Loyalty Programs' Use - and Expectations - Rising

By Quittner, Jeremy | American Banker, May 6, 2003 | Go to article overview

Loyalty Programs' Use - and Expectations - Rising


Quittner, Jeremy, American Banker


It is a competitive point among credit card issuers today to have the most attractive loyalty programs possible to reward their best customers.

But with the economy still flagging and the credit card market saturated, single-purpose loyalty programs with an allegiance to just one airline or gas company are no longer the rule. Though airline and gas cards are still among the most popular programs offered by banks, now the major issuers know they must go the extra mile and offer customers increasing flexibility and a wider variety of rewards, say industry insiders and analysts.

One of the new features on programs that have hit the market in the last few years is the ability to earn points for multiple airlines or gas companies on one card. Another is cash rebates, a concept pioneered years ago by the Discover division of Morgan Stanley, which has trademarked the term "CashBack Bonus." The concept, however, is being used at other credit card firms and, most recently, even within some debit programs.

Other new programs let people earn points toward visits to places such as the Disney or Universal Studios theme parks.

"The customer has started to expect more value out of their credit cards," said Rajive Johri, an executive vice president and the head of marketing for J.P. Morgan Chase & Co.'s card member services in New York. "Previously, convenience or credit were the main value. Now with increasing competition, the industry is trying to retain loyalty and is giving back some of the earnings to the customer in the form of travel rewards and other goodies."

Industry observers agree, saying consumers expect more today than they did a decade ago.

"Loyalty programs are much broader in scope today, and the reason why is that the penetration rate is incredibly high," said Chris Keenan, the director of marketing for Creative Solutions Inc., a Hockessin, Del., marketing consultancy and direct advertising agency. "Americans in general are tied to loyalty. It really has dominated the marketplace, and given that penetration, (issuers) have had to become wider in scope from the perspective of branding and earnings potential."

Another key reason the issuers are expanding the choice of their programs is that the choicest partnerships have been taken.

"Some of the reason for the shift is the attractive cobrand partners available are few and far between, and most of the good ones are taken and secure," said Marc Sacher, a managing associate for Auriemma Consulting Group Inc. of Westbury, N.Y.

There is still plenty of room for growth in the loyalty market, however. In November 2002 The Nilson Report said that 35 million of the 300 million active holders of credit and debit cards participate in a loyalty program, and more than half of the participants belong to an airline miles program.

The 35 million figure represented 8.6% of cardholders, and the Oxnard, Calif.-based newsletter said the ceiling for loyalty participation could be as high as 30%.

"It means that the (potential loyalty) market is about 90 million cards," said David Robertson, the publisher of The Nilson Report.

Credit card issuers are also promoting their loyalty programs more heavily. In the third quarter of last year 27% of the 1.2 billion mail solicitations sent for credit cards featured reward or cash rebate offers, compared with 20% in the third quarter of 2001, according to Synovate, a credit card research firm based in Tarrytown, N.Y.

Given the superheated market for credit cards and loyalty programs in general, some of the largest issuers have had to be all things to all people.

Bank One Corp., which is based in Chicago, has 50 million cards, 1,200 partnerships, and a vast array of loyalty programs. They run the gamut from its one-off cobranded card with United Airlines to more recent specialties like its Disney Visa card, which allows customers to amass points toward Disney merchandise or vacations. …

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