Rewards Cards — The High Cost of Differentiation
It definitely cost big bucks. There’s no way small to medium-sized banks and credit unions could afford such a classy marketing piece. These two thoughts immediately came to mind as I glanced through the glossy, 16-page 2010 program guide from Chase Bank.
It didn’t arrive in my mailbox as I don’t bank with Chase.
One of my neighbors saves her bank marketing mail for me so I have access to what other banks and credit unions are sending customers and prospects.
The program guide from Chase Bank, measuring 8 ½” x 10 ½”, was sent to its Ultimate Rewards credit card and debit card customers. While the front cover labels it as the “2010 Program Guide,” I would have called it the “Ultimate Rewards Owner’s Manual.”
It’s basically everything you’d ever want and need to know about having and using one, or both Chase cards. Given they are rewards cards I suspect that many of Chase’s customers carry and use both cards. It would make sense to do so.
In addition to 16-pages of copy and vibrant, four-color graphics, stitched in the middle between pages 8 and 9 is a smaller, black and white 8-page “Ultimate Rewards Redemption Disclosures” booklet.
Rewards cards are one of today’s hot marketing ideas in the banking business.
Initially, offering rewards points for usage enabled a bank or credit union to differentiate its debit and credit cards from those of competitors. But this point of differentiation was quickly negated by the rapid rush to rewards cards programs made possible by third party vendors offering off-the-shelf, turnkey programs.
The primary reason behind rewards card programs isn’t differentiation.
It’s profitability in the form of interchange fees. Each time a customer uses his or her rewards debit card and credit card, the issuing bank or credit union earns a bit more fee revenue. When you have hundreds of thousands, or even a million or more users, these fees add up quickly.
A side benefit is stickiness or lack of attrition. After all, it’s unlikely a rewards card user is going to stop using his or her card before accumulating the required points needed for the $100 Gift Certificate for a Carnival cruise.
I have friends who have and use rewards cards and they put every possible purchase on their cards. In the ongoing quest to earn as many points as possible, they’ll offer to pay for all sorts of expenses of others and then collect the amount owed in cash. These folks are rabid about generating points and are, undoubtedly, the issuers’ best customers – unless, of course they pay off their entire balance in full each month.
Seeing the expensive Chase program guide tells me that offering a rewards card can be a costly proposition – especially if you want to remain competitive.
I doubt the programs offered by smaller financial institutions can come close to being as comprehensive as the one offered and aggressively promoted by the marketing folks at Chase Bank.
While there are a lot of consumers who prefer a rewards card, I suspect there are even more consumers – a lot more – who prefer a simple credit card and simple debit card. They prefer cards that are unencumbered by the complexity of the rewards cards – cards that don’t come with expensive, 16-page owner’s manuals, lengthy disclosure booklets, and dedicated website pages.
I’m one of these consumers.
If your bank or credit union offers a rewards program, the folks at Chase just raised the bar on differentiation. If your bank or credit union isn’t currently offering such a program, I’d think long and hard before getting into the rewards competition against a formidable competitor like Chase.
Stick with simplicity – it has a lot going for it.