I note with amusement that Shopper’s Drug Mart is devaluing their “loyalty program” points by about 9-18%, effective July 1, 2010. I am sure there will be some sort of uproar about it.
Before, you needed the following points to redeem the following dollars:
7,000 – $10 (700 points/$)
15,000 – $25 (600 points/$)
30,000 – $55 (545 points/$)
40,000 – $75 (533 points/$)
75,000 – $150 (500 points/$)
Effective July 1, 2010 it will be:
8,000 – $10 (800 points/$) – 12.5% devaluation
22,000 – $30 (733 points/$) – 18.1% devaluation
38,000 – $60 (633 points/$) – 13.9% devaluation
50,000 – $85 (588 points/$) – 9.4% devaluation
95,000 – $170 (559 points/$) – 10.6% devaluation
Whenever dealing with any sort of currency, including “points” (of which the vendors have no legal requirement to redeem for any acceptable value whatsoever) you always have to be aware of its purchasing power and the chance that such purchasing power will decrease in the future.
I personally find it a pain to participate in any of these programs (who wants to keep extra cards in their wallet?), but there is a significant segment of the population that are actually influenced into making uneconomical decisions by offers of air miles or “save-on-more”. This is presumably why these marketing programs exist – to enhance lock-in of consumer dollars. For those that participate in it, it is best to cash out their holdings as early as they can since you will never see an increase in the purchasing power of your points – essentially, there is a negative interest rate on points earned through loyalty programs.
In the event of holding cash, Canadian dollars have inflated away over the past 96 years at the rate of 3.13% according to the Bank of Canada. If you wish to retain any sort of purchasing power, you are forced to invest your cash somewhere – at the very minimum, a short term high-yield savings account will help stem the decay of the purchasing power of cash.
There is no “investment” option with respect to loyalty programs, which is why points and perks for putting up with the hassle of these marketing programs should be cashed out immediately. If you do a lot of dollar volume business with a particular retailer offering such a program, it probably makes economic sense to sign up. However, it makes no sense whatsoever to not liquidate the proceeds when you can for something that you find useful.