It's amazing how quickly things change in the credit card industry. In 1990, prior to the launch of AT&T's Universal Card, conventional wisdom in the card industry was that the days of go-go account growth were over and the concept of group marketing was fading because presumably all the good "affinity" groups already had card programs. Four years later, the unprecedented success of AT&T, Shell Oil, General Motors, and a host of other cobranded programs has the pundits rethinking their position.
Nevertheless, articles in credit card and general marketing publications recently have suggested that the marketplace may be only able to support a few more cobranded programs and that the viability of the concept may have a limited life. This is wishful thinking on the part of some Card issuers who have not yet developed a value-added, relationship-based approach to their business, whether the value is derived by sheer aggressive pricing, bundling of other bank services, or through various forms of partnership/group marketing.
Is cobranding a flash in the pan or a marketing tactic that will be with us for years to come? If history is any indicator, cobranding has already proven to be a powerful marketing tool, as evidenced by the success of the original frequent flyer programs that are nearly 10 years old and the more recent programs I have mentioned.
Notwithstanding the strength of the concept, the longevity of cobranding will be more dependent on the forces that originally inspired cobranding. Cobranding was created, and will continue to be used, in reaction to a host of converging economic, societal, and technological dynamics. that are forcing companies to change the way they conduct business. As long as these dynamics are part of the business environment, cobranding will continue to be part of the solution.
America gets increasingly older as baby boomers, the single largest generational group, age. Concurrently, the generation immediately following the "boomers" is significantly smaller, hence fewer new consumers are entering the marketplace. Enlightened consumer product and service companies seeking to grow market share are dealing with this new demographic reality by placing as much emphasis on retaining existing customers as they do attracting new ones.
The fundamental shift in marketing orientation (away from a purely acquisition-oriented philosophy to one with a balance of acquisition and retention) has created an entirely new industry of marketing, information, and technology companies engaged in creating and/or supporting customer relationship programs. The backbone of these programs are sophisticated information systems that capture transaction data at the point of sale and overlay this with demographic and lifestyle-related data, creating clusters of behaviorally similar consumers. Marketers that can target and communicate with customers can extend the average life of a customer relationship and increase sales.
For companies seeking to leverage a pre-existing data-base system, or to create one from scratch, getting a cobranded Card in the wallets of their customers offers a host of strategic and economic benefits. As more and more of society's purchases are made with cards instead of cash or checks, companies that can offer their customers an attractive card will be well positioned to have their cobranded card used most frequently. This, in turn, will enable savvy companies to capture data, track customer purchase patterns, and reward their patronage and loyalty.
There are hundreds of millions of single purpose cards (retail, gasoline, telephone) in circulation in the United States. While the trend in single purpose cards is to outsource the operation to third-party providers, a very large proportion of these cards are still issued, funded, and managed by the sponsoring merchant company. Many small to mid size card programs without adequate economies of scale (in fact even some very large card programs) have become cost prohibitive for the companies that sponsor them. Because of this, many specialty card programs will be outsourced during the next decade through a number of cobranding approaches.
Value and practicality are two product/service attributes being sought by consumers in the 1990s. An aging population coupled with an escalating cost of living is driving this. While we may be growing tired of the "V" word, consumers will be demanding value for years to come. Furthermore, consumers are radically changing the way they think about and use credit cards. The credit card is no longer being perceived as merely the convenient transaction/financing tool that it is. Cards are increasingly being viewed and sought by consumers as a "key" to other services, preferential treatment and discounts.
These consumer attitudes will pressure general purpose and single purpose card issuers to offer greater utility. and value on their cards. The result will be a massive conversion away from nonenhanced cards to various forms of value-added cards, including cobranded ones.
Cobranding is certainly not the only way for issuers to add value to cards or for companies to communicate with customers. But cobranding has quickly become, and will continue to be, a mainstay on the marketing scene as a viable way for issuers and companies to jointly serve their shared cardholders/customers.
The credit card industry is rapidly approaching an identity check. While it's clear that the credit card industry is in the credit granting business, cobranding is catapulting the credit card business into the information business. The credit card business is in the catbird seat to be a major force in the burgeoning consumer information business that is transforming the way product and service companies attract, serve, and retain customers.