Cash is king. During the past two years, this age old encouragement from our fathers has been driven home with punctuation. In the loyalty and rewards game, cash is king in a different way. Ask a focus group to rank their preferred reward options and cash rises to the top. Surveys often produce the same result.
But look into the transactional detail of a loyalty program sponsor and you'll find that cash is not always the top choice among rewards. Over the past decade, experiential rewards and air travel have stayed at the top of the list. There seems to be a disconnect between what consumers say they want and what their behavior proves they want.
Why then is there a resurgence in cash back rewards programs in the market today?
Since Discover Card launched in the mid 80's, cash back on cards has been a staple of the product offering. The fuel card business is now laden with cash back offers as well, which sometimes translate to "cents off the gallon" at the pump.
This week, JP Morgan Chase announced that holders of its Freedom card can earn five percent back on spending in the dining, drug store, and grocery categories, while continuing to earn one percent cash back on every other purchase. The announcement is interesting especially as there are no spending tiers to be achieved to trigger the higher earning rates and no caps on the amount that can be earned.
Holders of the True Earnings Card from American Express and Costco can earn one percent on all Costco purchases and up to three percent back on other purchases, including travel, dining out, and gasoline purchased at the Costco store. Business cardholders enjoy a similar offer, topping out at four percent for gas purchases. Accumulated earnings are distributed each February and the certificates expire in six months.
While Costco follows a traditional model, Target and Tesco are offering a glimpse into the future of cash back.
Tesco's Clubcard offers cash rewards, but turns a dollar (Pound Sterling) into two as it offers Clubcard holders double the value of their vouchers when spent in-stores and increases the value up to four times through partner rewards, including restaurants and entertainment venues.
Target is testing promotions with their private label and co-branded credit cards. Instead of the usual "10 percent off today's purchase" incentive to take a store charge card, Target is testing everyday rebates between three to five percent on all store purchases made with the card. This signifies a shift from traditional acquisition strategy to incentives designed to drive repeat purchase and customer retention.
Focus group members may have spoken that "cash back is king" for years, but a closer look suggests that the original model may not breed stickiness to the brand and leaves financial leverage on the table for program sponsors.
By Bill Hanifin, Managing Director, Hanifin Loyalty LLC