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

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.

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. 

Read the full article here.