Why just travel or CB rewards cards?

[Anonymous]

I agree that the cash back is nice, but discounted categories could actually be more beneficial than straight CB depending on what it is and whether or not it is of use to the card holder.  Allow me to give an example that may illustrate what I mean.  I run a restaurant.  If I have a regular guest that had a bad experience and demands a refund, I have two ways that I can go about it.  Say they spend $50 (cash) and want a $50 refund.  If I give them the $50 refund in cash, I'm out $50.  Pretty simple.  If I give them a gift card however, I'm only out my cost of goods on that gift card, say 25% on food and beverage, or $12.50.  I can actually offer them a $75 gift card in place of their $50 cash and still make out as a $75 gift card only costs me $18.75, but to a regular guest that's going to be back next week regardless to spend $50, getting $75 would seem like a fantastic deal to them. 

Obviously, this only works for someone that's already going to spend the money anyway (like a restaurant regular).  Getting back to CC rewards, I just feel like there must be other categories out there other than travel that this concept would work for.  Again, I mentioned event tickets... concerts, plays, sporting events, whatever.  I just feel like there must be events of this type that can be discounted to the point where the perceived value to the person getting it is far greater than just CB, but if the event is one that isn't going to sell out anyway getting some money (say 75% of what is typical) is better than nothing.  You've got baseball stadiums that mid-season are at half capacity for weekday games for example.  $100 for a ticket online, but if somehow through CC rewards you could get a ticket for $60-$70 (where CB would only be say $20) that's a win-win.  The stadium gets another seat filled, the card holder gets a better deal than if they were to get CB and buy the ticket at full price.  Again, just an example and thinking out loud here.

[Anonymous]

Interesting that you mention discounted categories, @brutal. That sounds like Discover's gift card portal - they're all offered for less cash back than face value (up to 50% off in some cases).

[Anonymous]

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@Anonymous wrote:

I agree that the cash back is nice, but discounted categories could actually be more beneficial than straight CB depending on what it is and whether or not it is of use to the card holder.  Allow me to give an example that may illustrate what I mean.  I run a restaurant.  If I have a regular guest that had a bad experience and demands a refund, I have two ways that I can go about it.  Say they spend $50 (cash) and want a $50 refund.  If I give them the $50 refund in cash, I'm out $50.  Pretty simple.  If I give them a gift card however, I'm only out my cost of goods on that gift card, say 25% on food and beverage, or $12.50.  I can actually offer them a $75 gift card in place of their $50 cash and still make out as a $75 gift card only costs me $18.75, but to a regular guest that's going to be back next week regardless to spend $50, getting $75 would seem like a fantastic deal to them. 

Obviously, this only works for someone that's already going to spend the money anyway (like a restaurant regular).  Getting back to CC rewards, I just feel like there must be other categories out there other than travel that this concept would work for.  Again, I mentioned event tickets... concerts, plays, sporting events, whatever.  I just feel like there must be events of this type that can be discounted to the point where the perceived value to the person getting it is far greater than just CB, but if the event is one that isn't going to sell out anyway getting some money (say 75% of what is typical) is better than nothing.  You've got baseball stadiums that mid-season are at half capacity for weekday games for example.  $100 for a ticket online, but if somehow through CC rewards you could get a ticket for $60-$70 (where CB would only be say $20) that's a win-win.  The stadium gets another seat filled, the card holder gets a better deal than if they were to get CB and buy the ticket at full price.  Again, just an example and thinking out loud here.

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From what I've seen & heard, the "premium" cards with high annual fees tend to be where the banks funnel the kind of offers you're talking about. And while there are also cards that specifically aim at one particular category, most of the special discounts and offers seem (to me) to be aimed at the folks who are spending the most money and generating the highest incomes for the banks in question.

[Anonymous]

Understood.  I just feel like it would be more of a win-win if such things were possible.  Say I spend $3k per month on a CC and my CB is $75.  I feel like there must be a way that I could achieve something other than CB that I would perceive the value to be greater than $75 (like a $100 valued ticket) that could be provided to me for a cost that's less than $75, say $50.  This way they save $25 on CB, and I make out with $25 more as if I was going to buy the $100 ticket myself the CB would have only covered 75% of the ticket price, so I'd pay the other $25 out of pocket.  Not the greatest example, but hopefully it makes sense.  Something like this I think is a huge win-win as it would only help the profits of the creditor while offering a greater overall value to the customer.

[wasCB14]

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@Anonymous wrote:

Understood.  I just feel like it would be more of a win-win if such things were possible.  Say I spend $3k per month on a CC and my CB is $75.  I feel like there must be a way that I could achieve something other than CB that I would perceive the value to be greater than $75 (like a $100 valued ticket) that could be provided to me for a cost that's less than $75, say $50.  This way they save $25 on CB, and I make out with $25 more as if I was going to buy the $100 ticket myself the CB would have only covered 75% of the ticket price, so I'd pay the other $25 out of pocket.  Not the greatest example, but hopefully it makes sense.  Something like this I think is a huge win-win as it would only help the profits of the creditor while offering a greater overall value to the customer.

