Published November 19, 2012
Times are changing in the customer loyalty game. Although credit card reward programs still offer attractive ways to get bonuses for your spending, digital rewards companies are popping up from coast to coast, offering consumers the chance to earn special perks in exchange for shopping at their favorite businesses.
But are these programs enough to lure customers away from their rewards credit cards?
How digital rewards work
You may have seen signs of this new wave already. You go to your local coffee shop for a large dark roast with an extra shot, as usual, and there's a display urging you to sign up for a program that promises rewards for the purchases you make at the store -- and perhaps at other local retailers too.
Now, you may already be getting cash back for your credit purchases, but these rewards are different. They are geared to the stores you shop regularly and can be earned no matter how you pay. In that way, they are like a modern twist on the punch cards that cashiers sometimes hand out that will earn you a discount or free item after a certain number of purchases.
The novelty of the digital rewards concept is its flexibility. When enrolled in a digital rewards program, merchants can customize their rewards structure to offer a unique assortment of thank-you gifts to their regular customers. In doing so, digital rewards can provide a deep level of engagement with the consumer and the places they shop.
What's more, the companies providing these incentives can collect multiple merchants under their rewards umbrella. This increased visibility by association can create new linkages for small retailers and drive crossover business traffic -- an advantage over traditional loyalty programs that serve only to encourage repeat business at a single merchant.
Local engagement can often be vital to the health of small businesses, and -- as you likely heard in this year's presidential debates -- small businesses represent more than 99 percent of all businesses in the U.S. So digital rewards companies are looking at a broad base of opportunity today.
A match for credit card rewards?
While the rewards that today's credit cards offer can be considerable -- a friend of mine nearly doubles her travel budget by gaining frequent flyer miles from her credit cards -- these programs are bound to be less personal than a carefully executed digital rewards program.
Also, the period since the last recession has been punctuated by periodic reductions in consumer credit spending. If consumers grow weary of credit in spite of the rewards it can offer, digital rewards programs may offer a credit alternative to those who still enjoy getting rewarded for their purchases.
However, it should be noted that, because of their narrower scope, digital rewards programs may not offer the same level of rewards as a credit card that pays on all purchases -- unless you spend a lot of your paycheck at that local coffee shop.
Competitor or companion?
For the moment, digital reward programs don't pose a huge threat to traditional rewards credit cards. They may be much more dynamic and flexible than paper punch cards, but we have yet to see a digital rewards company with enough clout to affect the way national banks and credit card companies do business.
But when it comes to choosing among these programs as a consumer, consider this: If you really want to rake in the rewards, why not use a digital rewards program and your rewards credit card together? Order that large dark roast with that extra shot, get those localized digital loyalty points, and use a rewards credit card to pay. If you're a true rewards junkie, it may be the only way to go.
The original article can be found at MoneyBlueBook.com:
Can digital rewards beat credit card rewards?