In the ongoing battle for wallet share, offering the right rewards card to the right customer can make the difference between market winners and losers. While a broad spectrum of loyalty programs has become an essential requirement in bankcard sales, greater insight into consumer preference and behavior is needed to create more intelligently targeted payment products to effectively compete in today's market.
The latest trends in consumer-payment preferences show a strong upswing in reward credit cards and a sharp downswing in co-branded credit cards. What is driving this pendulum swing in consumer usage and preference? One factor is that issuers are building the value proposition of their proprietary reward card products, making them more appealing to the consumer than even the best of the co-branded card offers.
Reward cards also make it easier for consumers to redeem than do co-branded cards and offer a wider variety of reward options with no blackout dates and other limitations. Although co-branded cards still have the brand equity and value proposition to compete effectively-presuming the rewards are valued by the customer and are attainable-consumers naturally gravitate toward payment products with greater value to their specific needs and requirements.
The importance of reward programs is expanding beyond bankcards across retail bank products. Market studies and responses to issuer offers consistently track a growing consumer demand for better, more "linked" rewards, supporting a strong argument that "Relationship Rewards are King" in retail banking.
We learned from the 2005 PaymentDynamics Rewards and Loyalty Study that relationship rewards programs, which provide benefits tied to multiple retail bank products, compete effectively with pricing to motivate consumers to acquire and use cards.
In the current 2007 Preferred Payments Study, 35% (up from 31% in 2005) of consumers surveyed indicated that a relationship rewards program from their primary retail bank was more important than either a lower rate offer (28%) or any other pricing and value alternate.
Though rewards are increasingly important, targeting specific rewards at key consumer segments and their preferences is critical. For instance, subprime and near-prime consumers seem to want a low annual percentage rate versus rewards.
However, as the more risky consumer-market segments begin to heat up competitively, service benefits could become a natural differentiator between financial institutions.
Across all categories, bankcard marketers are striving to match the right products with the right customers. To better meet these needs, credit bureaus and others have begun developing new behavioral models from consumer research that is overlaid with the respondent's credit attributes.
These more-robust propensity models will better assist marketers and risk managers in selecting the right customers for the appropriate benefits and in knowing who likely will remain more loyal under times of duress.
While interest in reward cards clearly is not peaking and co-branded cards are far from dead, the rewards concept is being recreated through greater market intelligence that allows for cross selling and relationship marketing.
As the rewards pendulum swings, strategic use of consumer and risk data to better segment and target customers-with the right products and reward programs-is the key to winning in today's competitive payments world.
Ronald Mazursky, director at Edgar, Dunn & Co., and Timothy Claytor, director of marketing services at TransUnion, co-led a joint effort to develop the new 2007 PaymentDynamics Preferred Payments Study. Mazursky can be reached at ronald.mazursky
(c) 2007 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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