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Loyalty Credit Cards: A Thing of the Past?


Loyalty Credit CardsEver been offered a branded credit card by a retailer? Major retailers, like the Gap and Amazon, offer branded credit cards to their customers. Businesses realize that it’s easier to keep an existing customer than it is to attract a new one, so they launch loyalty credit card programs to keep customers coming back. Credit card rewards programs give customers an incentive to choose one brand over another. While these credit cards seem like a great way to reward customers, experts predict that they won’t be around much longer.

Credit-based rewards programs have been in use for decades, but their cost continues to rise for banks. As a result, margins are pressured and banks have to offset costs in other areas. They typically do this by charging consumers higher fees or making retailers adhere to less-than-beneficial.

Store credit cards are also minimally appealing to consumers. If you’re making a one-time major purchase, getting the initial 10 percent off discount that store credit cards typically offer is worthwhile, but there are few continuing benefits associated with using store credit cards. Besides, store credit cards can only be used with one retailer, so they lack flexibility.

It’s clear that store credit cards are dying a slow death. But what can retailers do to replace them in order to continue attracting and maintaining loyal customers? Experts agree that the best way to build a loyal customer base is to offer rewards based on annual membership fees and other upfront investments. When you require customers to invest in a loyalty program, it gives them a vested interest in the program. As a result, they are more likely to continue purchasing items from your store in order to earn back their investment and reap the benefits of your rewards program.

Examples of Successful Rewards Programs

There are many alternatives to credit-based rewards programs that today’s retailers can implement. For example, retailers could require loyalty program members to pay an annual membership fee in exchange for perks like free shipping, discounts or the use of exclusive services. These programs tend to be successful because members are more likely to continue spending at a store in order to enjoy the benefits they already paid for.

Credit-based rewards cards, however, do not offer sustained value. Once customers take advantage of the initial discount, all they have left are high interest rates. Rewards cards that offer frequent benefits and promotions are more appealing to consumers and therefore more worthwhile for retailers to implement.

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