Credit Cards: Creditable cobranding

Joint marketing programs can often mean big rewards for both the credit-card companies and their partners.

Joint marketing programs can often mean big rewards for both the credit-card companies and their partners.

There was a time when Americans carried wads of mostly green, printed pieces of paper called "cash" to exchange for goods and services. Today, of course, it's all about the plastic. Credit cards recently surpassed cash and checks as the primary form of purchasing in our country. And as our wallets have become more jammed with plastic, corporations, banks, and retailers have moved more aggressively toward laying claim to the space inside our pockets. Credit cards are no longer simply financial instruments; now, they are full-fledged marketing tools. Cobranding is the method of choice for linking consumers' credit spending to specific brands. When a company plasters its logo right over your card number, it has achieved an automatic share of your mental real estate. Cobranding's beginnings The practice of cobranding cards began in the early-to-mid 1980s when major airlines hooked up with credit-card providers to offer rewards like free trips to frequent fliers in exchange for their loyalty. Once its success became apparent, other industries were quick to jump on the bandwagon and the business became fiercely competitive, with card-issuing banks vying for corporate partners and vice versa. Now, few premier brands in the US have not already formed cobranding partnerships, and growth is largely based on outward expansion to untapped audiences. "Cobranding is a lot more than two brands appearing on the same product. It's really about sharing strengths. It's about expanding channels. It's about building market share," says David Webster, SVP of business affairs for Chase Card Services. No longer is a fancy logo or shiny hologram enough to entice savvy consumers into choosing a specific card. Marketing is highly targeted and companies must know their customers well enough to understand exactly what rewards they desire. Webster points to the Starbucks "Duetto" Visa card issued last year as a successful example. Its name stems from the fact that it can be used as a regular credit card as well as a reloadable "Starbucks Card" for in-store purchases and redeemable rewards points. To appeal to the customers' sense of social responsibility, the chain is donating money to a youth-literacy program for every new card issued. In one fell swoop, people can spend conveniently, feed their coffee cravings, and know that they're doing good without exerting much effort. "Every time that a customer uses that card, they think about Starbucks, even when they are not in a Starbucks," Webster explains. Chase's research indicates that 60% of Starbucks cardholders use it as their primary purchasing vehicle - more than cash, checks, or any other credit card they have. "That's a value, certainly, to Starbucks. We think it's also a value to the consumer, because they are rewarded for using that product," he says. One of cobranding's major assets is its flexibility. Virtually the entire program can be customized to fit each individual brand. Card designs, rewards arrangements, and marketing strategies are all tailored to appeal to as specific (or as broad) an audience as is appropriate. Because of this, the horizon of such programs seems limitless. All the major credit-card companies have stepped into the cobranding arena to one degree or another, but its competitiveness has made the spread somewhat uneven. MasterCard representatives declined comment for this article, but, according to the company, MasterCard has supported more than 12,000 cobrand and affinity (nonprofit cobrand partnership) programs in more than 85 countries over the past 20 years. The number alone speaks to the effectiveness of the idea across cultures and geographies. MasterCard's pitch to potential partners says that 23% of customers with cobranded cards purchase more products from the company, and 31% purchase more frequently. It also notes, "When you create a cobrand card, you create a special class of customers who will require special treatment and special communications." There is no set formula for handling those "special communications." Marketing arrangements cover the entire spectrum: some cards are totally marketed by the card company, some totally by the corporate partner, and others by a combined effort of both. "I wish there were a cookie-cutter approach to that," says Melissa Beidler, SVP of cobranding for Visa. "Each deal is truly very, very different and has a unique structure that works quite well, hopefully, for that program. But if you tried to transfer that structure over to another industry, or even to another company within that industry, you'd be surprised how very different they are." At Visa, the benefits of cobranding are obvious. Twenty-five percent of the cards it issues are cobranded, but