A reward program is a way for a business to acknowledge its loyal customers, whether that’s your bank, favourite clothing store or local coffee shop. Today, most organizations have a loyalty marketing program that lets you earn points, miles, or credits for shopping, which can be later redeemed for goods. \nReward programs can be an effective and cost-efficient marketing tool that increases spending from existing customers. Typically, the more you spend, the more you get rewarded. Even more critical today, reward programs are a great source of customer data that helps companies learn more about their consumers.\nTYPES OF REWARD PROGRAMS\nBroadly, there are three types of programs:\n\n travel-related programs, where you earn miles today redeemable for travel or hotels in the future\n merchant-specific cards and programs, where you earn points that you can redeem against future purchases from the merchant e.g. $10 off groceries, free coffee, free movie tickets, etc.\n cashback cards, which, as the name implies, allow you to swap your points for cash\n\nHOW REWARD PROGRAMS WORK\nIf you are traveling abroad, you will likely need some foreign currency. Reward programs work on a similar concept. Every Canadian dollar spent is converted into the reward provider’s currency at a predetermined rate. For example, on a typical travel reward card, every dollar spent earns one travel mile. There is a multitude of other incentives: more points earned if you use your store-branded credit card in the retailer’s own store; more points earned when buying gas and groceries; special bonus point days etc. Unless you are a points junkie, these arcane earning mechanisms make it extremely difficult to know whether you are getting all you can out of your reward program.\nA common criticism of reward programs is the difficulty members often face when trying to quickly accumulate enough points or miles. Some businesses will offer a welcome bonus or other special incentives to help members build points faster. Another strategy for retailers is to join a coalition loyalty program like AirMiles. In this case the currency (AirMiles) can be earned and redeemed at any merchant in the program, giving customers more opportunities to earn and burn points.\nWHICH PROGRAM TO CHOOSE\nTo get the best earning potential, here are a few things to consider:\n\n Where do you do most of your spending? It’s important to choose a program that matches your lifestyle.\n How much of your day-to-day spending is on credit cards? Some of the best reward programs, notably the travel programs, require a significant amount of spending. Do you spend enough to get the best earn rates?\n Are you a “transactor” or a “revolver?” Do you pay your balance in full every month or do you pay interest each month? Buyer be warned: If the latter, you will never earn enough reward points to outweigh the cost of card program.\n\nKEEP THE CONVERSATION GOING\nDo you know the earn rate on your favourite card? Post a comment below.\nDisclaimer\nThe views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.