and I’ll thank you for it and be on my way.

To call the flights “free” that are ac­cu­mu­lated af­ter spend­ing thou­sands of rands is an in­sult

to one’s intelligence.

R338 750 of spend­ing to ac­cu­mu­late enough miles for a re­turn flight to Cape Town.

Some of th­ese fig­ures may not be news to you. You might re­mem­ber read­ing about them in the week­end pa­pers on 27 and 28 Jan­uary but the in­for­ma­tion was tainted by a mis­cal­cu­la­tion that af­fected the av­er­age and re­sulted in a back­lash from the ma­jor banks. The orig­i­nal av­er­age re­leased by Vir­gin was R215 000, which was later re­duced to R171 132. But re­gard­less of the neg­a­tive im­pres­sion cre­ated by the mis­cal­cu­la­tion, I think the point be­ing made here is still valid. The value of pro­grammes that al­low cus­tomers to earn miles through spend­ing is ques­tion­able. Now I know

Fur­ther­more, giv­ing up­front ben­e­fits pre­vents the cus­tomer from hav­ing to cre­ate elab­o­rate and ex­pen­sive sys­tems to keep track of th­ese ben­e­fits, which could be a cost sav­ing for many com­pa­nies. I would much pre­fer some­one giv­ing me a 10% dis­count on my next flight or halv­ing the cost of my movie ticket be­cause I am a loyal cus­tomer, than a “free flight” af­ter two years of se­ri­ously hard work.

If loy­alty pro­grammes have any chance of pro­vid­ing any le­git­i­mate value to cus­tomers, then I be­lieve the ben­e­fits that they claim to of­fer must be im­me­di­ate and vis­i­ble… not to men­tion af­ford­able.

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