Companies testing your credit card loyalty

Contributing writerJuly 10, 2011 

Dear valued customer,” the letter begins, and immediately the mind and wallet brace for what is certain to come next.

Letters from the credit card company, like phone calls at 2:30 a.m., never contain good news.

Indeed, the body of the letter lives down to expectations: Shell and Citibank have announced some “changes” to the terms of the awards program on their MasterCard program.

In this case, they’ve scrapped the existing rebate on purchases at Shell stations, and a smaller percentage for other purchases. Under the new terms, a credit (10 cents a gallon under the new program) applies only if gasoline purchases amount to $500 or more a month; higher rebates kick in at $1,000 and $2,500 a month.

Five hundred bucks a month in gasoline purchases, even at today’s prices, is a whopping amount, and already Internet message boards are filling up with grumbling from cardholders.

Which is the real story for our purposes today. That a credit-card issuer changes the terms is not news; it happens all the time.

More interesting is the long-term trend we will see playing out over the coming months, as retailers and card companies test how far they can push customers’ loyalty, and indolence, before it bites them in the income statement.

The credit card serves multiple purposes – it’s a convenience for both buyer and seller (electronic transactions are more efficient and safer than handling cash). It’s also a way for retailers to create some sort of connection with customers, especially valuable when the commodity they’re selling – in this case, gasoline – is largely indistinguishable in price and content from what competitors are offering.

That’s why the large gasoline retailers at one time offered their own credit cards, before the rise of the large networks including Visa, MasterCard, Amex and Discover led to a combination of brands. (That was also back in the days when people referred to gasoline retailers as “service stations”; there’s another term and concept well into obsolescence.)

Rewards were another way of differentiating an otherwise undifferentiated product. They resonated with Americans who were always looking for discounts even in the best of times and were especially attuned to deals as they coped with a recession and higher gas prices.

But those programs shave margins, something the banking industry in particular can ill afford right now.

So, the rationale goes, we’ll trim away some of the goodies we’ve offered you and see how you react.

And how will you react, dear not-as-highly-valued-as-you-used-to-be customer?

Consumers are great at grumbling, less so at acting on their dissatisfaction. Even if they are motivated to make a switch, that will be complicated by the fact that everyone is trimming away rewards, rebates and incentives, not to mention tightening terms and raising fees. Fine, go away, the credit card companies, the retailers, the gasoline companies, the banks, the airlines, whoever, say. Where ya gonna go?

That’s why you’re going to see a time of testing in the months ahead, especially if the “recovery” continues to be as lackluster as it has been. Businesses will be watching one another and how customers respond: “Hmm, those guys did away with a rebate program and it didn’t seem to hurt traffic. Let’s see what I can do.”

One hope for consumers is that there will be a few businesses that see the same patterns and conclude, “Hmm, I can afford to grab market share by offering a better deal than my competitors.”

Here’s another: That enough consumers exhibit sensitivity to prices and extras. If they translate that sensitivity into spending behavior (not message-board whining), they stand a chance of influencing business decisions in their favor. If not, they can expect to receive more letters launched with the dreaded salutation: “Dear valued customer…”

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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