Our four-part series from Lightspeed Financial Services Group continues with a look at credit card reward programs. Our first post highlighted consumers' views of daily dangerous driving activities, demonstrating how mobile enables risky behavior. Today, we focus on what rewards programs appeal to consumers and how the branded competition stacks up.
A recent Lightspeed test of unbranded cash back card offers shows that a flat 2% cash back has the greatest appeal among U.S. cardholders, while the rotating category model that dominated the market several years ago has fallen out of favor. In a series of paired comparisons, consumers were asked which option they would select if designing their own rewards card.Example: If you could design your own rewards card, which of the following two options would you select?
The options compared by consumers were unbranded (i.e., examples shown below were not included):
One standard rate of 1.5% for all purchases
Example: Capital One Quicksilver, Chase Freedom Unlimited
One standard rate of 2% for all purchases
Example: Citi Double Cash
A standard rate of 1% for most purchases with higher rates of 2% and 3% for specific categories all year (like 2% at grocery stores and 3% on gas)
Example: BankAmericard Cash Rewards
A standard rate of 1% for most purchases with higher rates of 2%, 3%, and 4% for specific categories all year (like 2% at Costco, 3% at restaurants, and 4% on gas)
Example: Citi Costco Anywhere
A standard rate of 1% for most purchases with a higher rate of 5% for categories that vary each quarter (like restaurants in Q1, home improvement stores in Q2, etc.)
Example: Chase Freedom, Discover It
A standard rate of 1% for most purchases with a higher rate of 2% for one "everyday" category that you choose each quarter (like groceries in Q1, gas in Q2, etc.) AND a higher rate of 5% for two categories that you choose each quarter (like movie theaters and bookstores in Q1, department stores and fast food in Q2, etc.)
Example: U.S. Bank Cash+
The flat 2% earn rate was the most preferred with an average selection rate of 69%, while the flat 1% with 5% rotating categories was least preferred – it had an average selection rate of just 33%. Only 24% selected it over the 2% earn rate and – at its best – just 40% selected it over the 1%/2%/5% offer.
In fact, each of the reward structures faired best against the flat 1% with 5% rotating categories.
Reflecting the preference for a 2% flat rate, the 2016 Credit Card Rewards Redemption Study found that the Citi Double Cash card tops the list in overall satisfaction (74%). However, Discover -- which has traditionally used rotating categories -- also ranks high at 72%, so while the unbranded rewards concept does not stack up against competing offers, Discover customers remain content with the product and benefits they receive.
