The 'Nerfing' Lifecycle

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CarefulBuilder14
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The 'Nerfing' Lifecycle

Postby CarefulBuilder14 » Wed Dec 10, 2014 12:01 am

It seems to me that there is a pretty clear pattern issuers follow with AF travel credit cards, as well as all credit cards in general:

1. Create a card with great rewards and perks.

2. Offer a big signup/initial spend bonus and waive the annual fee for the first year. Lose some money here up-front.

3. Attract a lot of customers. Some will pay in full and use the perks a lot, and others will pay interest and not use the perks often.

4. Gradually cut the rewards rate (or their buying power with transfer partners) and benefits every year. Keep the annual fees, interest, and swipe fees, while paying out less and less in rewards. Add one or two hard-to-value perks to confuse things. Try not to raise the annual fee — that would be too obvious.

5. Drive away your savvy, unprofitable customers (who mostly spend on bonus categories, pay in full and make heavy use of the benefits). Keep customers who have your card for image/status, account age, or who don’t know better. Make a ton of money here.

6. Eventually end the product and try to PC the remaining customers into something of equally bad value.

Do you think I have it about right? Or does anyone think Amex, Chase and the others are genuinely trying to maintain the benefit levels, but invariably need to cut them? Are we reward geeks partly responsible for the benefit cuts, as we adjust our behavior with cards to suit changing incentives? Or would the cuts be happening anyway? I know, on some level, that not every Amex customer can routinely get free shipping on a $2 pack of razor blades.

I see a lot of AF cards that simultaneously offer enormous bonuses for new customers and benefit cuts for old customers. I’m thinking, in particular, of the Amex charge cards and the CSP.

I’d really be quite happy to have a small signup bonus, or no bonus at all, if I had any confidence that a card’s rewards and benefits wouldn’t be cut within a matter of months. Why does it have to be such a short-term game?
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Postby djrez4 » Wed Dec 10, 2014 12:46 am

I strongly believe that the answer to most questions like that is "because they can."
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Brad Bishop
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Postby Brad Bishop » Wed Dec 10, 2014 6:22 am

What I think is happening, and it has been happening in various industries for 2+ decades, is that there's this mindset that acquiring customers is first and foremost.

I think that the people in business and marketing, and I'm guessing because they're taught this in college, think about these priorities in this order:
1) acquire new customers
2) retention of exiting customers
3) offer a good product/service

In the model above they just want a head count. The quality and value of the product or service is an afterthought.

Instead of thinking, as most of us would think, more in this order:
1) offer a good product/service
2) acquire new customers
3) retention of exiting customers

That set of priorities makes far more sense to you and I.

Now, there are business goals and short term incentives which help lead to all of this. Someone may be giving a task of acquiring 20,000 new customers in the next year in order to get their bonus. To them, acquiring customers is first and foremost. Who cares if they stay? They want that bonus!

With this I think that the business, as a whole, loses site of the quality of their product and the contentment of their customers with their product. That magic "new customers" number is all that matters.. Maybe someone else is given the task of keeping the old customers and then you end up with ridiculous incentives for people to stay instead of just offering them a good product at a fair price the entire time.

I first noticed this in the 1990s with the long distance companies competing. AT&T, and other companies, would pay you $100 flat out to have them as your long distance company. They would even offer you competitive rates. This was all only if you weren't with AT&T. So, if you were with AT&T and said, "I want a $100 check. I want better rates," they'd tell you, "No - that offer is only for new customers." It was in your best interest to leave AT&T, because of these bizarre business practices, and come back 6mo-1yr later and have them to pay, both in the check and advertising, to win you back.

DirecTV does this. SiriusXM does it. The cable companies mostly seem to do it but if you just call up and ask for the latest discount after paying a month at the normal price.

I think the problem isn't the deals that they offer, it's that they concentrate more on the acquisition and retention that the product or service.

For example, say I had a new mobile service that was better than AT&T's. I may want to offer it as a discount to entice people to try it but, after that, I'd want them to stay because of the quality of service and the value I provide. That makes sense.

Today's business world focuses not on the product/service but on the carrot. There's always a carrot and, in a weird way, the public has grown accustomed to this and now expects the carrot or jumps ship to the next carrot.

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Postby takeshi » Wed Dec 10, 2014 8:39 am

Brad Bishop wrote:What I think is happening, and it has been happening in various industries for 2+ decades, is that there's this mindset that acquiring customers is first and foremost.

^ This. You can definitely look at businesses in other industries and see this sort of thing. Long term is frequently overlooked versus short term.

Brad Bishop
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Postby Brad Bishop » Wed Dec 10, 2014 9:27 am

takeshi wrote:^ This. You can definitely look at businesses in other industries and see this sort of thing. Long term is frequently overlooked versus short term.



I think that if you went into any of these meetings and said, "Let's get our product/service up to par and then go after customers and eliminate this churn. We'll stop losing customers who keep going down the drain and we'll gain new customers based on our reputation," that you'd be laughed out of the room. I think it's so engrained in many of these college-educated folks to narrowly focus on some aspect instead of looking at the business as a whole, that they simply can't fathom it. They'd just look at you and say something ridiculous like, "Acquisition is everything! You can't grow the business without new customers!" - and that's where the argument will stop.

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Postby oldsoldier » Wed Dec 10, 2014 2:58 pm

I find that as a consumer I'am very frustrated with this model because loyalty means nothing anymore.
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Postby freyj6 » Wed Dec 10, 2014 7:41 pm

Works fine for me. I'll take the $400 dollar sign up bonuses and switch cards when someone offers something better.
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Postby yfan » Wed Dec 10, 2014 9:54 pm

I think OP is on the money, but not all cards do this. The only Amex I carry is the Costco TE. Its benefits haven't really been nerved. The QS cards from Capital One seem to be going strong as well. So basically, I think that the cards that promise the moon that their swipe fees cannot sustain are the ones that get nerfed. In that way, doing a quick research and figuring out if the benefits being promised on a new card is actually sustainable can save us a lot of headaches in the long term.

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Postby RewardHop » Wed Dec 10, 2014 10:04 pm

freyj6 wrote:Works fine for me. I'll take the $400 dollar sign up bonuses and switch cards when someone offers something better.


+1

I got $600+ worth of airfare with my CSP sign up bonuses and I could care less they are nerfing the 7% dividend, the Chase 10+10, or raising the annual fee. I got my value and will be PC'ing it to something else and leaving it in the sock drawer.

The nerf that gets me is the 5% Restaurants from Cash+... but whatever, theres no AF and I can still use it for 5% Electronic Stores and Fast Food.
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CarefulBuilder14
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Postby CarefulBuilder14 » Wed Dec 10, 2014 10:24 pm

I think the Costco card had a small nerfing on the gas spending cap - or maybe it was just on the business Costco TE.

The rewards are really nothing exceptional, though. The 3% on Costco gas is unique, but there are so many other Amex cards that are good for warehouse purchases. Maybe that will change as part of the US Costco card contract bidding if Amex wants to win.

I guess if you want a premium card, then nerfing is just one of the rules of the game. Having a bunch of old no-AF light-use cards seems the best way to fight it. Travel cards can come and go, but half a dozen light-use cards can help my AAoA keep most of its momentum over the long run.
Wallet: Prestige CSP SchwabPlat Freedom It Hyatt SallieMae AAPlat
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Letting new accounts cool off since May
Really not sure what I'll add next or when



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