The Dynamics of Retail Card Acquisition Incentives

Navigator Edition: March 2015
By: Ryan Douglas

It is evident that branded credit cards – private label or co-brand – are a very important component of retailers’ business strategies. Well-integrated card programs account for 30%, 40% and even 50+% of retail sales depending upon the retailer. During the holiday season, online and in-store marketing is often enhanced to stimulate interest and sales.  We did some light field work over the 2014 holiday period to take stock of the marketing of selected retail credit card products, and in particular, new account acquisition offers.

Acquisition offers, a one-time reward/bonus for opening an account, come in various forms including a fixed percent off, bonus reward points, and gift cards, typically given when the new cardholder activates the card and/or makes a first purchase. Of the retailers surveyed, we found an increase in the value of their acquisition offers during the 2014 holiday season.1  Figure 1 highlights the observed acquisition offer with a comparison to the prior offer where possible.

Figure 1: Changes to Retail Credit Card Acquisition Offers

Figure-1_-Changes-to-Retail-Credit-Card-Acquisition-OffersSource: First Annapolis Consulting website and store research.

Based on our local field visits, the most notable changes came from Sears and Best Buy; these retailers did not previously have an explicit acquisition offer, but implemented one during the holiday season. The Best Buy offer is still ongoing, and provides new cardholders, for either PLCC or co-brand cards, 10% back in rewards points on their first purchase. Sears offered 10% back in points on the first $500 of spend, for both new and existing customers, from 11/2/2014 through 12/25/14 only. Amazon also made a significant increase to its acquisition offer during the holiday period, providing new cardholders with an incremental $20-$30 of value.

What’s in it for Retailers?

New account acquisition offers are widely used to drive application volumes and spend. They often have the added bonus of also increasing a shopper’s basket size. Some of our clients with acquisition offers have seen a 2x to 3x increase in the average ticket on a first purchase. Irrespective of the upfront incentive, customers with retailer-branded credit cards will generally spend more in the store versus non-cardholders, although these figures can be misleading because these programs tend to disproportionately attract a retailer’s best customers who spend more than other customers, regardless of tender used. Some retailers have been able to track customer spending before and after taking their proprietary cards.  One such retailer is Target, who at one point after the launch publicly attributed a 50% increase2  in customer sales among customers who signed up for the 5% Rewards card. Synchrony Financial recently released Figure 2, which illustrates that some of their retail clients have seen material differences in spend between cardholders and non-cardholders. However, these data points could benefit from the aforementioned positive selection phenomenon.

Figure 2: Reported Increased Purchase Volume from Cardholders

Fig--2_-Reported-Increased-Purchase-Volume-from-CardholdersSource: Synchrony Financial November 12, 2014 investor presentation.

As retailers strive to meet sales/earnings estimates, some may look at acquisition offers as a way to onboard new cardholders, and thus drive incremental retail sales.  However, it is important to strike the right balance with the use of acquisition incentives, especially considering they are relatively untargeted.  Factors such as the cost of the offer, fit with the retailer’s overall pricing strategy, “one and done” risk of attracting one-time users, and the relative strength of the ongoing value proposition should influence a retailer’s decision to offer a rich (or in some cases, any) new account incentive.  While testing is always the right approach to arriving at the optimal acquisition offer, the forces of competition result in a noticeable surge in periodic promotions of all kinds during the holiday season.

1 Research was performed from November 24th 2014 through January 10th 2015.
2 Target Corporation’s presentation at the Goldman Sachs Global Retail Conference, September 15, 2010.

For more information, please contact Ryan Douglas, Senior Consultant, specializing in Credit Card Issuing and Retailer Services,

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