Different Credit Card Features Appeal to Specific Segments

April 9, 2010

Different credit card features hold appeal for specific customer segments, according to a recent survey conducted by Compete.

Long-term Customers Favor No Fees
Credit card owners who find no annual fees most appealing have owned their most frequently used card the longest. Cash back also seems to appeal to more loyal card owners. In comparison, the card holders who found low interest rates most appealing were the least loyal.

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Airline Miles Attract Frequent Users
As expected, features that provide card holders benefit from higher usage, such as cash back, reward points, and miles, are popular among frequent credit card users (weekly average of 10 or more credit card purchases). Out of these features, airline miles are by far the most popular.

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Compete analysts suggest this preference could reflect the fact that users need to spend a sufficient amount to get enough airline miles to obtain perks such as free flight tickets. Thus, more frequent users would select such cards.

However, once someone has such a card, to ensure that they benefit from this feature of their card, they probably use the credit card more often than other credit card owners. Thus airline miles are likely a good feature for credit card issuers to attract high frequency users, and also to incentivize them to use the card more frequently.

Moderate users (those who use their cards from between one to two and seven to 10 times a week) prefer earning reward points for each purchase. Moderate users still employ their credit cards enough to make reward points worthwhile, but not enough to earn significant airline miles. Credit card holders who use their cards less than once a week prefer no annual fee and low interest rates, features that provide the same benefit regardless of how frequently a card is used.

Airline Miles also Attract Big Spenders
In addition to being the preferred credit card feature among frequent credit card users, airline miles are also the preferred feature among credit card users who spend an average of $3,500 or more per month. Cash back also has high levels among users who spend a monthly average of $1,000-$3,000 per month, as well as users with a monthly spending average of $3,500 or more per month.

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Meanwhile, no annual fee is clearly preferred among all credit card holders spending an average of $3,500 or less per month.

Low Interest Appeals to Minimum Balance Payers
Credit card issuers need to mix their customer base among users who pay the minimum balance each month and provide extra profit through interest (but generally offer higher risk of default), and users who pay the entire balance each month (lower profit but lower default risk than minimum balance payers). Minimum balance payers prefer low interest rates by the widest margin compared to full balance payers, but a high percentage of both segments prefer no annual fee. Full balance payers prefer reward points, bonuses, unlimited cash back, and airline miles at significantly higher percentages than minimum balance payers.

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Rewards, Lack of Fees Encourage Credit Card Use
Credit card holders are more likely to use cards that offer rewards and lack annual fees, according to other survey findings from Compete. Almost half of survey respondents (46%) cited some type of reward as the most appealing feature of the card they used most frequently. Reward points were the most popular form of reward (20%), followed by bonus on some expenses (9%), unlimited cash back and airline miles (7% each), and bonus for exclusive online shopping (3%). The most popular individual feature was no annual fee, cited by 31% of respondents.

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