Experts identify card marketing trends & threats
The marketing strategy roundtable discussion at the recent Card Forum and Expo in Florida provided answers to a number of key questions about current marketing threats and trends, according to our North American contributing editor, Bill Hanifin.
The conference-ending roundtable session was led by Bob Giltner, CEO for My Rewards, began by posing a series of questions, including:
- Where will the biggest opportunities be during the coming year?
- What are the greatest threats to card issuers in the near term?
- What consumer segments offer the greatest potential to issuers?
New insights Among the main insights drawn from the session were:
- Merchant participation in rewards programmes will continue to grow and become a preferred model for card issuers. Whether you choose to call this new model a Merchant Funded Rewards Programme, an Affiliate Network, or a Registered Card programme, the debate concluded that these programmes all benefit issuers, merchants, and cardholders alike.
- Decoupled debit was a topic that came up throughout the event, although most delegates readily admitted to a less than perfect understanding of the model. In the US, for example, CVS Pharmacy piloted and branded the concept during 2007 in the form of the CVS ExtraCare Plus rewards payment card, which allows customers to receive their ExtraCare rewards benefits and pay for their merchandise with the swipe of one card. The funds are then debited from any cheque account designated by the member. While this represents high utility value and flexibility for consumers, it also poses a potential threat to card issuers who want to align brands in an exclusive manner.
- It was also noted that card marketers still need to look outside of their own industry for new ideas and innovations. Just as many retail bankers have been studying their retail counterparts, card issuers may need to expand their horizons if they are to break away from the 1 point per US$1 model that has typified card rewards programmes since the mid-1980s. Related to this was the suggestion that issuers should continue to seek alliances with consumer-facing organisations in other sectors to help create competitive advantages.
Biggest opportunities Among the biggest opportunities foreseen for the coming year were:
- Debit card rewards programmes will continue to roll out across the general banking industry and will penetrate further from the current handful of large issuers to also include midsize and community banks. As more and more consumers become comfortable with debit cards, and start to understand the convenience they offer, adoption will naturally increase. Issuers will encourage usage through education and the provision of incentives, and offering rewards with familiar merchants will be a common model in the near term.
- Parity across the card rewards business is nearing its apex and issuers will invest further in making their rewards offerings more relevant for cardholders. Card issuers have an enormous amount of data in their possession and should dedicate time and resources to converting that data into stronger value propositions and rewards that better match their cardholders' preferences.
Biggest threats Several competitive threats to card issuers were also discussed:
- The main competitive threat that rose to the top of the list was the "do-nothing" option, meaning that issuers must not be satisfied with tradition business models and should seek partnerships, alliances, and new models to create "disruptive combinations" that would act in their favour. Of the devices that could represent the most viable alternative payment platforms, the mobile phone topped the list.
- Merchants were also cited among the most significant threats to traditional card issuers. Ongoing industry discussions concerning alternative payment platforms (mainly to help reduce processing costs for merchants) are made more acute in a slowing and highly competitive economy, and it was suggested that issuers should not lose sight of merchant interests in their strategic planning efforts.
- At the same time, the roundtable examined those companies and technologies that might benefit or suffer over the coming year. On the winning side were mobile phone providers and their partners (such as Nokia and Apple), which could benefit from wider adoption of Near Field Communication (NFC) technology, which has the potential to supersede the current contactless standard for proximity payments in the US at least. Despite their industry dominance and recent public offerings, the major card associations (e.g. MasterCard and Visa) were perceived to risk losing market share to new payment technologies and networks that might be brought to market by the merchant community.
Key consumer segments It was generally agreed that card issuers need to adopt multiple marketing approaches to serve a number of distinct consumer segments. There was less agreement, however, over which consumer group would draw the most attention (e.g. the affluent, the underbanked, or the younger generation of consumers such as Generations X and Y).
It was suggested that each of these segments is important in its own right, and that product development will need to match specific issues and needs for each audience. But it is still important to not ignore the existing markets that are already well served, and the efficient use of customer data will always result in increased penetration of existing segments.