• by Judy Warner , September 19, 2006

Financial services companies continue to up the ante when it comes to rewarding customer loyalty.

Fidelity Investments said yesterday that it will grant miles on American Airlines to new customers of its brokerage services. This is just one of the latest free offers popping up in the category.

Chase, a unit of JPMorgan Chase & Co., is giving consumers the option of choosing points or cash rebates for using its new "Freedom" credit card. The card also is "blink"-enabled, which will allow it to be used in the 30,000 merchant locations now equipped for the contactless payment system.

New York-based McGarryBowen created both broadcast and print ads for the Freedom card, while T3 (aka: The Think Tank) of Austin, Texas developed the Web site. Zenith Media placed offline ads, and Avenue A|Razorfish placed online media.

Meanwhile, American Express, considered by many in loyalty marketing circles to be among the best at rewarding customers, completely retooled its rewards program with the promise that "Membership changes everything."

A Web site at www.membershipchangeseverything.com launched in August and offers Amex cardholders free tickets to concerts, movies and theater in New York. (This week, it's offering dining out experiences.) The plan is to extend exclusive benefits to its members in other markets as well. Digitas, New York created the site.

Amex also upped the ante when it struck a merchant agreement with a condo developer that will allow down payments on units at The Moinian Group's Atelier development to be charged to the card. Rewards would apply to what could be 10 percent to 20 percent payments on condos costing upward of $1 million.

Amex spokeswoman Christine Elliott says the payment program was tested starting two years ago in Moinian-owned rental properties, and recently rolled out to include the purchase of a condominium. Going forward, Amex expects to roll out similar agreements with property owners and developers in markets outside of New York--particularly where there is an abundance of luxury property.

"We see the real trend at both ends of the spectrum, with micro payments on things like music or iPod downloads, quick or fast-food locations for road warriors who want to swipe their card and go, and huge macro payments," Elliott says. Other macro purchases being targeted: spending by both corporate cardholders and small businesses in the meetings and events arena.

Amex is responding to competitive pressure and cashing in on a move by all card companies toward rewards for higher-priced purchases, says Xavier Drèze, assistant professor at the University of Pennsylvania's Wharton School. "Amex is following the trend of rewarding you if you buy a house. If they did not, their loyalty program would lose out when compared to others," he says.

According to The Nilson Report, which tracks card usage, the percent of market-share gain for Amex was up slightly--but looked anemic when compared to Visa.

U.S. credit-card purchase volume climbed to $840 billion in the first six months of 2006 versus 2005, reports Nilson. Broken down: Visa's market share grew to 42 percent, trailed by MasterCard at 29 percent. Amex was 23 percent, and Discover came in at slightly more than 5 percent.

One industry expert says the growing proliferation of loyalty-marketing programs and the competition to offer bigger and better rewards is driven in part by consumer expectations.

"You've got to be able to recognize and reward your customers' loyalty. They now know that they are of value to a company, and they want to be rewarded for their good behavior," says Carlos Dunlap, vice president of business intelligence at Maritz Loyalty Marketing in St. Louis. Not every loyalty program must be reward-based, he says, but "there needs to be a customer strategy so that offers made to your customers are relevant and delivered in a way that [customers] want to be communicated to."

In 2005, 77 percent of general purpose credit-card dollars and 80 percent of all transactions were made on rewards cards, according to Visa. Four years earlier, 40 percent of dollars and 43 percent of transactions were made on such cards.

Dunlap questioned whether programs like Fidelity's tie-in to an airline would provide a relevant offer to high net-worth individuals who most likely already travel and have racked up thousands of free air miles.

"This is a consumer that wants status or privilege or white-glove attention. It's not a consumer that's necessarily motivated by points," he says.

To that end, MasterCard earlier this month launched the World Elite MasterCard, geared to affluent consumers with incomes of more than $250,000 a year, small businesses, and executives of large corporations. Travel benefits, rewards, and global acceptance are part of its new card platform.

Where is all this headed? "There is so much of a proliferation that consumers will be able to pick and choose," Dunlap says. "And from a consumer perspective, this is a good thing."