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Is It Smart to Pay for Membership Discount Cards?

Is It Smart to Pay for Membership Discount Cards?
Alison Storm

Starbucks, Amazon Prime, and Barnes and Noble all offer them. But is paying for a discount card a good idea? Typically companies offer a membership card for a certain amount of money and buying one entitles you to a discount on future purchases for a set amount of time. But is it worth it—or just a way for companies to get more of your cash in their pockets?

Reward Cards as a Marketing Strategywoman with wallet

According to retail experts, the point of membership cards is to reward loyal customers by offering them financial incentives to make repeat purchases.

"The real incentive comes not from getting them to be loyal, but to make heavy users 'extra heavy' users of the product or service," says Dr. Kurt Jetta, CEO of consumer analytics company TABS Group.

Dr. Jetta says it's more common to see loyalty programs developed when brands fall under major competitive pressure. Barnes and Noble's battle with Amazon is one example.

When Discount Cards Make Sense

Experts say if a business you already visit on a regular basis offers a membership card, paying for it could make the most sense. But if it's a store you don't visit often, then buying into their loyalty program probably won't be what causes you to shop there on a more regular basis.

"A loyalty card rarely creates structural changes in your buying patterns, so if you are not an ultra-heavy user of the product or service to begin with you will almost certainly not get back the investment," says Jetta.

Jetta says one exception to that rule might be services like a gym or a vitamin store where the payoff for visiting more often involves improved health. "In that case it might be worth the risk of a small out-of-pocket investment," he says.

Crunching the NumbersBN Membership Card

Before paying for a discount card, it's important to crunch the numbers. For instance, a Barnes and Noble Membership Card costs $25 a year and saves shoppers 40% off hardcover bestsellers, but 10% off everything else. That means on most items you'd have to buy $250 worth of product to make your money back.

Starbucks fan Steve Grubbs says when Starbucks first came out with their discount card, membership was also $25. "Since I was averaging $5 per day, approximately 5 days each week, I knew that I could save $2.50 per week," he says. "In ten weeks, I got back my $25 and the next 42 weeks I was saving money with my card."

So he knew it would be a money-saving venture. Even though that program was discontinued he's saving money at Starbucks through other loyalty programs.

Waste of Money for Most Consumers

Dr. Jetta has researched this topic extensively and says only one in five consumers actually benefit from membership discount cards—most of the time it's the company that wins.

"The majority of consumers do not get their money back," he says, "but there is a small percentage that derives a huge financial benefit because they are the ultra-heavy users anyway." So the bottom line is, only invest in loyalty programs for the businesses you frequent most often. Otherwise you'll just be replacing the cash in your wallet with a piece of plastic that will end up being pretty much worthless.

 

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Comments

  1. If there is an upfront payment to join a rewards program, that's typically a turn off. Even if someone might save some money they don't feel like doing the math to figure it out. Rewards programs that are free to join have a better response rate.

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