Marketing Professor on ‘Ask the Experts’

WalletHub featured Mark Groza, NIU Associate Professor of Marketing, for its most recent “Ask the Experts” segment. We’ve reposted that Q&A here:

Why would a credit card company offer 1% cash back on purchases and 1% cash back when cardholders pay the balances resulting from those purchases, rather than just 2% cash back at either point?

There are likely several reasons to split the 2% cash back reward. First, by delaying half of the reward until after the balance is paid, the credit card company is incentivizing the customer to pay off their credit cards. Practically speaking, it is questionable if this actually influences customer behavior, but it does have a political value which in an industry often in the cross-hairs of regulators is important. Also, by splitting the rewards, the credit card company is effectively doubling the number of touch points it has with the customer. That is, the customer now will be reminded about the reward they earn both at the time of purchase and at the time of payment. This may be an effective way to strengthen the relationship with the customer.

What are the benefits and drawbacks of a credit card advertising “no late fees ever”?

The benefit is it gives customers who are only occasionally late a free pass. This helps ensure the relationship is not damaged among these loyal and reliable customers. Charging a late fee on a customer who very rarely is late could do much harm to the customer-company relationship. The drawback is, consumers may misunderstand that a ‘late-fee’ is different than the interest charged on an outstanding balance. The interest on outstanding balances is typically much more expensive than any late fee charged.

Citi now has the Costco credit card account, which used to be with American Express; what does that mean for the two companies as well as for consumers?

Costco was able to negotiate a great rate with Citi and will see substantial savings to its bottom line. Citi will gain a number of new Costco customers that used to carry the Costco American Express card. Citi was willing to give Costco such a great rate because they are expecting cardholders to use the card at places other than Costco which will generate additional revenue for Citi. As for customers, there will be the typical hassle associated with switching credit cards but following the switch very little, if anything will change.


Reposted from Wallethub’s interview with Mark Groza, NIU Associate Professor of Marketing.

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