Rewards Program Valuation and Contribution Toward Credit Card Company Profits

From their origin in the 1980s to today, rewards programs in the United States have become more and more widespread, evolving into a common way for card companies to attract new customers. There is a segment of the population that is highly motivated by rewards and, in many cases, have signed up for multiple rewards cards. These programs became an expected benefit of credit cards to these consumers.

Recession and the looming regulatory changes are squeezing revenues out of issuers. Thus, some card issuers are considering scaling back programs that offer lucrative rewards, such as cash rebates. Consumers may have to pay additional fees or earn more points to claim cash-back rewards or redeem free plane tickets.

In this issue, we re-examine how consumers value different types of rewards programs by asking them to select the most valuable rewards structure from a group of programs in the same genre (i.e., select the most valuable cash rebate program from a list of three) and across rewards genres (i.e., select the most valuable rewards program from a list of three different rewards types).

This topic was last addressed in the January 2008 and December 2006 issues of Cardbeat; in this issue, we will compare how consumers’ attitudes have changed since the publication of those reports.

As a separate topic, we look at how consumers think four different types of cardholder groups contribute toward the profits that credit card companies make and how appropriate they think it is for credit card companies to make profits from each of these four cardholder groups.

Data included in this report were gathered using a web survey administered to 400 credit card users in the U.S. during August 2009; 213 of the 400 respondents reported that they hold a special value card.