Financial institutions ask a great deal of their rewards programs. Their programs must recognize high-value cardholders with status and perks, entice new customers with bonuses and instant savings, and drive incremental spending with membership tier thresholds and incentives.
But arguably, the most important function of a financial institution’s rewards program is customer retention. Whether aligned with a credit card or a loyalty initiative designed for account holders, every rewards program must keep customers spending, transacting, or simply loyal to the brand, not its competitors. The other beneficial aspects of a rewards program - recognizing high-value clients, attracting new customers, and generating incremental revenue – either flow from or support this core function.
Though customer retention may be the core function of a rewards program, it shouldn’t be the only – or highest – goal. Instead, financial institutions should strive for a combination of retention, engagement, and interaction: stickiness.
Stickiness suggests that a rewards member uses the program frequently, consistently finds value from their participation, and keeps it top-of-mind. Stickiness implies that a member won’t abandon a program for a moderately better rate or discount or “shop” their loyalty because they enjoy a combination of benefits and experience that are greater than the sum of their parts. For banks and credit card issuers, this means the stickier their rewards program, the more consumers are going to pull out their cards and continue spending on their rails.
Clearly, this is what financial institutions should aspire to with their reward strategies. Fortunately, most already have the building blocks to create a stickier loyalty program within their portfolio: travel rewards. But how effectively banks and card issuers can create a connected travel experience by deploying their travel rewards and complementing them with additional earning and redemption options - along with the quality and comprehensiveness of their rewards platform - will dictate how “sticky” they can get their programs to be.
Leisure travel is aspirational by nature and usually consists of several high-dollar-amount expenditures for the vacationer, which is part of what makes travel rewards attractive to members. The fact that a cardholder will consistently spend to reach a reward level or tier that maximizes the value of their redemption is what contributes to the travel stickiness factor.
But one redemption isn’t optimal stickiness, no matter how much spending preceded it. Can the member book all aspects of their trip through their rewards program’s booking portal? Will the cardholder, having burned their points for a flight or a hotel room, continue interacting with their reward program – and spending on the card – while on their vacation?
This is where complementary earning and redemption options can have a significant impact. Coupling travel-adjacent rewards or lifestyle rewards with core travel offerings can ensure that a brand’s card and loyalty program is useful, utilized and top-of-mind throughout a journey.
Take car rental, traditionally one of the big three travel offerings (along with air and hotel) and an option that 96% of credit card reward programs we analyzed in 2022 have in their portfolios. Incorporating this option is key, but to maximize stickiness, members must be able to book their rental car directly through the rewards program rather than be linked out to a third-party booking site. This is something that, surprisingly, most hotel rewards programs do, to their detriment; link-offs create a negative customer experience and make it harder to create a connected journey.
The real unmet opportunity for financial institutions is not incorporating traditional travel rewards (something most have already done) but rather offering a wider variety of lifestyle rewards that can “complete” the travel experience for members.
Here’s where most card programs fall short; according to our most recent State of Loyalty: Credit Card Rewards Report, only 52% offer redemption options for tours and activities, 37% for live events, 19% for dining and 15% for wellness. It’s easy to imagine a loyalty member wanting to take a tour, see a show, try a nice restaurant, and enjoy a spa appointment while on vacation. Why are relatively few programs providing these options and, in the process, ensuring that the customer will be thinking of their brand, interacting with the program, and spending on their card rails while they do so?
The answer is that they are, but slowly. Every year we analyze credit card rewards programs and see a few more introduce additional lifestyle options (wellness options, for example, have seen the most growth over the past three years). But there’s still an opportunity for financial institutions to differentiate themselves and create more connected experiences by filling out their rewards portfolios and instituting a more comprehensive travel booking process.
Banks and card issuers ask a lot from their rewards programs, and they are steadily adding the capabilities those programs need to deliver on their goals. But to create true stickiness, which they should strive to do, they need to lean into their travel rewards, add the earning and redemption options cardholders want and find valuable while traveling, and create more opportunities for interaction and spending. When their programs are sticky enough, they’ll have customers for life.
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