As I mentioned last week, we had a very nice marketing consultant come in and give us some advice on growing our credit card portfolio. One of the things he suggested was to put travel points on all of our credit cards.

His logic is sound enough, I guess. If you look at our VISA card that offers points, it is doing far better in all categories than the other cards in our product line.

I don’t thing giving points to everyone is wise. Here is why:

1. I am worried about point inflation: Twice The Economist has noted that there are more points in circulation than there are dollars in the U.S. economy. Many leading economists believe that inflation is caused by the increase in the supply of money. This theory could hold true for points too, couldn’t it? I mean, if I wake up one day and find that I have a billion points on the books, wouldn’t it make sense for me to raise the cost of each travel redemption so I don’t end up losing my shirt on my points program?

I don’t want to come to a place where we must charge members one million points to get to Spokane.

2. I am worried about a run on the points. When I look around, I see many indicators that travel costs will continue to increase — rising fuel costs, failing airlines (loss of competition), increased security costs, and climbing demand. There are not many foreseeable reasons for this trend to change. The price per ticket for the credit union has already gone up twice in the past two years. I predict this will happen again.

Here’s where things get a little complicated. You see, all points programs rely on the fact that a majority of people will never redeem their points. However, it seems to me that if airfare continues to sky rocket, people are going to start remembering they have points and taking the time to figure out how to redeem them. Suddenly, the logarithms we have relied on in the past are not going to be correct anymore.

For these two reasons, I want to make sure that the people who are currently in our points program are there because they are actively using their card to rack up their points and they are committed to redeeming them. That is why we have a $35 annual fee and why we expire points. These two things make sure that members self select into the credit card program that is right for them and they pay attention to the program when they are in it.

I want to avoid giving points to members who don’t notice or don’t care. I still have to accrue those points on our balance sheet, whether the member wants them or not. I also think points are a bigger liability than most institutions realize.

I am actually a minority in this line of thinking. Many institutions are adding points to their debit cards and giving points for other relationships (open a CD and get 5,000 points, for example). Believe me, we revisit this topic often. But for now, we are taking the conservative route and keeping our points on our VISA Journey Scorecard only.

We are however, looking at some other incentives for our debit/credit program that I think our members will LOVE. I can’t say much more than that, but watch for some good stuff in 2007.

It also helps offset costs and plan for redemptions more accurately.

Shari Storm

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2 Responses

  1. Colin says:

    Great discussion on a complex topic. I really in my heart of hearts disagree with loyalty points, yet, and the Economist article summarises it well. Yet they seem to drive behaviour amongst certain customers. Perhaps they are the vocal minority. I still believe a ‘better” credit card would win over a loyalty programme.

    • Shari Storm says:

      Colin –

      Thanks for the comment. Loyalty points do seem to drive behavior “amongst certain customers”. I think the key word in that sentence is “certain”. Others couldn’t care less and I just think putting the couldn’t-care-less members into the card won’t change their behavior. It’s kind of like putting my 94 year old grandma in a Porsche – even though most people who like to drive sports cars like to drive fast, my grandma in a sports car will still drive conservatively. (So why spend the money on the Porsche when she loves her Oldsmobile just as it is?) You know?

      I do have to ask you, what, in your opinion, makes a card “better”?

      Thanks again for the comment.
      (I’m a big fan of Bankwatch)

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