CC sign on bonuses contribute to customer attrition

[trippin_the_rift]

With credit card companies and banks fighting more than ever for increased spend and customer loyalty - their biggest gun appears to be sign on points bonuses. You know the ones - signup now and get 20k, 40k, 60k qantas points!

What's interesting is that I now either have, or have had a credit card with every financial institution, switching between banks as new offers come around. I'm back to where I began with Citibank because of a promotion offered to me with the Citi Select.

Why don't banks take a page from Amex's book and reward continued loyalty? In the past 6 months since having the Citi Select, I've put over 200K through the card in hundreds of transactions both domestic and overseas. In my entire adult life I've spent far more than average Joe Banker. So now, not feeling any love from citibank, I find myself bored, unloved and ready to end the relationship for the greener fields of Amex.

So I pose the question, why don't banks simply give loyalty bonuses each year similar to sign on bonuses to thank customers for sticking with them? It would clearly reduce churn, increase ARPU and save on marketing $$$.

Thoughts?

 

[oz_mark]

Why can't banks take a page from Amex's book and reward continued loyalty? In the past 6 months since having the Citi Select, I've put over 200K through the card in hundreds of transactions both domestic and overseas. Not feeling any love from citibank, I find myself bored, unloved and ready to end the relationship for the greener fields of Amex.

Well, there are some that do have promotions. Last month, my Macquarie Hilton card was offering bonus points. This month, my Citibank card is getting promotional points. Mind you, neither of these are QFF points, but still....

So I pose the question, why don't banks simply give loyalty bonuses each year similar to sign on bonuses to thank customers for sticking with them? It would clearly reduce churn, increase ARPU and save on marketing $$$.

Not so long ago, I was involved with some market research with a bank where this question was explored, and various options were put forward (e.g. double points on a category of your choice for three months (category = for example supermarkets, restaurants, department stores etc)). Whether anything comes of any of those ideas remains to be seen.

I guess Amex need to run promotions to keep people using their cards.

 

[Moopere]

Why don't banks take a page from Amex's book and reward continued loyalty?

Yes, its surprising isn't it? They seem to accept, even encourage churn.

The decisions must be statistics based I'm thinking. Active members here are probably only indicative of a very small section of most banks customer base. Perhaps most customers are simply set-and-forget types who don't churn and don't even pay attention.

I was thinking along similar lines this year when I changed insurers, yet again, for my car. Lots of effort by the insurers going into gaining new business, no effort whatsoever pushed towards keeping your customers.

So I pose the question, why don't banks simply give loyalty bonuses each year similar to sign on bonuses to thank customers for sticking with them? It would clearly reduce churn, increase ARPU and save on marketing $$$.

One can only assume that that cost of the scheme would be higher than the cost of gaining new customers? You'd like to think that at the very least the big banks marketing divisions would have crunched the numbers.

However, as has been mentioned, surely a bit of smart profiling of your customer base could work out which of your customers are really making you some money and are therefore more valuable to retain than the average - throw these customers a bone and they may stop even looking at alternatives.

 

[kdser]

So I pose the question, why don't banks simply give loyalty bonuses each year similar to sign on bonuses to thank customers for sticking with them? It would clearly reduce churn, increase ARPU and save on marketing $$$.Thoughts?

Based on my own working experience, in the business world, or at least in the business world in Australia, there is such a mentality that existing customers will always buy your products/services as long as you don't upset them too much, however new customers are always hard to gain. You think about it, this mentality might not be incorrect as most people are simply to lazy to switch/churn. This applies to not only financial services, but most industries, for example telecommunication, or even electricity. Why can the NSW government sell its state owned electricity retail business (e.g Energy Australia) for 5 billion dollars while Energy Australia isn't competitive at all, it does not offer its customer good services or rebate/discount? The answer is most of the people simply sign up with Energy Australia when they are connected and never come back to the matter again to look for other better or cheaper alternatives. Therefore it is assumed that (by the seller, the buyers and the market) Energy Australia, even if it is sold to a third party, without doing anything in particular, it can retain most of its existing customers.

 

[Alanslegal]

Active members here are probably only indicative of a very small section of most banks customer base. Perhaps most customers are simply set-and-forget types who don't churn and don't even pay attention.

I agree to this view. Most of my close friends wouldn't even think of switching cards even if there was a huge points bonus! The second I tell them it's eg. $80 for 16000 points I'll probably have lost them! Not too worry, keep the promos coming so we can be rewarded with loads of points to be redeemed in J/F seats

 

[UP4014]

I'd hazard a guess that the sales dept is slit in two sections, new customers and retention.

New customer sales - well they have more to spend and can demonstrate it by the number of new customers.

Retention/loyalty - well they find it harder to show their spending works.

 

[cove]

Many AFF members are switching off the Visa from Westpac KrisFlyer Platinum since their 15th March "enhancement" for the Bank.
Those who don't change just ignore mail reading so Westpac retain Visa customers despite being uncompetitive. I think at least 90% of customers are retained by being slack.
I think Citi and Woolworths picked a very good time to launch their offers.
American Express offers have kept them very much at the top of the heap with so many choices.

 

[JohnK]

Why don't banks take a page from Amex's book and reward continued loyalty?

