Major credit card issuers have boosted — in some cases, nearly doubling — their advertising spending, bringing it to pre-recession levels.
But with shifts in consumer spending, coupled with regulatory changes, issuers are focusing on different goals than before the economic downturn.
Consumers, who over the past few years had cut back on their credit card use, appear interested again in buying on credit, and card issuers are easing their lending policies to meet the rising demand, according to Federal Reserve Board data.
"Essentially, we're seeing the economy getting stronger, with an easing of credit standards and concurrently an increase in consumer demand for credit, which is great" for the card market, Dennis Moroney, a research director at TowerGroup, said in an interview. Moroney analyzed the Fed's data in a TowerGroup report.
Consumers may be more apt to respond to new advertising for cards, observers say, and issuers are obliging.
JPMorgan Chase & Co. and Capital One Financial Corp., for example, made sizable increases in their advertising spending last year, according to research from Kantar Media Intelligence of New York.
JPMorgan Chase's spending on card advertising jumped 97.3%, to $361 million, in 2010 from the previous year, while Capital One's spending surged 84.7%, to $200.8 million.
Under pressure from the expected reduction in debit card revenue from interchange rate caps under the Durbin amendment to the Dodd-Frank Act, issuers also may be refocusing their advertising efforts to emphasize their credit cards, whose rates are not being capped.
"I talk with a lot of bankers, and there's an appreciation that many are trying to re-energize the credit card market in light of the Durbin amendment," said Mary Beth Sullivan, managing partner of Capital Performance Group.
Belt-Tightening
To protect their portfolios from the massive default rates during the recession, issuers are pursuing the lowest-risk consumers, and are competing more for business from existing cardholders.
That is one reason most ads are focusing on rewards, said Ron Shevlin, senior analyst at Aite Group.
According to company reports, U.S. annual credit and charge card sales volume increased 6.3% last year, to $1.86 trillion, following a 9.3% decrease in 2009, from $1.93 trillion in 2008.
"This is the tail end of a bad time for credit cards, so the fact that spending is up is hardly surprising," Shevlin said.
"But what is really significant is that there is more competition for a smaller segment of cardholders, [and] the focus is not on acquisition of new cardholders, but on competition for the better-risk customers," he said.
Both Capital One, with its Venture card, and JPMorgan Chase, with its Sapphire card, have increased their advertising spending to support new niche rewards products, said Jon Swallen, Kantar Media senior vice president of research.
Capital One earlier this year launched a national television ad campaign featuring Alec Baldwin from the TV sitcom "30 Rock" to promote the Venture card. JPMorgan Chase in one ad features a family that discovers a dinosaur bone on vacation, but the woman listening to the story is more impressed by the card's travel rewards.
Kantar's research also documented a decrease in advertising spending by Visa Inc. and MasterCard Inc. Visa's ad spending in the U.S. dropped 24.9% last year, to $203.5 million. MasterCard's ad spending dropped 66.8%, to $65.7 million.
Neither company would provide comment on these declines, but Swallen said the data may reflect the card brands' view that consumer spending has not recovered enough for them to reinvest in advertising.
"To me it sounds like [the decrease in ad spending] is likely connected to the outlook on consumer spending," Swallen said. Visa's reduction in ad spending is particularly surprising given its high-profile sponsorship of the Winter Olympics in Vancouver, British Columbia, early in 2010, he said.
Visa, however, referred to a statement in the company's fourth-quarter earnings report from last year in which its chief executive, Joseph W. Saunders, predicted an emphasis on marketing outside the U.S.
"In fiscal 2011, we will invest upwards of 60% of Visa's marketing expense on markets outside of the United States, where we are focused on driving growth in the affluent segment and debit at the point of sale," Saunders said.
For 2011, Kantar said a boost in ad spending by American Express Co. and JPMorgan Chase is a sign overall industry ad spending may be on the rise. In January and February of this year, Amex's ad spending was up 17.9% from a year earlier, while JPMorgan Chase's was up 48.7%, according to Kantar.
"What's interesting to me is the product mix," Swallen said, noting that for Amex the mix of ad spending between personal and business cards was almost reversed. In the first two months of 2010, Amex spent 24% of its ad spending on business cards and about 60% on personal cards. This year, Amex spent 66% on business cards and only 25% on personal cards.
For JPMorgan Chase, the switch in emphasis was the opposite of Amex's, as its Ink small-business card ad campaign did not get nearly the level of advertising as it did two years ago, garnering only $4 million out of $46 million spent on credit card ads, Swallen said.
Instead, most of JPMorgan Chase's ad spending during the first two months of the year was for its personal cards, particularly the Freedom cash-back rewards card and several cobranded cards, including JPMorgan Chase's Disney, United Airlines and Continental Airlines cobranded credit cards, Swallen said.
JPMorgan Chase also spent less on ads for its Sapphire affluent card, spending only $5.6 million in the first two months of 2011. Kantar did not provide spending for the same period a year earlier.
One trend of note is that all the JPMorgan Chase cards support travel rewards, Swallen said. JPMorgan Chase declined to comment on its ad spending.
Bucking Trend
Most companies are focusing more on promoting just one product, such as Capital One with its Venture card, but JPMorgan Chase and Amex both are focusing on several cards.
"Amex and Chase far and away are advertising the most diverse portfolio of credit card products," Swallen said. "Everybody else is doing advertising around one card."
Amex and JPMorgan Chase are casting a much broader net, Swallen said.
"That strategy requires more money, and [those two issuers] are spending more to do it," he said.
In general, card issuers are retargeting markets, such as affluent consumers, and are focusing on rewards specific to travel, according to Kantar Media and other analysts.
However, issuers also are focusing on providing practical value, such as JPMorgan Chase's Slate card. That product features Blueprint, which offers Chase cardholders payment plans to pay off certain purchases or the card's balance over a specified period.
Chase's advertising focus for Blueprint is a response to the Credit Card Accountability, Responsibility and Disclosure Act's edict to make card terms more transparent and to give customers more control over their accounts, Swallen said.
"Chase is taking a requirement that some viewed as a burden and is turning it into an opportunity to be the first to promote it," Swallen said.
