Issuers Use Unusual Pitches To Create Loyal Customers

  Let's say you've always wanted to see Aerosmith play an ultra-rare acoustic concert. If the band was in your town for one night only, playing that elusive acoustic show, what would you do to get tickets? Would you be willing to get a new credit card?
  Last fall, Citibank gambled that you would when it introduced the Citi/AAdvantage Card Private Pass program featuring a number of prominent artists performing Citi/AAdvantage cardholder-only concerts. The concerts, which were one-night-only events, allowed cardholders to "connect with A-list artists in a way they may have never experienced before and can't experience anywhere else," Citi noted when it announced the concerts, in which artists performed at venues such as the Beacon Theatre in New York.
  Some cardholders won backstage passes or signed memorabilia. And at the end of the shows, the issuer gave everyone in the crowd a free postcard featuring a black-and-white photo of the artist.
  The issuer's promotional materials would remind you that the concerts are only a small fraction of the experiences available to you if you enroll in a Citibank checking account or apply for one of the 11 credit cards that are a part of Citi's ThankYou Network rewards program. Other unusual rewards include a hot-air balloon ride for 26,200 points and an all-day whitewater-rafting trip for 11,000-points.
  "We make experiences possible," says Raja Rajamannar, Citi Cards executive vice president. "Whether we're helping cardholders get on a hot-air balloon ride or helping cardholders see Aerosmith play an acoustic concert, we're helping cardholders do things that otherwise are not available to the average consumer."
  Citi's venture illustrates just how far issuers are willing to go to capture customers. With financial institutions spending $9.5 billion on credit card reward and loyalty programs last year and such spending projected to increase to $16.6 billion by 2010, according to the Aite Group, these types of unusual rewards will continue to gain a foothold, says Gwenn Bézard, Aite Group partner and research director.
  "The [rewards] concept is simple, but the trick is to get it to work. If you need to wait a year to get a cheesy radio, is the program going to make you happy?" asks Bézard. "Issuers need volume and frequency to offer a rich reward program that cardholders embrace."
  Indeed, today's rewards landscape is drastically changed from the scene in 1985, when the AT&T Universal Card launched the first reward program and Sears' Dean Witter Financial Services launched the Discover Card with a cash-back program the following year, says Bézard. At the time, few people considered their potential to earn rewards when selecting a credit card, he says.
  "Over the past five years the way issuers have made their money has changed," says Bézard, author of the report, "Loyalty & Rewards: A Market Overview." Bézard notes that as growth in credit card outstandings has remained in the low single digits, issuers have had to shift their growth plans to focus on increased spending. "Issuers are increasingly pressured to attract new customers, which they're doing through rewards," he says.
  MORE MOTIVATION
  As the issuer landscape has become increasingly focused on rewards-more than 85% of U.S. households participate in at least one reward program, according to Aite-issuers increasingly need to differentiate themselves in terms of what they offer to improve loyalty, says Shea Long, vice president at Maritz Loyalty Marketing, which builds partnerships between retailers.
  "Rewards programs keep people focused on their credit card and keep the card at the top of their wallet," says Long. "[Due to the competitive marketplace] it's a challenge for Bank of America, Citibank and American Express to keep cardholders using their card. So they need to develop rewards that they couldn't get anywhere else. And in doing so they create excitement around the program by offering new and creative reward experiences that distinguish their cards in the marketplace."
  In fact, AmEx's desire to create excitement is what prompted the issuer to create the American Express Members Lounge for tired shoppers at The Mall at Short Hills in Short Hills, N.J., during last year's holiday season. The 3,400- square-foot, 100-seat lounge, which was appointed with leather sofas, linen-wrapped lamps, coffee machines, snack baskets, magazines, a coat check, a private restroom, iPod and cell phone charging stations, and an e-mail station, was available to all AmEx cardholders or applicants. The lounge, which was located in empty store space, also featured a free gift-wrapping service.
  "We are developing ways to demonstrate the value of membership," says AmEx spokesperson Rosa Alfonso, who spent a full day the weekend before Christmas monitoring customer behavior in the lounge. "It's a lifestyle-enhancing product, and the perfect way to demonstrate that is to have the card provide access to things that consumers otherwise could not access.
