The Diners Club Card
Tries a Comeback
After Falling Into Disuse,It Vastly Expands Reach;
Racking Up Airline Points
Wall Street Journal, March 30, 2005
Diners Club, the original charge card, is attempting a comeback, and the new version comes with one of the most flexible -- but expensive -- rewards programs available.
Created in 1950 as a way for busy executives to pay for meals when they didn't have cash, the card rose to become the epitome of suave and even had a movie made about it once (starring Telly Savalas)But in recent years, the brand faded as merchants flocked to Visa and MasterCard. Today, Diners controls less than 1% of the market, according to the Nilson Report, which tracks card use.
Now, however, Diners Club is getting ready to distribute new cards to most customers that can be used at any merchant currently accepting MasterCard, nearly tripling the number of places Diners Club is accepted. Diners' owner, Citigroup Inc., decided it had no choice but to make the card more useful, or else watch it continue to sink.
It's happening amid a continuing escalation in the battle over high-income customers who spend a lot and want rewards. In the past year, Citi also launched PremierPass, a card that gives people extra loyalty points on top of their frequent-flier miles from the airline when they purchase plane tickets with the card. Merrill Lynch & Co., meanwhile, rolled out a credit card that offers free flights and rooms at Ritz-Carlton hotels. There's even a card that lets big spenders rack up flights on private jets.
The move by Diners Club is likely to reintroduce potential customers to something that the card's die-hard loyalists have known for years: Its rewards program offers more options than any other card for people who like to redeem their points for frequent-flier miles. Instead of doing what many banks do -- giving cardholders one mile on a single airline for each dollar they spend -- Diners lets customers trade their card points for miles on any major U.S. airline, as well as a number of international carriers. It does, however, charge an annual $95 annual fee, which is more than most airline credit cards charge.
The move is aimed mostly at American Express, which entered the market nearly a decade after Diners, but now beats it badly in the competition for affluent customers. Peter Knitzer, managing director for Citigroup's Citi Cards unit, says the company is particularly interested in using Diners as a tool to win more market share in the lucrative business of issuing corporate cards, where American Express has long led the field.
Still, big-spending individuals who hoard rewards are likely to find the new Diners attractive as well. Diners isn't accepting applications for new personal cards until April 26. Current customers will get their new, MasterCard-enabled plastic in May or early June.
Diners' move to make the card easier to use puts it squarely in the sights of competing card issuers. One airline, Southwest, has already raised the number of Diners Club points required for a free ticket: Previously, Diners customers had to spend just $16,000 to earn a free Southwest ticket, but now they have to spend $24,000. By contrast, it takes $19,200 in spending on Southwest's own Bank One credit card to earn a free ticket on the airline -- which now means that the Bank One/Southwest card is a better bet for credit-card customers who are solely focused on running up their Southwest balances.
Megan Wood, Southwest's manager of partnership marketing, says the timing of the switch is a coincidence, and wasn't designed to make the Southwest card issued by Bank One (which likely buys many more Southwest credits from the airline each year than Diners Club) look better than Diners Club in the eyes of Southwest customers.
Still, Southwest's move may make anyone considering switching to Diners Club wary, since any partner has the ability to initiate a similar price increase in points.
Bank One, which was recently acquired by J.P. Morgan Chase & Co., also issues a Visa that earns one United Airlines frequent-flier mile for every dollar charged, and the bank pays handsomely to purchase the miles from the airline. Once Bank One's United card is up against the more-flexible Diners product, the bank might pressure UAL's United to give fewer miles out to Diners' customers.
Jay Sorensen of IdeaWorks, a marketing consulting firm in Shorewood, Wis., notes that Bank One is also involved with United's Chapter 11 financing and therefore may have a say in dictating terms.
A Bank One spokesman declined to comment on any potential competitive response. A United spokeswoman said, "We respect and value the relationship we have with all of our partners," and added that it is "premature to speculate on the recent changes with Diners Club."
Diners is aware of the possibility that other airlines could take steps that would make its rewards points less valuable, says Diners' Mr. Knitzer. But he described the Diners alliance with carriers "a totally different program" than offerings such as the Bank One United card, which offers only one airline's miles.
Still, Southwest's move has struck fear into the hearts of some Diners loyalists, who are annoyed about other changes that have come with the move to the MasterCard network. Diners used to give cardholders 60 days between when their statements closed for the month and when payments were due. "If you were waiting to get your expenses reimbursed by your corporate master and they were slow, you could relax," says Tom Farmer, a Diners Club holder who lives in Edmonds, Wash.
Now, the company has cut the grace period in half. Meanwhile, it charges a small fee to convert points to miles, which also irks Mr. Farmer. "At the end of the day, I can't justify spending the annual fee they want for the benefits they've said they will deliver," he says.
As people like Mr. Farmer examine their options, Diners' main competition in consumer cards will come, as it has before, from American Express. American Express offers some cards that earn points in Membership Rewards, AmEx's own loyalty program, and another piece of plastic that earns points in Starwood Preferred Guest's hotel loyalty program.
Both Membership Rewards and the Starwood rewards program let people trade points for miles, as does the Diners "Club Rewards" program. American Express holders can't trade Membership Rewards points for miles on United or American Airlines though. Starwood points convert into miles on most major airlines, but the exchange ratio with United is half what it is with many other carriers.
Starwood members do earn 25% more miles per dollar spent on their credit card than they would at Diners if they trade their points in 20,000 point blocks. But Starwood's AmEx card isn't accepted in as many places as Diners Club will be now.
One advantage all of these cards offer over single-airline cards is the ability to check for mileage-seat availability on their airline of choice before moving their points out of their credit card and into the airline program.