Do you have a credit card that offers rewards points based on how much money you spend? For the PlayStation branded credit card, Sony offers consumers 10x points on every $1 spent on certain purchases. On the surface, this seems like a great program because you’re getting rewarded for things you purchase already. If not properly managed, however, there can be some tremendous disadvantages to this type of program as well. In evaluating the pros and cons of rewards points, here are some of the key points to consider.
What Are the Pros of Rewards Points?
1. They give you extra value for purchases that are already being made.
You can earn rewards points on virtually anything today. From paying your bills online to the fuel that goes in your vehicle’s tank, these points can be earned in varying multipliers. This provides consumers with added value to the things that they are already doing so no extra spending is necessary to create this extra value.
2. There are rewards for virtually anything.
Consumers can earn rewards points toward virtually anything. Cash back programs are very common, as are travel benefits like free airline flights, but rewards points can also be turned in for anything from movie tickets to VIP experiences with the National Hockey League.
3. There are rewards available at numerous pricing levels.
In the Sony Rewards program, it may take over 400,000 points to earn a LED TV, but it only takes 100 points to earn a theme for your gaming console. Every rewards program offers tiers that allow consumers to take advantage of the increased value proposition when it makes sense for them.
4. Many programs offer additional incentives.
This is seen quite often when rewards points are associated with credit cards. There may be added value to an insurance policy, no liability on charges that are made without permission, or even medical benefits that can be accessed if traveling outside of your state, province, or nation. This incentives are often in place whether or not consumers decide to turn in their points, which further increases the value proposition.
5. There is often no cost to enroll.
Many rewards points are part of the program that consumers receive upon enrolling.
What Are the Cons of Rewards Points?
1. The money for the rewards program has to come from somewhere.
Most rewards programs average about 1.5% cash back when all the points are tallied up. That may not seem like much to the average consumer, but 1.5% of $100,000 in purchases is a lot for a business. The cost for those rewards has to come from somewhere and it isn’t usually from the profits earned, so the costs are often higher on the consumer end of the spectrum.
2. Many programs have rewards limitations.
It may cost $55 more to have a Costco rewards membership and earn 2% cash back on purchases, which some consumers may find will pay for itself. Those rewards are also capped. There is a maximum of $750 back that can be earned. The same is true for multiple programs, which means you can only earn a certain amount of rewards and no more, even if you are still eligible for points.
3. The points can often be taken away at any moment without prior notice.
Rewards programs are often run at the discretion of the company providing them. If they decide to scrap the program for any reason, then consumers typically lose the points they’ve earned without any compensation. Sometimes a program may transition to a different kind of reward, which may lessen the value that consumers experience from their points.
4. It encourages people to spend more money.
People naturally spend more when they feel like they’re getting a better value for their money. Because rewards points offer increased values in a number of areas, the temptation to purchase an item can sometimes be too great. It might seem harmless to spend an extra $50 on something right now to get triple rewards, but what happens if that $50 creates overdraft fees? The value is no longer as much, is it?
5. Not every purchase may generate points.
Some programs offer point bonuses on specific purchases. Others offer no points unless certain purchases are made. The offers vary over time, so it is important for consumers to always be up-to-date regarding how they can earn points.
The pros and cons of rewards points must be carefully managed for their true value to be achieved. If the temptation to overspend can be avoided, most consumers can benefit from the added value that rewards points can bring.
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