Editorial: Technology Is Our Enemy In This Hobby

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Photo by Henrik Bennetsen

Technology Is Our Enemy

I used to work for a huge cable company that serves many cities nationwide. As part of their efforts to attract new customers, this company offered a lot of specials and promotions designed to get customers in the door. Many times for example, you could sign-up for a cable/internet/phone bundle for cheaper than cable alone. They wanted you to have all of the products and they discounted them heavily up front.

Over the past decade or so the cable industry has changed dramatically. Many people have dumped their cable for Netflix or Hulu and cable companies have had to adjust by improving their internet products and becoming better businesses. Part of becoming a better business is increasing efficiency and eliminating waste.

At some point during my time at this company, things changed. The new customer promotions dried up and an analyst was brought in to improve efficiency. Sales commissions changed too. Instead of simply being paid for making a sale, your commission was based on the revenue you generated. If you gave the customer a great discount, then it cost you on the commission.

This company also rolled out a new customer information software package. They purchased data from one of the big companies that tracks everything that you do. When you would call in as an existing customer, a screen would pop up and tell the agent what to sell you based on your age, demographics, neighborhood and account history.

We even had data for new customers. While we might not have personalized data for you as someone who blindly called, based on your address the system would recommend what packages to offer. If you lived in a very affluent neighborhood then you would probably be offered the Super Jumbo Deluxe Bundle. If you were from a lower income area then the offers might be more modest.

Banking Industry Efficiency

This type of data gathering and analysis is happening in the banking industry (and every other industry) as well. While analysts have been around forever, the ability to collect and crunch huge amounts of data is growing by the day. While in the past they might have been able to analyze key metrics efficiently, they can factor in so much more now.

I believe this increase in technology along with a better economy are why we are seeing so many changes in this space right now. Banks are looking to grow their businesses and are finally getting down to looking at what is working and what is not. Let’s take a look at what American Express is doing.

Last week I broke the news that American Express was moving to a “once per lifetime” bonus on all of their cards. (Previously only personal cards were once per lifetime.) I also covered targeted offers that are being sent out without this once per lifetime language. This means that American Express can pick and choose who they allow to earn a bonus again. If you were a profitable customer for them, then you might just get an offer to come back.

No doubt Chase’s move to the 5/24 rule was driven by data as well. I fully believe they analyzed customer data and determined this magic number based on how many cards people get. If you get 6 or more cards within two years, then you are probably an outlier. They clearly learned from their analysis that customers who open this many accounts are not profitable or as profitable as they would like.

We even saw Citi recently shutdown a number of people’s account. Many of these people had abused Citi’s generosity (no judgement here) by applying for cards and shutting them down immediately after receiving the bonus. They had also been aggressive with the way they paid Citi accounts. My guess is that the data told Citi they were losing money on these customers.

In Loyalty Too

This type of data is being used in travel loyalty as well. Remember that bloodbath Hilton devaluation from a few years ago? Well those huge changes don’t seem to have hurt the company. Something told them their old chart was too generous and thus inefficient. The new one, while not great for us, seems to be working well.

In the airline space all three major carriers have significantly increased the cost of redemptions while at the same time restricting how you earn miles through flights. Delta has even removed their award charts since they decided based on data that their previous methods of being loyal to customers weren’t providing the greatest returns.

There Is Hope

Data isn’t always a bad thing though. This week we saw the announcement of the Freedom Unlimited card which will earn 1.5X Ultimate Rewards on all purchases. If you also have a Sapphire Preferred or Ink Plus these points can be transferred to travel partners. This card is clearly a result of Chase learning through analyzing data that they need a more flexible product in the marketplace. While the 5/24 rule will be in place to get this card, those with other products can convert.

We have also seen smaller banks offer competitive products in order to compete. Remember that companies who want to make a splash often purposely lose money in order to gain market share. An example of this is the BBVA Compass NBA Amex. For awhile they were offering a $200 bonus which is almost unheard of for a no annual fee card. The sweet part of this card is the 5% earning during certain days of the year.

Technology Will Progress But Things Are Cyclical

Right now the economy is good for the banks and thus they don’t need less profitable customers as much. They are fine tuning their businesses in order to generate greater profits. When the economy goes bad again (as it always does eventually) I am sure more opportunities will present themselves, but things won’t be the same.

