BrainTrust Query: Cash Back Popularity on the Rise, But Is There a Better Way?
By Bill Hanifin, Managing Director, Hanifin
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
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
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
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.
Will cash back rewards continue to become more and more popular with
consumers, or is it just a temporary reaction to this recession? How
do you think cash back rewards programs should be best optimized to
encourage loyalty or repeat purchase? What do you think of the different
cash back incentives from Costco, Tesco, Target and others?
- Chase Freedom Empowers
Customers to Earn More Cash Back, Save More by Avoiding Interest on Everyday
Purchases – Comcast.net Finance
- It’s Reward Time at
Costco – Are You Motivated? – Hanifin Loyalty
- Tesco Puts £120 Million
Back In Customers’ Pockets – Tesco
- Target Tests Aim To
Measure Effect Of Various Rewards – Payment Source