Why Leading Retailers are Abandoning Store Credit Card Loyalty

July 13, 2018 Catherine Malone

Having a store credit card was once considered the best way to secure deals at the register. By the same token, store credit cards were considered the most effective way for brands to track consumer behavior and drive loyalty. Now that loyalty programs have evolved into a major source of customer insight, leading retailers are beginning to see the limitations of loyalty programs that are tied to store cards. Many brands have started to refocus, and in some cases, end their store card programs.

Last month Macy’s announced that they would allow customers to join its Star Rewards loyalty program without having to sign up for a store credit card. In addition, Target has been piloting a loyalty program that functions without ties to a card. Target Red includes one percent back on purchases, half off first-year membership on same-day delivery with Shipt, and free next-day delivery with Restock. Consumers are driving the rise in loyalty programs that provide exclusive perks without the hassle of high interest rates.

Here are some the reasons why brands are abandoning their store credit card loyalty programs and adopting multichannel loyalty and engagement programs instead.

Consumers are wary of store credit cards

Typically, beyond the “15% back on your first purchase” sign-up promotion, store credit cards do little to save the consumer money. In fact, with high APRs of generally between 25-30% APR and high fees for late payment, purchases made on store credit cards could actually work out more expensive. In addition, due to the fact the card can typically only be used at one location, racking up store cards to shop with a range of brands has a negative impact on credit score. Add to this the risk of overspending and impulse purchases, the store card shopping trend has been thwarted by savvy shoppers who would rather adopt bank issued credit cards with lower APRs that offer points for travel and cash back for purchases across a wider selection of brands. By tying a loyalty program to a store credit card, brands are undoubtedly alienating a significant percentage of their customers by not providing them with a point of entry into their loyalty program.

Loyalty programs have become more sophisticated
Loyalty programs no long need to function as part of store credit card in order to be effective. Furthermore, brands that invest in multichannel loyalty and engagement programs that can be accessed on desktop or by mobile encourage greater participation from consumers. In addition, consumers are attracted to loyalty programs that don’t penalize for late payment or compromise their credit score. In fact, research shows that if the perks are desirable, consumers are willing to pay for a loyalty program, but as part of a fixed yearly or monthly subscription fee. This is evident in the success of programs like Amazon Prime and the rise in subscription businesses.

Brands want access to more than transaction data
Store credit cards were a valuable source of consumer insight at the transaction and SKU level, but brands know in order to compete or sustain a competitive advantage, they must learn more about consumer behavior. Brands can also leverage loyalty programs to educate their customers on their offerings by incentivizing consumers to complete engagement activities such as reading a blog post or filling out a survey. Brands are also realizing the value of driving advocacy by incentivizing their best customers to promote the brand to their networks and rewarding them for making referrals. Using this data, brands can build 360 degree profiles of their customers, create lookalike segments, and target them with personalized promotions that help increase incremental spend, and make the consumer feel valued.

Consumers expect more from brands
Consumers understand that access to their personal information is extremely valuable to brands, and in return they expect more from brands. According to a recent study by Accenture, 73% of consumers want a more personalized shopping experience. A new report from KPMG shows companies that offer the best personal, “individualized” experiences to their customers reap the benefits of higher revenue growth and improved brand standing and loyalty. Consumers also want memorable brand experiences which are tailored to understanding their customers’ needs and wants and their next likely action.

Brands that continue to tie their loyalty initiatives to their store credit card run the risk of alienating the debt-averse consumer, and limiting their data collection and personalization capabilities. By investing in a multichannel solution instead that incentivizes customers to engage with a brand, customers are rewarded for their loyalty and brands are able to form deeper connections with a larger base of customers.

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