Once again, Direct Marketing Institute research shows that what consumers want and what they say they want are two different things.

According to recent research consumers chose gift certificates over cash, merchandise, and travel rewards when trading in loyalty points built up on their bank-issued credit cards last year. But when signing up for credit-card loyalty programs, people said that they were more interested in cash-back rewards.

For that reason, OTM suggests that you set up two sets of rewards – one to encourage consumers to enroll in your program or promotion, the other for use in a redemption catalog.

When consumers get a gift card as a reward, whether it’s to Home Depot, Best Buy, or a restaurant, it’s like a trophy they got compliments of their credit card.. A $10 or a $20 bill doesn’t have that same connection according to the research.

The percentage of consumers choosing gift cards as a loyalty reward rose 6% last year, to 57%, according to the study. One factor in their rising popularity is the re-gifting aspect. A rise in points redemption for gift cards comes with the holiday shopping season, and several banks discovered last year that they can easily deplete their gift card inventories. Speaking from personal experience, we redeemed points for gifts the last two years for distant family and friends, despite the popularity of gift certificates.

Among the other findings:

Consumers aren’t redeeming points. Among nine major banks surveyed, 60%-70% of points go unredeemed. And 46% of all loyalty program members have never redeemed points. iPods are a growing trend. Though merchandise rewards still cannot touch gift cards as a wanted item, just about everyone is offering Apple’s iPod or similar MP3 players. A hot item will boost redemptions and buzz as it captures the attention of consumers. The consumers may not know what rewards they want, but they want that as a choice. 79% of redeemers say rewards influence their credit-card usage.

Redeemers outspend non-redeemers 3:1.
Redeemers show less attrition – 4.03% vs. 10.95%.
48% stopped participating in a loyalty program because it took too long to earn redeemable points.

In response, consider running “point burner” campaign offering certain items at lower point rates for a limited time.