Editorial Policy

Cards Woo Consumers With Creative Rewards

Marcia Frellick

October 12, 2012

Credit card rewards are getting more creative, offering access to everything from early concert ticket sales to racing your own stock car to tandem sky diving.

As credit card users have been cautious in spending compared with pre-recession levels (and concentrating on paying down the debt they have), some companies are pulling out all the stops with these offers to entice people to use their cards, credit card market experts say.

Trying to stand out
So just how creative are card issuers getting? Here are some of the latest offers:

  • Citi/AAdvantage: Citi card holders with this co-branded with American Airlines card get access to two concerts exclusively for cardholders: an Alicia Keys concert in New York Oct. 15 and a Maroon 5 concert in Los Angeles concert Oct. 19.
  • Citi Private Pass: This perks program (for Citi credit and debit card holders) can hook members up with tickets to a six-course tasting menu and cocktails Nov. 2 with renowned chef Daniel Boulud in his signature New York restaurant, Daniel.
  • American Express: Card members at the 2012 Ryder Cup golf tournament near Chicago in September got exclusive access to hand-held TVs delivering player information and live coverage.
  • Chase Sapphire: Sapphire card members can purchase 2013 Sundance Film Festival passes and packages before they’re available to the public.
  • Diners Club International: Card members can redeem points for hot air balloon rides and fighter pilot training, where, with an instructor, they can engage in “amazing g-pulling dogfights.”

These rewards are fighting for consumers’ attention at a time when many Americans are just beginning to relax the grip on their wallets since the economic downturn. For example, four years ago, at the height of the economic crisis, Americans had $1.03 trillion in credit card debt, a record high. In August 2012, it was 17 percent lower, according to the Federal Reserve.

Experience vs. possessions
Jim Miller, senior director of banking services with J.D. Power and Associates says offers seem to be leaning toward experiences rather than material goods. Buying something for the house is great, sure, but there’s a lot more meaning in experiences like going to an adult rock band camp.

“And which one are you going to talk about with your friends?” he says.

The experiences are even more tempting if you can use points for some or all of the cost. It makes these splurges a little easier to justify to yourself or to your spouse, Miller says.

Because credit cards are fighting for customer attention in an increasingly crowded field, offering rewarding experiences may be an affordable way for companies to differentiate themselves, Miller says. They are less expensive to a company than, say, a higher percentage of cash back across the board.

In offering exotic experiences, credit card companies are also aiming to make customers feel an emotional connection with their credit cards and connect their cards with a glamorous lifestyle. After all, mingling with celebrities is infinitely sexier than getting 1 percent cash back, Miller notes. It makes cardholders think, “Yes, I’m the kind of person that wants to be out there going to concerts and cooking with famous chefs,” Miller says.

Another reason card companies are ramping up their rewards is because it’s fairly easy to switch to a different credit card — and better rewards elsewhere are a big reason cardholders make the jump, according to 2012 J.D. Power research.

“We found 46 percent said the reason they were switching was for a better rewards program,” Miller says. “For customers with over $100,000 in income, that goes from 46 to 60 percent.”

Rewards for all budgets
Glamorous rewards are often targeted to the high-spending crowd. To do adventure travel, you have to spend tens of thousands of dollars to rack up enough rewards points for the trips. These are also people who aren’t generally revolving balances because doing so would rack up interest charges that would counteract the benefits.

Enticing high-spending rewards junkies is vital because so many people already have rewards cards. That means there’s little room to grow by convincing those without a rewards card that they need one, Miller says.

“Among customers who had more than $100,000 in income, 90 percent of them have a rewards card that they’re using as their primary card,” Miller says. “Certainly, there’s only so much the credit card companies can grow that 90 percent by offering somebody who doesn’t have rewards a rewards card. So to entice them, they have to put together a package of rewards that is compelling and different.”

Yet creative rewards are not effective only for high-end consumers, says Bryan Pearson, president of loyalty program market research firm LoyaltyOne. Even movie passes can be something that helps a family on a budget do something they might not otherwise do, Pearson says.

No matter the cardholder’s budget, rewards programs aim to tap into that emotional element of satisfying a dream — a romantic trip to Paris, or a family trip to Disneyland — something a cardholder wouldn’t necessarily do without rewards points, says Pearson.

Rewards here to stay
Last year saw an exodus in debit card rewards programs. A Bankrate survey found the number of debit card programs offered by banks in its annual survey dropped by 30 percent after the Dodd-Frank Act limited the swipe fees that banks can charge merchants to process debit card transactions.

But industry experts say it would take a huge shift in rules on transaction fees for credit cards to stop offering rewards.

“Rewards programs are fairly well embedded in the competitive culture of the credit card market,” Pearson says. “It would take something relatively profound — like a complete restructuring of the model for merchant fees as a result of digital wallets — for credit card companies to scale back on rewards, he says

Also, in the past two years, satisfaction surveys show consumers are happy with their rewards, Miller says.

“Who wants to be the first one to say, ‘I’m greatly reducing my rewards?’ ” Miller says. “I don’t hear any of the credit card companies we work with talking about that.”

Pearson says what’s more likely to happen is that card companies will make better use of the information they have available on consumers and tailor rewards to specific card members. That way, consumers don’t have to wade through “the vanilla catalog of everything that’s available to you,” Pearson says. If you’ve used your card for art museum memberships and gallery openings, for instance, a company might want to customize rewards for you that are related to the arts.

“We’re seeing the early stages of that,” Pearson says.

Traps for customers
Of course, with these, tempting card perks, cardholders need to keep themselves from racking up debt along with rewards. Here are some mistakes to avoid:

  • Spending more than you planned: If you’re spending extra just to get the rewards, you’re wiping out the benefits.
  • Not paying the card off monthly: Rewards aren’t rewards if you’re paying interest while accumulating points. Because rewards cards often have higher interest rates to begin with, you may dig yourself in deeper.

Getting sucked into your issuer’s online store: These stores let you gain points more rapidly by buying items through them. If you wouldn’t have bought those items anyway, you’re getting away from your value-adding goal.