Associate Professor Lewis Lim with the Nanyang Technological University’s (NTU) Nanyang Business School said banks have to create emotional attachment and cultivate “sustained loyalty” to a credit card brand.
He cited the green American Express charge card, which was a status symbol in the 70s and 80s.
“These days, the credit card market is so cluttered and competitive that the game is more about acquiring new sign-ups and banks snatching customers from one another.
“As a result, there is widespread brand-switching and very little true loyalty to any particular card. Consumers learn to play one card brand off against another just to extract the biggest benefit, and they will avoid paying the annual fees at all costs.”
Banks that retain some cardholders beyond the first year may consider them loyal customers, but they may simply have forgotten to cancel their cards, said Assoc Prof Lim.
“Any remaining loyal customers may also be upset by the bank’s tactics that favour new customers over existing customers, and they will eventually leave to become new customers of another bank’s card.”
FREEBIES: A TACTIC WITH SHORT-TERM FOCUS
Concert tickets are not the only tactic used by banks to recruit new sign-ups. Citibank consistently rolls out new freebies and promotions for customers who sign up for credit cards.
Over the past few years, new Citibank customers have received Nintendo Switches, iPads and various Dyson products when signing up for a credit card.
The bank said its customer sign-ups increase by more than 20 per cent when new promotions are announced.
When asked about the attrition rate of these sign-ups, Citibank did not provide figures but said “most … remain active on their card after the first year, even after receiving the promotion items”.
Giving away freebies is a tactic with a short-term focus, and this works to encourage immediate action, said Dr Hannah Chang of the Singapore Management University.
But sales promotion strategies are not designed for achieving longer-term objectives, unless new promotions are introduced repeatedly over time, she added.
The perceived value of freebies holds “great significance”, and a free gift that is desirable and sought after can attract customers and encourage brand engagement, said Nanyang Business School’s Assistant Professor Charlene Chen.
While these strategies may increase initial customer acquisition, they are not sustainable in the long run, she added.
Banks should also consider the long-term impact on customer retention, said Asst Prof Chen. For example, banks can offer loyalty points to customers, such as cashback rewards, once the card is activated.
“Once they consume the initial benefit, they will be happy to continue using the card because it meets their needs and wants. Bottom line: Don’t just choose something popular, make sure it entices the right crowd you want.”