How can credit card companies afford to offer big sign-up bonuses?

Author: WalletHub

Joseph Cherian, teaching professor of marketing in the Mendoza College of Business at the University of Notre Dame, discussed credit card sign-up bonuses on WalletHub.com.

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The general reason that credit card companies “afford” to offer sign-up bonuses is that:

  • It makes it look like their volume of customers is growing when customers switch;
  • This is a way to attract customers back after they defected to another card;
  • While it may not be profitable with respect to any one customer, in the aggregate, when customers switch, the customer lifetime value must exceed the customer acquisition cost. 

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