Wednesday, 29 October 2008

Customer loyalty or inertia - two sides of the same coin?

In reviewing some recent credit card customer qualitative research it was suggested that the customers didn’t have emotional loyalty with their card and that instead any loyalty they did have was more akin to inertia than actual loyalty. Their hypothesis was that all credit cards offer the same “service” – i.e. payments, and so a customer remains with a credit card whilst the benefits they receive outweigh the effort it takes to change issuer.

As one of my main areas of expertise is card based loyalty this struck me as quite an interesting thought. Is all the work we do to retain customers and engender loyalty simply a way of tipping the balance of inertia so its not worth the customer making the effort to change rather than loyalty being a means of building deeper engagement.

I agree that building any type of engagement with a product such as a credit card is hard. At a basic level all credit cards do the same job. There may be subtle differences with some cards such as Amex and the perception people have with acceptance, but basically gone are the days where the card network or even the issuer mattered that much.

However, if loyalty efforts within a credit card product were really just a way of entangling the customer a little more to prevent them from churning, that doesn’t explain the real benefit that we see in terms of card usage. There is no denying that when loyalty is put onto a credit card product we see increased card usage. A Visa payment study in 2006 showed that share of wallet for credit cards increased from just 8% for non-reward cards to 36% for reward card holders. Research from First Annapolis showed a similar trend for debit card reward programmes with activation rates 15% higher and spend per card as much as 40% higher.

This is not to suggest that reward programmes create deep engagement with a card product or in fact that people actually have real engagement with their credit card. What they can do however is create engagement with the reward programme itself – causing customers to want to consolidate their spend to maximise their reward opportunities and the rules for doing this are the same whether we’re creating loyalty for credit cards or loyalty to a carbonated soft drink.