Chase recently took another significant step toward winning the hearts and minds of travelers everywhere, reaching a new rewards sharing deal with Virgin Atlantic in early April. The addition of Britain’s second largest airline to the rapidly expanding Ultimate Rewards network – which already includes the likes of US Airways, British Airways, Hyatt, Marriott, and Amtrak – gives the biggest bank in the U.S. an impressive new feather to put in its marketing cap.
The deal allows users of the Chase Sapphire Preferred, Ink Plus, and Ink Bold cards to transfer their Ultimate Rewards miles to Virgin’s Flying Club at full value, thereby gaining a variety of added redemption options.
“Points can be transferred in increments of 1,000 and there are no limits to the number of points cardholders can transfer to Flying Club,” according to a press release issued by Chase. “Once transferred, points can be redeemed for travel and upgrades on Virgin Atlantic, or one of many travel partners, including Air China, Air New Zealand, Cyprus Airways, Gulf Air, Hawaiian Airlines, Jet Airways, Malaysia Airlines, SAS, Singapore Airlines, South African Airlines, Virgin America and Virgin Australia.”
Consumers Pushing for Rewards Flexibility, Clarity
This partnership speaks to a natural progression that’s been taking place in the credit card market over the past number of years. When spending-based “rewards” were first becoming popular, credit card companies could market flashy deals riddled with caveats and restrictions. But that soon caught up with them as consumers found out the hard way and began to show an affinity for less restrictive programs while the overall market made a push toward transparency.
One reason the Capital One Venture Card has been so popular for so long, for example, is that you can retroactively use its miles to pay for any travel-related expense after it appears on your statement rather than jumping through hoops and being forced to book with a certain company on a certain date and by a certain date. For travelers who aren’t bound to a specific travel provider by work or simple preference, the flexibility such a program provides often outweighs the prospect of a more attractive earning rate with a co-branded card that forces your hand in terms of redemption.
“The customer appetite and expectations for rewards programs have evolved … spurred oftentimes by companies’ attempts to differentiate their programs from competitors,” Kyle LaMalfa, a senior business insight analyst and loyalty expert at Allegiance, Inc., said. “Whereas earning miles from actually flying was once enough, airlines have expanded their programs to allow customers to earn frequent flyer miles by shopping at certain stores, drinking a brand of coffee, or reading a specific newspaper.”
Opportunity Abounds for Chase Cardholders
Cardholders have all the redemption options they’d really ever need with Chase’s program, and that's a distinct positive in the eyes of Vanitha Swaminathan, the Robert W. Murphy Faculty Fellow in Marketing at the University of Pittsburgh.
"The more loyalty partners you have, the more fungible your points become, the more it becomes like a currency. From that perspective it’s good," she said in a recent interview with WalletHub. "What versatility can do for you if you're a company like Chase, for example, is one of two things. If you're trying to appeal to a completely new customer base that you don't already have access to, adding to your set of current partners – especially if it doesn’t overlap with your existing partners – could help in customer acquisition. The second possibility is it could increase the aspirational value of your points. For mundane products like credit cards, having a loyalty partner that does flights to different vacation destinations may appeal to a segment of your customers that want that."
Dr. Patricia Huddleston – a professor of retailing in the Department of Advertising, Public Relations and Retailing at Michigan State University – agrees, saying "If there are a lot of options for a consumer to redeem accrued points (or whatever), consumers will have a more favorable image of and feeling for the company."
But such a web of strategic corporate partnerships may also have its fair share of drawbacks, including the potential to overwhelm customers. "There is research in marketing that suggests that too much choice can be demotivating," says Rajesh Bagchi, an associate professor of marketing in Virginia Tech's Pamplin College of Business. "That is, while consumers like choice, when confronted with too many choices, they postpone purchasing."
It also gives people an opportunity to game the system.
Let’s say, for example, you are a big fan of Virgin Mobile but its rewards card doesn’t offer a competitive initial bonus. The historically valuable sign-up perks that many issuers are currently offering to curry the favor of people who have excellent credit can be the difference between vacation affordability and debt in today’s economic landscape. Well, since Chase allows you to transfer its rewards to the Virgin Mobil program in order to book flights, you can just open the Chase Sapphire Preferred Card – which has one of the market’s best initial bonuses (40,000 points for spending $3k during the first three months) – and go the back route to get a greater number of the very Flying Club miles you were after all along.
Such, it seems, is characteristic of the double-edged results produced by involved corporate “loyalty” programs in the age of Yelp, short attention spans, and at-hand price comparison. The best programs certainly draw the attention of consumers, but folks are often more concerned with value maximization than any type of corporate allegiance. And that begs the question: Do loyalty programs actually result in loyalty, paying dividends along the way, or do they reward savvy shoppers for their opportunism at the expense of whichever company is left holding the bag? Could it be both?
Exploring the Value of Strategic Corporate Partnerships
“Most loyalty programs tend to reinforce behavioral loyalty through rewards, as in the case of Chase trying to get its customers to accumulate more points by using the card for more purchases,” says Arvind Rangaswamy, the Anchel Professor of Marketing in Penn State’s College of Business. “There is a potential here for win-win-win (consumer, Chase, and Virgin) so this arrangement makes business sense. Research shows that well-designed loyalty programs induce favorable outcomes for the companies in terms of reducing defection to competitors, increasing purchases from the loyalty program provider, reducing price sensitivity, and speeding up purchases. ... However, there is a dark side which makes many loyalty programs a losing proposition for companies. These programs are expensive to administer, they can create deferred liability, and most importantly, make consumers loyal to rewards, rather than to brands.”
At the end of the day, it all comes down to how a company administers its loyalty program. The keenest ones will use the programs to improve how they identify and cross-sell potential customers, not to mention keep them customers for a long time. “By capturing demographic information and purchasing behavior, companies will have a better understanding of who their customers are and will be able to deliver more targeted and relevant marketing messages,” LaMalfa said. “The data will point to what campaigns are working, what products and services are getting the majority of customers’ business and which customers seem to be more frequent buyers. With the data, companies can tweak their programs to continue to add value while identifying which customers are the most valuable to the organization.”
Successful program managers also make darn sure their customers know just how good they have it. It's like a tree falling in the forest with no one around to hear it: If a credit card offers great rewards and no one knows about them, they aren't valuable. "It is important for firms to realize and recognize that loyalty programs can be beneficial only if both parties benefit," Bagchi says. "In this day and age when switching costs are minimal, this is the only way to sell: make people aware that they are indeed getting a good value and give it to them (it is usually more costly to get new consumers)."
So while it’s still hard to imagine how a company like Chase could profit off a free balance transfer offer, there does seem to be a method to their madness – at least as far as the rewards are concerned. “Here, I think Chase is doing a smart thing -- it is trying to garner customer loyalty to its card, rather than to merchants,” Rangaswamy said. “Such a loyalty program with a broad range of merchant options also benefits consumers -- for example, recently, Hilton, Marriott, and other hotels greatly reduced the value of the points accumulated by their customer base. However, if those customers accumulate points with a credit card company that could be used with multiple merchants, they are protected to some extent by such unilateral changes made by company loyalty programs.”