Monday, January 28, 2008

Stacked Points

In my last article, I touted the benefits of using a rewards card on virtually everything you can, making two key points:

  • Retailers build the cost of accepting credit cards into the prices of their goods and services so you should use a rewards card on every purchase possible because, in essence, you’re getting a rebate by way of points earned.

  • The average reward program returns a value of about 1 penny per point.

Well, folks, I’ve been doing a bit more pondering on the subject and concluded that, in many instances, it’s possible to get more than a penny back (sometimes a lot more) for every dollar you spend. So, consider this “Part Deux” on earning points.

You see, many companies offer rewards associated with either becoming a club member or frequent user of their products or services, regardless of how you pay for your purchases (cash, debit, check, credit card). Some of my favorites are in the travel industry – airlines, hotels, and parking. Other examples include sandwich shops (buy 7, get 1 free), car washes and even dry cleaners. Used with a rewards card, you can maximize your earnings on each purchase by stacking your points.

Note: I don’t include those supermarket “club” cards because those are a ridiculous scam, since every supermarket offers them and gives you a discount right then and there for having a card – i.e. there is no ‘loyalty factor’ allowing you to earn free groceries. Anyone who doesn’t use these cards and pays the inflated price instead of signing up for/using the free card right then and there at the register is just a plain idiot.

Here’s an example of a high-value point-stacking exercise, and the math that supports it.

Since I travel quite a bit, I’m always driving down to the airport. Instead of using the parking lot at the airport, I have professed my loyalty to a national parking garage chain that offers their own loyalty/points program. The way it works is that I earn 5 points for $1 spent, and then those points are redeemable for free parking at a later date. These points are not worth $0.01 each. They’re worth more. Here’s how it works:

1 week of parking costs about $140 at this lot (~$20/day, valet)

1 week of parking using the company's rewards points costs roughly 4,000 points.

I then arrive at the value per point by the following formula: $140/4,000 = $0.035

So, on this program, I earn $0.035 back on every dollar spent with this company, just because I use their service. I use the points I’ve earned at the parking lot to get my free parking when I take my family on vacation, like on my upcoming trip to Hawaii. Of course, I am using my rewards credit card for every dollar I spend with them, earning me another penny in value back (and since I redeem my card points exclusively for hotel stays, I technically get more than 1 cent per point). In essence, every time I shop with this particular parking lot, I’m getting a total of over $0.05 back for every dollar I spend.

Here’s one more example with an airline. Pick your favorite, as most every one works the same way.

Buy a ticket from New York to LA = $400. Distance traveled is 2,500 miles.

Since most airlines start redemption at 25,000 miles, that would be 10 cross-country trips, costing a total of $4,000 to get to the 25,000 miles. If you then redeem your points for another cross-country free round-trip ticket, you’re redeeming 25,000 miles for a value of $400. That translates to $0.016 per point ($400/25,000).

Now, purchase your tickets with the airline’s rewards card to sweeten the deal…

Assume your airlines card pays you 2 points for every dollar you spend for purchasing your tickets. That’s another 1,000 points (or miles) for every $400 ticket you buy. After approximately 7 trips, you’ll have earned enough to purchase that $400 cross country ticket on points. That means you’ve only spent $2,800 instead of $4,000 to earn your 25,000 miles (and that assumes you bought nothing other than airline tickets with that card)!

You don’t have to be as anal as me in dissecting every points program to death (although it can be great fun in the wee hours of the morning), but the “point” is that several companies have great loyalty programs. And if you stack your points between programs, you’ll make out like a veritable bandit. If you’re a frequent user of a particular product or service, make sure you search for a company that offers you something back for doing business with them.

You get the point.



Uncle Rico said...

What is really great is that you can actually determine how to get almost double the point value, and though it's not huge, it does add up.

Lets Say that you have several different type reward cards, you could use one at the hotel for optimum points, and use another for dining discounts.

Some of the AMEX Cards even offer a Concierge Service, that will take care of all kinds of things for you. You can get tickets to Games, Event and Shows while traveling.

Wouldn't it be cool if you could just say I'm going to Atlanta, Which cards will give me the best deals. then at least you could have options, rather than just traveling blind.

Anonymous said...


You're right - it would be very cool if I could go to a site, enter where I'm planning to go (places, restaurants, stores, etc) and it let me download a list of the best cards to use there and why. Does anything like that exist? If so, where??

Bob Anderson