Loyalty & Rewards

Rewards Are Quickly Turning To Regrets

New and extended rewards programs keep emerging, but credit card companies are starting to feel some pain from the generous enticements proffered to consumers since the financial crisis of 2008. Will rewards and loyalty programs be scaled back? Not before the New Year ball drops at least.

The credit card companies have been cutting off their noses to spite their faces, it seems. For a long time, while the economy was recovering from the 2008 financial crisis, the handful of leading players have fought to offer better rewards deals to consumers to entice them to use their credit cards and spend what little discretionary income they had. But now, consumers are savvy and are taking full advantage of the often generous rewards. But the credit card companies are now crying foul as they begin to see the negative effects of aggressive loyalty strategies on their bottom lines.

A report by Reuters cited Chris Kotowski, an analyst at Oppenheimer & Company, who said that the leading companies “are going around killing one another.” The big problem is that, although consumers take advantage of rewards, there is no guarantee that they will become loyal customers.

According to Bloomberg, the rewards war has proven costly in the latest quarter for some of the nation’s biggest banks, which may hurt American Express. In the past week, Citigroup Inc., Bank of America Corporation and JPMorgan Chase & Company have seen a drop in combined income from card operations of 15 percent to $3.1 billion in the third quarter from a year earlier. Meanwhile, expenses in their consumer bank units rose 1 percent to $15.3 billion.

American Express, the largest U.S. credit card issuer by purchases, reported third-quarter results after the close of New York trading Wednesday (Oct. 19). Early estimates had earnings per share falling 23 percent with revenue down to $7.7 billion from $8.2 billion a year ago.

JPMorgan’s new card accounts jumped 35 percent, probably because of its Sapphire Reserve Visa. The card was launched in September offering a 100,000-point sign-up bonus, airport lounge membership, triple points on travel and dining and credits to offset the annual fee of $450. The bank received so many applications that it ran out of metal for the cards within a week.

Jeff Harte, an analyst at Sandler O’Neill & Partners, said: “The good news is volumes are going up; the bad news is the cost associated with volumes are going up along with it … are these rewards programs things that will differentiate their cards enough from the rest of the industry to drive better loan growth? The big issue with that is everybody’s trying to push their rewards programs.”

Well, at least the customer is happy, which is what counts in the retail world, so let’s go with that and look at the rewards and loyalty news for this week.


Samsung Has Extended The Fig Leaf

Ahh, Samsung. Although the company has been forced to abandon its Galaxy Note 7, it will not abandon its loyal Android users. After replacement Galaxy Note 7s began to overheat, just like their predecessors, Samsung offered an additional $100 credit to Note 7 users who traded in their old phone for a new Samsung device. Note 7 users who decide not to go with a Samsung device still receive a $25 credit.

This new strategy is bound to be costly for Samsung, but, hey, according to Gartner, it still has over 22 percent of the market share compared to Apple Inc. ’s almost 13 percent. So, it can certainly stay in the game.


Coupon Master Bed Bath & Beyond Tests Membership Loyalty Plan

Bed Bath & Beyond is quietly rolling out a membership model loyalty program called Beyond+. Members pay $29 per year for 20 percent off all purchases, along with free shipping, according to Loyalty360. The company is trying to compete with Amazon Prime’s loyalty program.

The move is also an opportunity for the retailer to abandon its traditional 20 percent off coupons, although Leah Drill, senior associate of public relations at Bed Bath & Beyond, told Loyalty360 that the firm does not intend to stop its coupons. “As stated during our earnings call, we have several marketing initiatives underway this fall, including the testing of some additional aspects of a future loyalty program … Our coupon policy remains consistent as we continue to believe that the Bed Bath & Beyond coupons are an important benefit we provide to our customers.”

Bed Bath & Beyond’s Q2 earnings were disappointing and dipped by 17 percent. Net sales dropped only slightly. Bed Bath & Beyond CEO Steven Temares has said: “We need to be working, and we are working on becoming a lot more intelligent about our marketing and making it much more personalized.”

The company has enhanced its websites and mobile app. According to CNBC video, Bed Bath & Beyond’s Beyond+ loyalty program test is designed to build customer stickiness, and there may be a launch in time that could mean that fewer coupons are issued.


FIS Rolls Out Premium Payback

FIS, a global leader in financial services technology, announced a nationwide rollout of FIS Premium Payback, a real-time, point-of-sale redemption solution, after a successful pilot with BP.

The solution will connect consumer payment cards with loyalty programs to a redemption option at the point of sale for all FIS loyalty clients. More retail loyalty programs can be connected to FIS’ broader loyalty network, providing more extensive redemption options to consumers.

The pilot program included over 7,000 BP gas stations across the U.S. that used FIS technology to redeem consumer rewards points for real-time discounts with a swipe of their payment card. For example, rewards points could be redeemed for $0.50 off a gallon of gas up to 20 gallons.

Premium Payback was lucrative for BP when it was added to its existing rewards program. The results of the pilot showed an uptick in the number of cardholders participating at BP stations and almost a 3 percent increase in use by accountholders who used their cards for gas. Eighteen percent of redeemers chose BP because of the loyalty program, 56 percent of consumers said gas discounts were a better value than other redemption options and almost 90 percent said they would redeem points for gas discounts again.

Premium Payback can be used at any POS. FIS offers over 6,800 individual loyalty programs nationwide.


Any Payment Method Gets Rewarded At Bon-Ton

Bon-Ton has expanded its loyalty program called LoveStyle Rewards. In addition to earning rewards by paying with the existing YOUR REWARDS credit card, customers can use any payment type and still earn Rewards Cards. With the new LoveStyle Rewards program, for every $200 a customer spends, they will receive a $10 LoveStyle Rewards Card. Customers who spend $200 and have a YOUR REWARDS credit card will receive a $20 Rewards Card, according to Loyalty360.

Luis Fernandez, chief marketing officer for The Bon-Ton Stores, told Loyalty360: “Given how increasingly critical it is to drive customer engagement, we recognized that all customers should have the opportunity to participate in a loyalty program,”

“Double It” Rewards or “Bonus Rewards” can be earned during events throughout the year, and customers can save their Rewards Cards with every $50 they spend. Rewards can be earned in-store or on company websites.

But what will happen now that consumer spending is up and confidence in the economy is growing? Now that the damage assessment of the rewards war is beginning, it is not easy to see how such programs can be scaled back without riling consumers, a strategy labeled “business suicide” by Digiday. No, it might be best to wait and let cardholders enjoy a festive couple of months, replete with mobile discounts, one-click checkouts and one-tap payments.


Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out the February 2019 PYMNTS Financial Invisibles Report

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