Rethinking card rewards in a challenged economy
Although rewards programmes have been effective tools for credit card issuers for almost 25 years, drastic changes to the US economy have made many current programmes less relevant to consumers.
That is the view of market analyst TowerGroup which recommends that credit card issuers must carefully examine their rewards and loyalty programme offerings to include strategies that focus on the fundamentals of good credit management.
Tower says that over the years, payment reward programmes have proven highly successful, with consumers embracing well-designed programmes. Issuers have proven that they can increase preference, drive purchase activity, and create “top of wallet” status for their cards via loyalty programmes. TowerGroup estimates that reward programmes are a factor in nearly 70% of all transactions in today’s US card industry.
Yet as more Americans experience a loss of confidence in the economy, reduction in household wealth, and shakier employment status, the analyst says issuers should ensure that loyalty programmes not only cause consumers to aspire to potential benefits (e.g., a high-end vacation), but also inspire them to keep their credit in good standing.
TowerGroup suggests that issuers consider using card rewards to improve credit management, in lieu of such aspirational rewards as trips to Hawaii and luxury goods – which can be less meaningful and even have the potential to antagonize when dollars are tight. This approach would include rewards options such as cash-based credits that can be applied to open balances, stimulating good consumer credit behavior and motivating consumers to pay down their balances.
TowerGroup predicts that reward card issuers will be impacted by four significant consumer trends in 2008: credit quality deterioration; revenue pressure; fragile economy; and vulnerable consumers.