On Tuesday, American Express (AXP) will announce an expanded rewards program to allow Platinum and Centurion card holders to redeem points for high-luxury items such as a one-year lease on a $260,000 Lamborghini Gallardo Spyder convertible (10.5 million points), a more than $900,000 Chopard 53.2-carat, diamond-encrusted watch (93.2 million points) and Tiffany gift certificates.
Credit card holders already "can go on spacewalks, hobnob with celebrities, have unique experiences," says Ralph Andretta, a general manager at American Express. The new program "just brings (rewards) to another level."
American Express says it expects enhanced rewards to drive credit card spending during the holiday season, the most profitable months for retailers. The launch comes as competition for the well-heeled consumer heats up and American Express — which pioneered the Platinum credit card two decades ago — finds itself in the uncomfortable position of fending off growing challenges to its market dominance.
In an August report, Morgan Stanley analysts Kenneth Posner and Betsy Graseck wrote that, as issuers roll out more cards geared toward high-end consumers, "The question must be raised as to the possible long-term implications for AmEx's growth."
Every card issuer defines the affluent segment differently, but these households earn a minimum of $100,000 annually. While this group makes up 1.5% of all credit card holders, it accounts for 20% of card spending, according to Nilson Report, a payment-systems newsletter.
"Everyone wants a piece of them," says Rick Ferguson, editorial director of Colloquy, a consulting firm. Issuers "are all trying to outdo each other" with rewards programs to attract these consumers.
In recent years, MasterCard (MA) and Visa issuers have aggressively courted well-to-do consumers with their World and Signature credit cards, offering rewards such as Super Bowl parties and theater tickets. MasterCard, in September, launched a World Elite card that offers additional perks such as free companion airline tickets, concierge service and access to special events.
High-spending consumers respond to service and rewards tailored to them, says Nicole Risafi of MasterCard. "It's really not solely about the trip to Italy. ... It's about being able to experience Tuscany in a way few people can."
Affluent consumers often don't carry debt on credit cards, so issuers don't profit from monthly finance charges.
But their high spending levels are a boon to issuers, which receive payments from merchants for each credit card transaction.
Rewards encourage consumers to charge their purchases. They also provide consumers with another reason to hang on to their credit cards. At American Express, customers enrolled in a rewards program tend to keep their cards three times longer than those not enrolled, Andretta says.