  Alfonso, who would not disclose the cost to operate the lounge, suggests that the lounge helped capture consumers' interests in American Express. AmEx is examining reopening the lounge in Short Hills and adding other locations in the future.
  The same philosophy holds true for Bank of America's affinity programs. "We want to give fans the experience and access to memorabilia that mere fans never get to see and do," says Jake Frego, BofA senior vice president.
  FAN APPRECIATION
  Bank of America's affinity programs, a holdover from BofA's acquisition of MBNA in January 2006, focus on offering rewards tailored to niche markets. For instance, with the program's NFL Extra Points Program, each team works with BofA to develop team-centric rewards tied to team affinity cards.
  As a result, cardholders can redeem points for football-related rewards ranging from game tickets to a chance to pull the field goal net at Lincoln Financial Field, home of the Philadelphia Eagles.
  While Frego notes that many unusual rewards are aspirational, he points out that 20 cardholders did redeem 400,000 points for tickets to this year's Super Bowl at Dolphin Stadium in Miami.
  Since the 2004 introduction of NFL Extra Points, MBNA-and now BofA-has added NASCAR RacePoints and MLB Extra Bases that offer similar rewards tied to no-annual-fee affinity cards.
  The pairing of fans and a team-centric issuer results in a "virtuous circle of customer and employee satisfaction and retention," according to Aite's Bézard, who notes that focused rewards help drive loyalty.
  RETAIL CARDS
  And for retailers who issue their own credit cards, there is an opportunity ripe for loyalty-focused rewards, says Long.
  George Zilvetti, vice president of business development at Saks Fifth Avenue, agrees. In fact, the luxury-chain retailer's research suggests that Saks First cardholders visit the store three times as often as do regular customers, and they spend five to 10 times as much as regular customers of the same income and demographic levels.
  The reason, Zilvetti suggests, is the card's lavish rewards. For instance, the MasterCard-branded Saks World Elite card offers cardholders discounts on luxury cruises, free international business companion tickets from select cities and 24-hour personal concierge service. Moreover, cardholders who spend $10,000 annually receive free valet parking and can store a fur in-house at select Saks stores.
  World Elite MasterCard cardholders automatically are enrolled in the SaksFirst rewards program, while those without Saks World Elite MasterCards must spend $1,000 in a calendar year on their Saks cards to qualify for the program. Neither card carries an annual fee.
  "We do a lot of research with our customers trying to understand what is important to them," Zilvetti says. "The result is that once you're a [cardholder] and take part in the rewards, the rewards keep you coming back."
  One of the most innovative examples of rewards acting to create loyalty to a bank's products is Citibank's ThankYou Network rewards program, says Bézard. The ThankYou Network goes beyond traditional programs by offering cardholders rewards for a variety of activities, including using a Citi credit card, banking with Citibank, booking travel on Expedia.com and shopping at Home Depot and other participating retailers.
  Some 1.9 million consumers are enrolled in the ThankYou Network, making it the nation's largest relationship reward program, Aite says.
  And since launching, the program has helped create more loyal-and profitable-customers, says Nancy Gordon, Citi executive vice president.
  Offering rewards ranging from vacations to the "Your Wish Fulfilled" program that allows cardholders to develop their own rewards has helped distinguish the Citibank brand, says Rajamannar.
  "The card industry is so developed that differentiation makes all the difference," he says. "As issuers we have to ask ourselves, 'How compellingly superior is my product?' And ThankYou significantly distinguishes our offerings," he says.
  In doing so, the ThankYou network may be modeling one future direction that rewards may be headed, says Long, noting that his firm is working with three issuers to develop programs similar to the ThankYou Network this year.
  As Long notes, stiffening competition among financial institutions and large retailers along with an increasingly sophisticated cardholder base means that rewards programs are only beginning to see their height of growth and expansion.
  And, as Aite suggests, credit card-rewards spending is expected to grow nearly 75% by 2010. As such, it is hard to know how outlandish rewards and loyalty programs will become.
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