3 Steps to Measure the Value of Loyalty Points

Lots of people have approached me and asked, is Aeroplan better than Air Miles? Is Esso extra better than Petro points? and so on. One of the mindsets I’d like to show you is how to find the valuation of points for a particular loyalty program. Here are 3 steps of how I evaluate loyalty programs.

1. Determine the value of points. This is a very important concept to understand when you are in this game. In simpler terms, how much do each point worth to you? What can you get with the points? For example, on Aeroplan portal, one can redeem 6500 Aeroplan miles for a \$50 Esso gift card. Divide the value of gift card’s \$50 by 6500 miles, and that would be about 0.77 cents per mile.
1. In the previous point, I used Aeroplan miles as an example, and that yielded a 0.77 cents per mile. Is this a good loyalty to invest in then? It would be difficult to draw a conclusion without comparing to its alternatives. You will need to look at the options you have possibly foregone and compare against it. Let’s take a look at one of the biggest rewards program in Canada – Air Miles. One of the most straightforward redemption for Air Miles is that you can redeem 95 miles and get \$10 off as in-store credit. That comes out to be 10.5 cents per mile. Whoa, looks like we have a clear winner here, 10.5 vs 0.77, it seems like a no brainer that Air Miles is clearly a better program. But wait… let’s go to step 3
1. For the final step, we consider how much spending it takes to accumulate 1 point in the program. Aeroplan credit cards or affiliated merchants usually provide 1 mile or more per dollar spent. Air Miles on the other hand, rewards you 1 mile per 20 dollars spent. Thus Aeroplan will get you 0.77 cents per dollar spent, while Air miles will get you 0.525 cents per dollar spent. Now we are comparing apples to apples, putting both programs on the same baseline, it looks like if you had the choice between Aeroplan and Air Miles, the former is a better choice, by 46%! In fact, I value Aeroplan miles at 1.8 cents per mile with the redemption I make out of it, therefore to me, Aeroplan yields over 3 times the return compared to Air Miles.

I hope that gives everyone a new mindset when looking at loyalty programs, when you apply these steps, it will be clear to you which program you should be collecting. Though, there are other interesting factors to consider that may affect your decision. Stayed tuned for the next post!