Coping
with the commoditised credit card:
Using
relationships to build profitability
Ask a friend to take a look at the credit cards in his wallet.
Chances are, he has a whole raft of them. Now ask which one
he mostly uses, and why.
You’ll probably get a variety of answers, ranging
from habit, through to loyalty rewards. What you’re
very unlikely to hear is that “I use this one because
it works better than the others.”
It’s a fact that since 1950, when New York businessman
Frank McNamara used the first ever payment card, the customer
experience, from purchase transaction right through to statement
settlement, has stayed much the same. For sure, there have
been changes at the margin: PIN rather than signature authorisation,
(though not all customers would see this as an improvement),
electronic presentment and settlement of statements – but,
despite the huge and costly efforts they represent, for the
cardholder these changes are little more than fine-tuning.
The result? Customers see no difference at all between one
card and another.
And when one product is indistinguishable from its competitor,
marketers have only one weapon to use: price.
Enter
Dragon Number One. In markets around the world, regulators
are taking aim at the payment card industry, shrinking
its revenues, sniping at its fees. (And if they haven’t
started in your market yet, you can be certain that they’re
thinking about it). Against this background, price competition
is the last route you want to take.
Enter
Dragon Number Two. Alternative payment media: Google, PayPal,
contactless technology, mobile phone operators – they’re
all considering how they can muscle in on the card operators’ territory.
And why not, when cards all do much the same job?
Of course, commoditisation was the problem the loyalty programmes
were set up to solve. The difficulty was that, like all good
ideas, they were quickly copied. And too often, the copies
were rushed out on the Ready, Fire, Aim principle, so that
the market became crowded and customers became bored. How
else explain the recent finding in the US that 70% of award
redemptions are for gift cards?
Time was that programmes like Air Miles could point to real
consumer value in programme awards. The advent of the low
cost airlines has holed that model below the waterline: why
should your customer struggle to use your points to find
a seat on a high cost carrier, when for far less effort,
and often it seems more cheaply, he can get a ticket with
the local budget carrier?
Hence the success of gift cards: rarely great value, but
simple to understand, easy to get, and flexible to use.
But surely as an industry we can do better.
Savvy
marketers are already finding new ways of marketing their
products. Sometimes it’s building new business
by canny segmentation: for example, car insurers who offer
special deals to multi-vehicle owning families. Sometimes
it’s hanging on to customers by offering truly good
service: financial services company “more than“ start
their pet medical cover claim process by saying how sorry
they are that Rover has been unwell. Others hang on to
business by making it more difficult for customers to move
to a new product: they encourage recurring payments, such
as magazine subscriptions, utility bills, or broadband payments,
to be charged to their card.
Suppose
there were a better way. Suppose there were a way of making
your card desirably different from the competition, so
much so that people would use it first – and, who
knows, might value it so much they would even pay a fee for
being able to use it?
Once, affinity cards seemed to answer the value question:
but too many issuers do the deal with the club or group,
and then forget about it. But that way, everybody loses:
the group feels short-changed, the issuer sees little growth,
and potential customers see no compelling reason to apply
for the card.
Here’s a case in point: I’m a mildly enthusiastic
owner of a well-known make of Italian car (to spare everyone’s
blushes, I won’t say which). The energetic Owners’ Club
has worked with an issuer to create an affinity card for
us. But, apart from a small kickback to the Club, there’s
absolutely nothing in it for me – and I already have
a wallet full of cards. So why should I apply for another?
Now,
if the issuer and the Owners’ Club worked together
to do a deal on insurance, or spares, or petrol, or servicing,
or savings on new models, I’d be very interested in
applying for and using the card.
So here’s
the lesson:
- Customers see little difference between one card and
another (and the same goes for many other financial services
products, incidentally)
- Customers
have many relationships outside the financial services
arena which are important to them
- Those
relationships can offer important clues on how to make
our products interesting again – interesting
because it’s worthwhile to own them, worthwhile because
they offer benefits which are real, valuable, and relevant
Let's
go back to our original question; how do we cope with the
commoditised credit card? There's a proven answer; harness
the power of relationship marketing.
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