those cards account for 40% of all spending. "People that have the cobranded card are much more loyal to those programs," says Beidler. "They concentrate their spending on those cards and they use the card almost fanatically." Weighing the costs versus the rewards Despite the apparent logic of cobranding for all parties, it is still a major business decision, and card issuers weigh the associated costs - development, marketing, etc. - against the potential rewards before entering a partnership. "First of all, we want to make sure it makes good economic sense for the company," says Channing Barringer, a public affairs manager for American Express. "We want to attract customers. We want to keep them happy once they do come into the fold. We also want partners who are committed to delivering quality service and value." Those criteria illustrate the fact that while linking two brands together in the public mind can be good for market share, it also carries a PR risk. No card issuer today, for example, would be proudly touting an "energy rewards" program it had devised for Enron. "Sometimes either the business is not large enough to allow for us to economically operate that program, or perhaps it's a program that we simply don't care to get involved in," Webster says. Established brands with solid customer bases, however, tend to have little trouble securing a partner. Promotional tactics for new cards can often be directly integrated into existing marketing programs. Web-based promotions lend themselves naturally to internet-based retailers and to bricks-and-mortar stores that also make sales online. Other common tactics are direct mailings to customers, in-store promotions, and e-mail and television advertising. But some brands find that splashy rewards can gain them attention more effectively. In launching a cobranded card with MBNA last April, Merrill Lynch was seeking to establish itself as a total provider of financial services to wealthy Americans. It decided to use its own financial advisers to market the card to clients, but needed to build some employee enthusiasm in order to do it. "We said, 'Let's think of the financial advisers and our entire employee base not as a sales channel, but as a consumer base at first,'" says Merrill Lynch director of card payments Peter Barsoom. With that in mind, Merrill undertook a five-week internal communications campaign to hype the new card, giving away new cars and iPods in the process. By the end, more than 50% of company employees had applied for the card. "That's phenomenal," Barsoom says. Merrill is also working with Burson-Marsteller on a "Million Dollar Makeover" giveaway to attract the affluent public to the new card. By the end of next year, Barsoom hopes to have a quarter million of them in circulation. They've created, he says, the perfect cobranded product for the rich: "The more you spend, the better the card gets." Reaching out to everyone But even average Joes are included in the vast cobranding market, many of them through affinity cards. Charities, colleges and universities, and trade associations have all recognized the benefits of such programs, which substitute donations to various causes for reward points. Jonathan Tee, public affairs supervisor for the National Notary Association (NNA), says that an ad in its trade magazine and website were all that was necessary to generate interest in its 10-year-old cobranded card with Bank One. "The NNA tries to instill pride in that [notary] role," he says. "This serves that purpose." And the attraction to a card does not even need to involve humans. The American Kennel Club (AKC) has one of the most popular affinity cards in the US, offering 35 different card designs with popular breeds. The AKC's PR director Lainie Cantrell says that Bank One handles the cards' promotion, primarily through direct mail and handouts at the 16,000 dog-related events the organization holds every year. When trillion-dollar financial firms use border collies as marketing agents, the brave new world has truly arrived. Other cobrandings MasterCard: Began with Continental Airlines in 1985. Now boasts more than 10,000 cobranded and affinity cards worldwide. Issues through Citigroup, MBNA, JPMorgan Chase, and others. Popular cards: Shell, Barnes & Noble, National Geographic. Visa: Began in the early 1980s with AAA and several airlines. Issues through Bank of America, Capital One, MBNA, and others. Popular cards: US Air, United, Disney. American Express: Began in the mid-1980s with Delta Air and Sheraton. Maintains one of the most recognized points-for-spending programs, called "Membership Rewards." Popular Cards: Delta, Costco, Hilton. Discover: Doesn't issue cobranded credit cards. Instead, it provides cobranded prepaid gift cards from various shopping centers and retailers. Popular cards: Mills Malls, General Growth Properties (shopping malls), Utix (ticket-service provider).

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