The answer should be simple but I am not sure I will ever understand. We all know it costs more to get a new customer than it does to keep an existing customer.

So why do some businesses continue to target new customers? Do they want to grow their customer base? Do they take existing customers for granted?

Perhaps it is arrogance and greed and it is a little bit of both.

 

[pauly7]

The answer should be simple but I am not sure I will ever understand. We all know it costs more to get a new customer than it does to keep an existing customer.

Actually John that is one of the biggest and longest standing business/marketing myth of all

And therefore it leads to all the actions we see detailed above in this thread and in the market place.

 

[Robert K]

I for one am not complaining~ the more i churn, the more points i get!

 

[Moopere]

I for one am not complaining~ the more i churn, the more points i get!

Sure, this is the strategy many of us here follow. I think one of the points raised in the OP though was that loyal banking/cc customer might get some type of loyalty bonus for being loyal ... thus removing the need to churn.

Customer is happy because he is being rewarded, bank should be happy because they've retained a good customer who will presumably keep on making them money.

 

[trippin_the_rift]

Customer is happy because he is being rewarded, bank should be happy because they've retained a good customer who will presumably keep on making them money.

Our company spends 20% of profit per customer back on them as gifts and we have close to 100% client retention.

I agree some customers you do want to get rid of, but those are easily identified and squeezed out of the system. It's always going to be cheaper in the long run to keep a loyal, paying customer.

 

[doczim]

Has anyone found any negatives from churning? ie I assume this is recorded in your credit history. While making sure you pay on time I am guessing is the most relevant credit history pattern, is churning like this frequently having any impact on history or how you are accepted as a customer?

 

[pshepvic]

Has anyone found any negatives from churning? ie I assume this is recorded in your credit history. While making sure you pay on time I am guessing is the most relevant credit history pattern, is churning like this frequently having any impact on history or how you are accepted as a customer?

Credit history generally records any defaults, judgements, and consistent late payments (generally 60-90 days, but depends on the individual credit providers as to when they send it through).

They also record every credit application you make, even if you don't take up the product.

However, having applications on your file isn't necessarily a bad thing. When you submit an application, the provider assesses your credit file and application against their lending criteria. Having one credit card application per year on your file in most cases won't make a difference.

Oddly, a few years ago I was declined a David Jones card because I had two finance applications in the previous 12 months - mind you one was a home loan and another a car loan, so that was an example of stupid lending criteria.

I haven't been declined an application ever since - and have recently got a Virgin Flyer card, even though I also got a new Woolworths QF card only 6 months ago.

All you need to remember is when you close each account, make sure you keep a copy of the letter they send to say it is closed, as you may be asked for that for a future application, particularly if you say you only have 1 active card but they can see a few applications in the last year or two.

Also remember credit applications only stay on your file for 3 years, unlike defaults which I think are 5, or judgements which are 7 (don't quote me on those numbers - it's a little while since I worked in the finance industry!)

 

[oz_mark]

Also remember credit applications only stay on your file for 3 years, unlike defaults which I think are 5, or judgements which are 7 (don't quote me on those numbers - it's a little while since I worked in the finance industry!)

Crediat applications are there for 5 years. Also, some credit card providers (e.g. Citi and Amex), will put a note on the file stating you have an ongoing relationship. Sometimes they are not so good at having this removed when you close the account.

 

[pshepvic]

Crediat applications are there for 5 years. Also, some credit card providers (e.g. Citi and Amex), will put a note on the file stating you have an ongoing relationship. Sometimes they are not so good at having this removed when you close the account.

Ah I thought I may have had the numbers wrong!

 

[doczim]

So do people normally sign up self & partner as separate applications and pay the extra annual fee to get double the sign on points? or just one account with the additional card holder. Currently have a Platinum Visa and a standard MC ( lower limit) which we generally use for internet shopping. Thinking of maybe getting Citibank platinum with 50k sig on and Woolworth's everyday rewards with 16k(?) sign on.Normal application with supplementary card would be great x 2 would be even better!! !

 

[Moopere]

I thought of this thread today as I scanned the Amex Plat Edge T&C.

Heres a snip:

" Please allow up to 8 to 10 weeks after 2 months of membership for the 25,000 Membership Bonus Points to be awarded to the Card member's account."

Maybe this is how the future will look? Reduce churn by offering sign on points, but don't pay those points for ages. The above verges on the ridiculous in my view: 2 months, say 8 weeks + up to 10 more weeks = 18 weeks to get the sign on bonus? Almost a third of the year.

What next? 100K points at sign on, paid in quarterly parcels of 8K points over 3 years?

 

[cove]

I don't churn but I have concentrated on getting rid of cards this year that offer miserable rewards to make life a little simpler. The next step has been to get a partner card off the remaining cards that work the best for our purpose.
I get the idea of churning based on sign on points but I find it better to run the cards long and hard and lift the credit limits where needed. The other thing is I don't draw attention to my accounts by asking for annual fee relief. If the card company offers fee relief sure I will take it and that happened twice this year.
I prefer to think that I can use the full limit on a card to put that larger transaction into the done category so chopping and changing won't help you get good sized credit limits.
This week Citi gave me a standard speech on credit risk due to changing credit laws!