A Rewarding Experience

Bob Taglin, a managing associate consultant with Auriemma Consulting Group in Westbury, N.Y., still remembers what a stir General Motors caused when it launched its first credit card back in the early 1990s. Prior to that, not only had no automaker offered a co-branded card, the companies that did followed a very familiar rewards formula: For every $100 a person put on a card, they would earn $1 worth of rewards (in rewards parlance, $1 spent typically equals one point). GM surpassed that standard, and then some. “GM launched with their 5 percent rebate card and set the whole card industry on its ear, because it was such a rich value,” said Taglin.

Over the years, the GM MasterCard, which allows holders to apply their rebates toward certain new Chevrolet, Pontiac, Buick, Cadillac, GMC and select Hummer vehicles, has been very popular; the company has six million cardholders who have used their earnings to buy or lease five million automobiles.

Luxury automakers Mercedes and Lexus have not matched that outright 5 percent rebate on all purchases with their credit cards, instead opting for a two-tiered rewards system where purchases made at their own dealers and select retailers yield bigger rebates than spending elsewhere. Mercedes and Lexus both offer five points for purchases in their dealerships and 1.5 outside (although Mercedes gives 10 points for every dollar spent at their dealers above $500). BMW’s Platinum Visa, on the other hand, is stingier in awarding points. Users have to spend $2 to get one point, and there’s no bonus for money spent at the dealership, although there’s double credit on every gas purchase.

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The luxury automakers do their best to make their card offerings live up to the high-end reputation of their brands. “It’s a way to extend the Lexus experience to something our customers do everyday, like shopping for groceries,” said Chuck Moore, the company’s national credit card manager. Boosting the panache of the benefits is one way BMW, Mercedes and Lexus all try to set their cards apart. Just for being a cardholder, all three offer services such as the ability to get guaranteed reservations at some of the finest restaurants in the world, help replacing lost luggage and roadside assistance.

The companies also offer unique ways to redeem points that are meant to create a bond with customers by providing a once-in-a-lifetime experience. “We have moved, at least at the high end, from cash and product rewards to experiential rewards,” said Edward Kountz, a senior analyst at Jupiter Research in Boston. For example, Mercedes allows cardholders to cash in points for Super Bowl tickets, a suite at the Kentucky Derby or even a road rally through the Black Forest in Germany.

Lexus Pursuits Visa Card + click to enlarge | view card details

Still, despite the glossy, exclusive opportunities provided by luxury automakers, the main thrust is to get cardholders to continue to buy or lease another car and to bring it into dealers for servicing. That’s accomplished through the use of some straightforward incentives that allow customers to redeem their credit card points for both purchasing and maintenance. BMW, for instance, allows drivers to use points to add miles to their lease agreements, just in case they drove more than the contract allowed, as long as the lease comes from BMW Financial Services. They also can apply up to $5,000 worth of points toward a new car — but this is also only the case with a car loaned or leased through BMW. “This enables a customer to go out and buy another car and reduces their actual cash flow, because it reduces their down payment,” said Ed Robinson, CEO of BMW Financial Services.

Published on 7/26/06

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