Consumer research underscores importance of credit card loyalty programs

Written by Curtis Arnold
Posted On: December 6, 2010

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Retailers may have caused enough of a ruckus to force more flexibility into their Visa and MasterCard merchant agreements, but consumer sentiment indicates that credit card reward programs are here to stay. According to a report from Mintel Comperemedia, instant reward programs attract more than half of consumers to a particular credit card or retail store loyalty program. Researchers identified some of the reward opportunities that build strong allegiance to banks and retailers:

• Cash rebates on essential purchases. Mintel's research shows the strongest resonance among consumers for credit card reward programs that make everyday purchases less expensive. Critics of credit card processing fees allege that such programs force retailers to sell most goods at higher margins to absorb the costs. Meanwhile, retail analysts suggest that loyalty programs and partnerships can significantly reduce many retailers' overall marketing expenses, potentially offsetting interchange fees.
• Spontaneous travel rewards. According to Mintel, American consumers have burned out on frequent flyer reward programs. Fewer than one in ten survey respondents told researchers that they planned their purchasing around airline affinity programs and bonus tiers. For most of us, saving up frequent flyer miles has become the kind of chore best left for business road warriors. Instead, researchers found, consumers prefer opportunities to qualify for trips or hotel stays that they otherwise might not have taken.
• Special experiences. Along the same lines, credit card companies have learned that they can differentiate themselves by offering time-sensitive, unique experiences involving luxury destinations, cultural events, and professional sports. Discover's sponsorship of the Orange Bowl and NFL's reinvention of its affinity credit card partnership with Barclays allow football fans to get up close and personal with players. American Express allows ZYNC cardmembers to pick their own favorite reward experiences, ranging from art museum tours to food and wine tastings.

Despite complaints from policymakers and prosecutors that retailers unfairly hike prices to support credit card reward programs, Mintel's research shows that most consumers really do prefer earning special deals instead of enjoying "everyday low prices." The part of the consumer psyche that seeks out unadvertised bargain wins out against the rationality of lowering prices across the board. If credit card reward programs disappeared tomorrow, researchers suggest, consumers would demand similar loyalty deals directly from retailers. Instead of fighting for lower interchange fees, retailers may want to explore ways to get even more value from marketing partnerships and credit card affinity programs.