American Express Co. has announced a marketing partnership that will allow its Blue cardholders to use the smart chip in their cards in U.S. stores for the first time, at Virgin music stores.

The program, called Blue for Music, includes two music-oriented companies, of which Virgin is the newer. Virgin Entertainment Group, which operates 20 Virgin Megastores in the United States, has installed chip card readers at each checkout line in its stores.

Its other partner, SFX, a subsidiary of Clear Channel Communications that operates music amphitheaters, is expanding a program it began last year that gives Blue cardholders a special Will Call window where they can claim Internet-purchased concert tickets by inserting the card into a chip card reader. The program will soon include more concert halls, and will offer free music CDs to Blue cardholders who buy tickets online.

Richard Lobel, SFX’s senior vice president of alliance marketing, said last year’s test of the special Will Call windows was successful, though the numbers of Blue cardholders who used the service “aren’t that big.”

He called American Express’ focus on music for the Blue card a smart strategic move. “It is one of the smartest extensions of a brand that I know of,” he said. “They have identified music as a platform they want to own.”

Mr. Lobel said American Express paid a fee to install the program in SFX amphitheaters. “It is a good deal for us,” he said. “A win-win.”

The announcement of the deal with Virgin, which includes the first chip-based loyalty application for Blue, came more than 18 months after the card’s introduction, which was heralded by rock-music-oriented promotions that included a series of free concerts. American Express had 2.2 million Blue cards in force at the end of 2000, making the card more popular than the company had projected, said Alfred Kelly, American Express group president for U.S. consumer and small-business services, at an analyst presentation in February.

More functions will come to the Blue chip, promised Kathy Marryat, vice president, Blue product management. “Since its launch, Blue has been tied closely with music, and Blue for Music is an important next step for the card as it evolves from being a credit card to a passport to a whole new music experience,” she said in a statement.

At Virgin Megastores, Blue cardholders will be offered a 30% discount on a selection of six to 10 compact discs that will vary each month. No other CDs will earn the discount, and the program will not keep track of points or purchases, as some loyalty programs do.

“There are no points unless you are part of Blue Loot, but the loyalty offer here is the 30% off,” said American Express spokesman Tom Sclafani. “We hope this will get consumers comfortable with using smart chips at the point of sale.” Blue cardholders who purchase the featured CDs on Virgin’s Internet site will be awarded the discount, but will not need to use a chip card reader to obtain it

An analyst called the program a small step in the right direction for American Express.

“Any reward program that is effective does tend to increase card usage and the profitability of the program, but it is hard to imagine any program of this size would have a significant affect on the company as a whole,” said David Hochstim of Bear, Stearns & Co. “Nevertheless it is significant, and a sign they are trying to build the value of Blue — and a reward program with Virgin would have an appeal to the type of customer they have been trying to attract.”

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