Is 1 percent enough to make a difference for Best Buy?

Best Buy (NYSE:BBY) is boosting how much it rewards customers who use credit cards tied to its loyalty program from 4 percent to 5 percent, which puts it in the top tier of retailers with such programs. But there's a catch, according to Joan Solsman of Dow Jones on Wednesday (April 3).

Unlike Target (NYSE:TGT), which gives users of its loyalty-tied credit card an immediate 5 percent discount, the Best Buy rebate is in the form of Reward Zone points, which can only be cashed in for Best Buy merchandise. Loyalty credit card customers also have the option of 0 percent financing instead of points.

Best Buy has raised the rate to 5 percent from 2 percent in 2010. The new rate starts on Sunday (April 7).

For the beleaguered 1,400-store chain, pushing the rewards rate up is a gamble in its struggle to retain customers from poaching by Amazon (NASDAQ:AMZN). On the plus side, the chain has seen that every $1 in rewards points used generates $2 in sales, and some rewards points are never used. On the downside, if products are bought completely with points, the new rate shaves an additional 1 percent (100 basis points) off the profit margin.

A bigger downside is that customers may not notice the difference. Best Buy showed a profit after the holiday selling season, which some analysts attribute to an expanded price-matching program, which helped keep Amazon at bay. That's something customers notice — they can count the dollars they save.

But a 1 percent difference in rewards points? That may not be big enough for customers to see — or care about.

For more:

- See this WSJ story

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