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You'd need the producers on board with it, too. If they are to sell a ticket to the issuer for a lower price than they'd sell to the general public (and thus give the issuer an economic incentive to offer tickets as awards) then they might need some reassurance that the issuer would buy some minimum number of tickets to give as rewards.

[Anonymous]

Sorry to hop on this train so late, but I've had experience with two non-CB, non-travel rewards cards, both of which are defunct (which is in itself instructive).

One was the Citibank Driver's Edge reward card.  The other was the BofA PetRewards card.  The Driver's Edge gave 3% back on gas/grocery/drugstore and 1% elsewhare, but if you redeemed the rewards by requesting a rebate on auto repair expenses, you got double the value of the rewards, or effectively 6% on gas/grocery/drug and 2% elsewhere.  The BofA PetRewards card gave you 2% on pet-related purchases (pet stores, vet offices, etc.) and 1% elsewhere, but if you redeemed your rewards on veterinary visits, you got double the value of the rewards, or effectively 4% on pet-related purchases and 2% on everything else.

The cards were great for me.  I had enough car repairs and vet visits (8 cats at the time), so there was never a problem redeeming rewards.  I made great mileage out of those programs.  And they established the 2% floor for rewards for me.  Since then (2007ish), I've never been without a card that gives me at least 2% cashback.

I think the problem from the issuer side (and probably the main reason they got cancelled) is that they didn't encourage discretionary spending.  I don't think anyone is going to say "hey, I've got rewards to burn, let's get the transmission rebuilt!"  Or "hey, I've got rewards to burn, let's take the cat in for exploratory surgery."  Likewise, you aren't going to buy more cat food because you're earning 4% cashback on it.  Or buy more gas because you're earning 6% cashback on it.  Yes, issuers can earn more if you switch spending from another card onto their card.  But there are many people who only use one card.  Or if they have two cards, both are from the same issuer.  So with rewards programs incentivising non-discretionary spending, you're likely just cannibalizing spending, which may or may not be beneficial to the issuer.  The sure-fire win for the issuer is to get the customer to do spending that they otherwise would not do.

And that's where travel is perfect.  It can come in rather large chunks, and is often a very emotional purchase and is almost always discretionary.  This is why airline miles programs work so well.  If you *need* to travel to a specific location, on a specific date, it's typically difficult to arrange that for free on miles.  Rather, most miles flights start with the premise, "hey, we've got 120k airline miles, how can we use them?"  Many rewards flights start by trying to figure out how to use up miles, generating a flight which otherwise wouldn't even have been taken.

From a travel rewards program, the incentive isn't as much, since you can usually redeem your rewards on any travel expense.  But keep in mind again that travel usually comes in large chunks, and there is usually additional spending involved.  So you have 46,000 points on CapOne Venture and you want to take a flight.  The flight for the two of you will cost $900.  So, yeah, use the Venture card and you can redeem your 46,000 points.  But CapOne is going to get $900 more in spending, not just that may have otherwise gone on another issuer's card, but that may not have happened at all!  And the trip will also probably involve hotel spending, dining out, cab rides and/or car rental, and other travel-related expenses, all of which are likely to end up on the Venture as well.  Big win for the issuer.

Yes, there are other discretionary categories, like concerts, plays/shows, sporting events which you've mentioned.  But the fact remains that those purchases:

1. Aren't nearly as universal as travel

2. Are typically smaller in amount than, say a plane ticket

3. Don't have nearly the amount of complementary spending than travel

I've never paid to attend a sporting event in my life.  I've been to a few plays, but only with a really good discount deal, and in my 53 years have only paid to get into, maybe 6 concerts.  I may be on the low end of the spectrum, but I still think that most people spend far more on travel than on these other discretionary expenses.  And unless you're dealing with a scalper (which is typically a cash-only transaction AFAIK), you're not spending a huge amount on an individual purchase.  Yes, you may have an expensive meal related to the event, but it's typically going to be *one* meal, not meals for several days like you'd have with an airline ticket.  You may take a cab to and from the event, but not multiple cab rides around town over several days, or a multi-day car rental, like you might have with an airline ticket.

So, for me, the answer is that incentivising travel with a travel-rewards card is a great way for the issuer to turn the equation around and manufacture spending from the customer.

Chris.

[Anonymous]

There are two aspects, how you earn rewards and how you spend those rewards.

Some cards have catagories of rewards. Sears Master Card had a recent promotion, get 10% points rewards when you spend on groceries or restaurants, but can only redeem those awards for mechandise or gift cards.  Merchandise is often stuff they want to get rid of, like older versions of IPODs, and they aren't as discounted as you would find if you paid cash.  So I redeem those awards for restaurant gift cards.

