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How A Co-Branded Credit Card Drives Customer Loyalty

In May of 1981, American Airlines introduced its AAdvantage Frequent Flier credit card program. The program marked the birth of reward-oriented marketing—a strategy for keeping loyal customers coming back by offering incentives in return for making purchases. The program also happened to popularize the term “frequent flier.”

Fast-forward to 2014, and nearly 53% of all U.S. credit-card users had a loyalty card that was associated with an airline, hotel, or other type of merchant or group, according to Simmons National Consumer Survey. It’s a number that, after dipping slightly during the credit-tightening environment of the Great Recession, has been on a long-term uptrend.

So, what accounts for its enduring popularity? To begin, it’s best to set some definitions.

A co-brand card is a credit card with a merchant’s name and logo on the front alongside one of the major card issuers—such as Visa, MasterCard, or American Express. Major American brands from Target to Disney to Hilton offer them in the hopes that cardholders will want to use them and earn points that can be exchanged for rewards and discounts. Customers can use the cards to make purchases (and earn points) wherever credit cards are accepted—a point that differentiates them from private label cards, which can only be used only with the business reflected on the card.

The points systems, redemption process, and other details can vary greatly depending on the business and industry. For example, most airlines reward customers based on how many total miles they fly, but Southwest bases its program on the number of actual dollars spent. Large hotel companies might reward guests with discounts on future stays or free spa, dining, or nightlife upgrades.

However, these examples don’t necessarily illustrate why a co-brand credit card program is better for the business than a private label would be. If a business is to consider adopting a co-brand credit card program, it must first ask itself some tough questions about fit.

Primarily, the business’s brand must be strong enough to support it. Consumers should have a strong enough affinity for the brand that they want the rewards from all of their spending to go towards earning rewards at that company. This is why industries such as travel and lifestyle brands are often such good fits with the model—people feel a strong connection with them. In fact, airline frequent flyer programs continue to serve as a model for the current co-branded credit card, both in terms of benefits and monthly spend.

Other industries have found success with the model though, too. For Scheels, a regional sporting goods company that hooked up with First Bankcard to offer its co-brand card solution, customers love shopping there enough that the co-brand route made sense. First Bankcard set up a program that allows the customer to earn a $25 Scheels gift card for every 2,500 points earned. The program keeps customer’s coming back to stock up on athletic apparel, golf clubs, and all sorts of other athletic-minded merchandise.

With loyalty comes spending data, allowing businesses to further align their services and rewards with their most dependable customers. Beyond repeat business, this idea is the primary reason why businesses derive so much value from these programs. Businesses can see how their customers spend money (both in their stores and out) and tailor product offerings, promotions, and service strategies to the customer’s lifestyle—further bolstering his or her allegiance to the brand.

Importantly, the data might reveal some hard-to-hear information. For example, if Chrysler, another First Bankcard partner, notices that customers are using Chrysler Visa cards at the Ford dealership, the company can figure out why.

And if they find the root of the problem, and fix it? They just may have minted themselves a happy, loyal customer.

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