February 4, 2005 03:20 PM
Cash Is Favored Over Trip In Card Loyalty Plans
Excerpt: A survey of households with incomes above $125,000 found that 70% of them earned cash back in the past two years or will get money back soon, while 62% redeemed points for free travel.
The rich use loyalty programs to make themselves richer.
A survey of households with incomes above $125,000 found that 70% of them earned cash back in the past two years or will get money back soon, while 62% redeemed points for free travel.
Until recently, a finding such as this would have been counterintuitive. After all, families with six-figure incomes probably wouldn't have noticed a 1% or so refund on the goods they put on their credit card. Plus, frequent-flier miles earned through card spending offered a better value, because people could exchange them for international trips that would have cost thousands of dollars out of pocket.
But now, the loyalty stakes are higher, particularly in the credit-card arena, as more merchants and service providers accept cards and people pile more spending onto them. Meanwhile, card issuers have gotten more aggressive with their cash refunds, offering 5% back on some purchases.
Then, there is the disillusionment with frequent-flier miles that appears to be growing. "People have been frustrated with travel rewards that they can't redeem when they want," said Gail Sneed, market-development director at Maritz Loyalty Marketing, the St. Louis consulting firm that conducted the survey. "People may decide it's not worth using their loyalty points to travel since they can buy cheap flights outright" with cash refunds that they have earned in lieu of miles.
The study also noted that only 40% of the respondents got their mortgage from the bank where they had their primary checking account, while just 17% bought investment products there. Ms. Sneed said banks would do better by offering loyalty points on those products, too, which people could use to lower the rate on their car loans or raise the interest rate on a certificate of deposit.
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