BP Gas sends me a lot of offers for their gas card, from 20-50 cent off per gallon for a limited time. Problem I have, their gas is usually overpriced.

A few cards offerened discounts on entertainment, ususally something like an AMEX card. BUT usually the entertainment was first class, with first class prices.

IMO cash is the best, as cash is fungible.  You can use it for anything, and get discounts on when you buy.

Travel cards make sense in that travel is a big part of business, it's a frequent big money purchase, business users will likely be good customers, and loyatity to certain airlines to earn rewards and that works for the airlines. 

Sam's club and Amazon do offer cards that reward you for being loyal to those brands by increasing awards, like use a Sam's club master card to buy gas  at sam's and get a 10% cash reward.  (Limited amount of course) Store cards are a whole genre that can only be used in that store and reward you iin various ways for shopping, usually discounts.

Also, cards like BOA increase your cash reward if you depost it into a checking acocunt, they also have a round up reward that rounds up credit transactions and gives you the round up amount as a cash reward.  Like you spend 29.01 and you get the 99 cents, or you spend 29.99 and you get 1 cent.

IMO credit companies have covered every possible way to get you to sign up and reward you in every possible way that makes sense and  since they are using their computer power, sometime it's a headache for consumers to keep track of the best way to spend and redeem.

[Anonymous]

Chris, great post above and I appreciate you taking the time to contribute to the conversation.  I agree that with travel there are far more complimentary expenses associated with it that very well could land on the same CC, thus generating more profits for the creditor.

I'm not sure I agree, however, with travel being more popular than recreational stuff like concerts, plays, sporting events, etc.  Sure there are extreme travelers who fly multiple times per week for work, but there are also extreme event type people like those that hold season tickets to multiple sports teams.  I think if you take your average person that doesn't fly for work, how often do they really fly?  Once or twice per year for vacations?  There are people that go to tons of events throughout the a year.  I guess what I'm saying is that it's a very personal thing.  You've stated above that you rarely go to these types of events, so your opinion is likely swayed because of your personal perception... as is mine since I only fly once per year for an annual business conference and that's it.  I think it also depends on the age group as well.  I have around 90 people that work for me, most are young 20-somethings that may fly once per year on a vacation but every weekend I've got a half dozen of them taking off to go to concerts, NFL/NHL/NBA games, etc.  Granted they probably aren't the targeted most profitable customer from a creditor standpoint, but that's just another perspective to consider.

[Anonymous]

Aside from the already stated reasons that airline and hotel mile/point programs already having an existing standardized reward currency that can be easily bought in bulk, credit card companies have probably profiled frequent travellers as more profitable than the average customer.

[iced]

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@Anonymous wrote:

I agree that the cash back is nice, but discounted categories could actually be more beneficial than straight CB depending on what it is and whether or not it is of use to the card holder.  Allow me to give an example that may illustrate what I mean.  I run a restaurant.  If I have a regular guest that had a bad experience and demands a refund, I have two ways that I can go about it.  Say they spend $50 (cash) and want a $50 refund.  If I give them the $50 refund in cash, I'm out $50.  Pretty simple.  If I give them a gift card however, I'm only out my cost of goods on that gift card, say 25% on food and beverage, or $12.50.  I can actually offer them a $75 gift card in place of their $50 cash and still make out as a $75 gift card only costs me $18.75, but to a regular guest that's going to be back next week regardless to spend $50, getting $75 would seem like a fantastic deal to them. 

Obviously, this only works for someone that's already going to spend the money anyway (like a restaurant regular).  Getting back to CC rewards, I just feel like there must be other categories out there other than travel that this concept would work for.  Again, I mentioned event tickets... concerts, plays, sporting events, whatever.  I just feel like there must be events of this type that can be discounted to the point where the perceived value to the person getting it is far greater than just CB, but if the event is one that isn't going to sell out anyway getting some money (say 75% of what is typical) is better than nothing.  You've got baseball stadiums that mid-season are at half capacity for weekday games for example.  $100 for a ticket online, but if somehow through CC rewards you could get a ticket for $60-$70 (where CB would only be say $20) that's a win-win.  The stadium gets another seat filled, the card holder gets a better deal than if they were to get CB and buy the ticket at full price.  Again, just an example and thinking out loud here.

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I think that whle it sounds good at first, it's not appealing to the bigger CC banks in practice. 

The big banks (Chase, Amex, Citi, etc) want the whales out there; the fishes they reel in in the process are a bonus. For clarify, the whales I'm talking about run hundreds of thousands or even millions of dollars a year through their cards. They're not going to make a card program and spend the time and effort partnering with retailers and movie theaters for people who spend hundreds or maybe thousands a year on such things. There ARE whales out there who want travel rewards, though, so partnering with hotels and airlines made more sense.

Dining could potentialy be a whale category, but how do you unify it? GrubHub is the closest to an alliance of restaurants I've seen and it doesn't approach the membership expanse I'd want to bother savings points towards. I doubt the whales do either.