While there will always be inefficiencies in programs and offers for us to maximize, technology will make it easier for the banks to be more efficient overall and thus the amount of opportunities will diminish. We will be battling progress. With that said, I fully believe that our “hobby” or “game” will live on, but we will have to be smarter and perhaps work a little harder. Most importantly, we will probably have to be better customers. Not the best customers, but better.

What do you think?


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17 COMMENTS

  1. Well stated. That being said, we should remember that technology also made it easier to get into this hobby. Before the days of autopay and online banking, all of this stuff was a gigantic headache.

    I traveled a lot for work before 2011 but knew nothing about “the game” and therefore wasted over 300,000 UR points on cash back. I know. Stupid.

    Now I’m also getting bored of the game. Sitting on 6 million miles and burning faster than I can earn them. Redemptions are getting harder.

  2. Good points reinforcing the notion that booms and busts in the MS world are cyclical. For those of you that have been around long enough, has there been clear evidence supporting the inverse relationship between the health of the financial world economy and the bountifulness of MS opportunities?

    • Maybe not MS opportunities specifically but loyalty program promotions were definitely much better in a down economy. When airlines and hotels need to fill seats/rooms they are more generous. Look at IHG’s recent promotion. It was inefficient in the best way for us because a careful reading of the rules meant that we could mail in postcards. We saw a ton of really good promotions that could be “hacked” during the down times but they are rare today. Thankfully there are still companies like IHG who make the occasional “mistake”, but of course they devalued to make up for it.

  3. Glad to see someone bring up Big Data. The blogs lately have folks whining about too much deal disclosure ruining a good thing. Actually, I believe the reason we have seen great deals disappear so quickly is the result of analysis. All those data points that firms have and the ability to crunch them through their models. Rather than relying on human judgement about profitability, financial firms can rapidly score customers as well as offers. Even Amex and Ebay bucks offers are highly targeted. The Serve and Paypal shutdowns also may be the result of data points.

    • Thanks Dave. I tend to agree that the data continues to improve for them and allows them to act in a way different from what we would have seen even a few years ago. Technology reduces inefficiencies. Of course they will always exist, but not at the levels previously seen.

  4. You must be reading my mind. The better technology gets the worse it is for those of us in “the game” to exploit or at least take advantage of. I was just thinking about this when I saw the Amex news. Kind of like in the ancient days of the Internet where you could get free Internet by signing up for AOL every month.

  5. Profit is not a Dirty word, and it is right up there with breathing.

    I haded to figure retention on customers all the he time, it is just not about getting a customer, it is about retaining that client…

    We all know how to generate phony number, in the people business, and companies do close the doors…

    I have played this game more years than many are old,, and it is always changing,

    I think they let us hack the system, to build the client base, maybe the CC is being played the same hand,,,

    • It is true that businesses don’t always have a clear objective. For example, a business may want to tell Wall Street how many cardholders they have so they loosen restrictions on approvals. I have even heard of managers and Vice Presidents increasing approvals due to their own personal compensation practices.

      There is no doubt that they know what is going on to a certain extent, but the combination of better reporting and data and a good economy for the banks means they can quickly crack down and change like they weren’t able to before.

  6. I disagree that we are not desirable customers. We charge EVERY THINK and the cc company gets $$ every time. That visa gift card makes $$ for them, as do the swipe fees. It’s possible that there are a few deals where the incentive reward is too high and after meeting min. spend we dump the card, but those are the exception. As long as they make the card attractive from a points earning perspective, we’ll spend the hell out of it, and the cc company will make plenty of money.

    Now, as for maximizing the USE of those miles and poinrs, THAT’S getting harder. But I think that has less to do with Big Data and more to do with the hotels and airlines doing well and not needing to lure customers as much as before.

    • Not all of us are undesirable customers, but some of our practices may make us undesirable. The main point is that they are gaining a greater ability to see who they want as customers and who they don’t. The amount of data they can analyze continues to grow which gives them a better overall picture. I actually agree with you that I am a desirable customer to a few banks due to my legitimate spending, but others may not see me that way.

  7. While I agree that banks are using big data to best identify their most profitable customers and target new business, I think the decline in the financial industry and banking shares, AMEX down 30% and JPMChase down almost 15%, is more of the driver to put their own finances in order by weeding out those who are not profitable to them.

    • There is no decline but rather a temporary adjustment created by the fear of investors that the banks provided loans to oil companies. It is just an adjustment and an investment opportunity. It is not relevant to the points game. However data mining can very well be relevant much more than the irrational fear of bank analysts perusing online forums and making decisions based on what they read. Numbers and tables matter and decisions are made based on collected data points.

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