Did you ever wonder who pays for the miles, points, and perks associated with travel rewards programs?
If you did, you probably concluded that whatever costs are incurred by companies to maintain their rewards programs are simply passed along to consumers, in the form of higher prices. That’s basically right. Rewards are a marketing expense, like advertising, and ultimately must be recouped by the company offering them.
But while prices reflect the cost of rewards, not everyone participates in rewards programs. So those who earn miles and such are being subsidized by those who don’t.
And since, generally speaking, it is the financially better-off consumers who participate in rewards programs, the system disproportionately penalizes poorer consumers, who are paying higher prices for rewards they never receive.
The rich get richer; the poor get poorer.
That, in essence, is the moral quandary at the core of a recent article by Ron Lieber in the New York Times. His lead sentence sets the scene: “For several years, I’ve wondered whether my aggressive pursuit of credit card rewards made me a selfish consumer.”
Lieber’s focus is on credit card incentives, but the central dilemma pertains to loyalty programs across the board.
I have always argued that one of the compelling reasons to participate in rewards programs—notwithstanding the frustrations and disappointments of doing so—is that you don’t get full value for your dollar otherwise.
I can buy that new Hewlett-Packard netbook computer for $499.99 from the HP website. Or I can buy the same computer, for the same price, from the same website, but also earn 1,500 American AAdvantage miles by signing into the AAdvantage eShopping Mall before making the purchase.
If I forgo the miles, I’m a chump for leaving value on the table. But if I opt to earn the miles, I’m perpetuating a microeconomic system that results in higher prices for those who can least afford them.
It’s an impossible choice, between behaving like idiot or an oppressor. And there’s no sitting on the fence. Every day, we come down on one side or the other as we choose to buy with or without rewards.
I don’t see any end to the conflict. Perhaps it’s an inevitable byproduct of the free market that we embrace, warts and all, as the best among imperfect choices.
For now at least, if I go ahead and buy that computer, it’ll come bundled with frequent flyer miles. And tinged with guilt.