Be it contests to win a Tesla, reward points or straight-up cash, financial companies have long lured customers with free offers — but at what cost?
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Hey there, time traveller!
This article was published 29/01/2022 (309 days ago), so information in it may no longer be current.
A Canadian financial website may not be offering a free lunch. But like so many other enterprises in the industry, it’s raising the stakes in using contests, giveaways and other freebies to win over the fealty of consumers in an increasingly crowded marketplace.
“Companies like ours, especially in the fintech space, are trying to up the ante … to get the attention of Canadians,” says Stephen Weyman, founder and co-chief executive officer of creditcardGenius.ca.
An online marketplace for credit cards, creditcardGenius.ca rates cards according to their benefits like loyalty-rewards programs. And it recently launched its own rewards program — GeniusCash — which involves giving consumers who sign up for a credit card through the site, and are approved, $50 to $100.
Additionally, those consumers are then automatically entered to win $10,000, and if 5,000 people apply for a card successfully through the site, the contest prize increases to a Tesla Model 3 automobile.
As Weyman explains, he looked to “YouTube and social media influencers to see what sort of extraordinary things they were doing to get people excited, and that led me to MrBeast and his promotions.”
MrBeast is a video blogger on YouTube renowned for outrageous giveaways, including dropping thousands of dollars from a drone over a big box store parking lot.
“He obviously has a business model behind it aimed at driving viewers to his YouTube channel to generate advertising revenue,” Weyman adds.
The goal is much the same for creditcardGenius.ca: Drive consumers to the website, and entice them to sign up for a credit card in exchange for free cash and a chance with a contest. He adds that’s on top of the extra bonuses — like 70,000 free reward points — offered by the credit card providers.
The Tesla contest may be unique, but the strategy of using giveaways and other freebies to attract consumers is a tried and true marketing strategy, says Peter Hughes, partner at KPMG, who has helped design loyalty programs including PC Optimum.
“Everyone in these scenarios is winning,” he says, adding that’s what has made them so popular.
On the industry side, free-stuff offers allow companies to get their digital foot in the door. It’s less about selling Visas or Mastercards, Hughes notes. These strategies are more about establishing a beachhead to sell additional products: mortgages, chequing accounts and mutual funds.
Moreover, most cards come with highly effective loyalty programs. They’re sticky; once you start you will likely continue so you can earn more rewards.
Canadians are a particularly loyal lot, too.
Hughes points to KPMG research finding that globally “Canadians, outside of Australians, are the most likely to participate in loyalty programs.”
He adds 56 per cent of Canadian adults participate multiple times a week in loyalty programs with the average adult enrolled in 14 programs and active in nine.
“That’s also an indication … of the crowded nature of the space,” Hughes further says.
Given the saturation, layering freebies on top of each other is a means for companies to differentiate their products, says Roger Dooley, Forbes columnist and author of Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing.
“Credit cards are largely interchangeable, so companies must offer increasingly significant incentives.”
Beyond that, freebies are a particularly powerful marketing tool because they generally appeal to our emotions instead of our sense of reason.
Dooley points to one noted study in which most participants consistently chose a high-quality chocolate truffle for 15 cents over a Hershey’s Kiss for one cent. But when both candies’ prices were reduced by one cent, most participants chose the free Kiss.
Dr. Tanjim Hossain, a behavioural economist at the Rotman School of Management at the University of Toronto, explains “there is a tendency for people, when getting something for free, to ignore what they’re giving up in exchange.”
Just like the old adage ‘there is no free lunch,’ freebies almost always entail something in exchange.
In the case of credit cards, incentives are a means to overcome consumer inertia. They need to give up their time among other things.
So ‘free’ becomes the nudge to sign up, fill out some forms and get approved, Dooley says.
But inertia with credit cards is especially challenging because so many people already have them.
“Once you start using one, the chances are you’re not going to change easily, especially if you’re already part of a loyalty program,” he adds.
Canadian personal finance blogger and educator Jessica Moorhouse says these promotions can indeed be beneficial for many consumers but not all.
“Maybe you wanted that credit card anyway, so you’re not losing anything by signing up and taking part in this contest,” she says, referring to the Tesla giveaway.
“Where a problem could arise is if you fall into the trap of signing up for things just for the ‘freebie.’”
In turn, less thoughtful consumers might end up with multiple credit cards, spending more than planned and deeper in debt.
“On average these offers may not be bad, but they could be harmful for some,” Hossain says, noting credit card debt is already a significant problem for many Canadians.
Yet if you are on the hunt for a new credit card, promotions from websites like creditcardGenius.ca are potentially to your advantage, Weyman argues.
“You might as well get the best credit card with the best welcome bonus and the most rewards,” he says. “And you get GeniusCash on top of that with a chance to win a Tesla.”