There are four basic ways to translate knowledge about a customer segment's needs into a competitive advantage.

The first is in the product design, which affords the opportunity to add the value that supports higher pricing. There is nothing quite like a strategy that brings in more fees in return for value.

In the beginning, bank cards did not differ much from one another. In fact, commonality was one of the founding principles for both MasterCard and Visa. They wanted a single, national product, owned by individual banks.

When, after 15 years, MasterCard and Visa introduced gold cards, with enhancements designed for the affluent and priced higher, they were an enormous success. Gold cards generated more than $1 billion in incremental fee revenue from 1985 to 1990.

Segmentation by Pricing

A second way to translate a segment's needs into action is through pricing.

There is no shortage of examples of issuers who have elected to segment based on price, which is only natural in the world of credit.

Price is almost a product feature. We have no-fee, high-rate cards for convenience users; high-fee, low-rate products for people who pay later; and high-fee, high-rate cards for those who don't care. And there are special pricing for students, free cards for spouses, and first-year-free cards for new customers.

Targeted Communication

We have gone from monolithic pricing to literally hundreds of variations in an incredibly short time.

A third way to translate customer needs into action is through tailored and targeted communications, which occurs on the brand level and by individual issuer.

On the brand level, we see Visa, MasterCard, American Express, and others constantly vying for a particular segment through mass-media advertising.

The field is getting crowded. Chase Manhattan Bank and Citibank have spent millions of dollars to establish their brand identities, and now we have the AT&T, GM, and perhaps even Ford and GE brands.

That's about 10 brands in total, three or four more than is typical in most consumer product categories.

On an issuer level, most of the communication takes the form of letters and brochures. A bank should make sure that all such communications are consistent and in keeping with the message it wants to send a particular target segment.

Direct Response

Another business variable driven by segmentation is distribution.

Banks are direct-response marketers - junk mailers, some would say. Like all direct-response marketers, we can segment and identify specifically those we wish to reach.

We excel at selecting mailing lists based on risk-related characteristics. We could probably do a better job at selecting based on demographic or behavioral characteristics.

Positioning

You can use direct mail or statement inserts to reduce expenses. But in whichever method you use, even telemarketing, you can reduce your expense by communicating only with the customers who can benefit most from the message.

How all of these elements work together is what we call positioning, the simple but powerful description of the essence of our product from the perspective of the customer segment being targeted.

Sometimes positioning statements write themselves, by merely adding up the product features, pricing, delivery, and communications.

Just make sure that all of the pieces work together. The key to successful product positioning is that all of these elements are integrated and complementary.

Growth of a Strategy

Now let's illustrate how card industry players have made strategic use of segmentation.

Before 1965, American Express was pretty much by itself, focusing on the travel and entertainment segment. When the bank cards entered, they targeted the market for local spending. Neither side found it easy to move into the other's territory.

By 1985, the bank cards had moved in on the higher-income segments with successful gold offerings. American Express modified its product by signing upscale retailers and targeting affluent women.

Later, American Express gradually began to go after lower-income segments by changing its distribution ("take-one" applications in diners and mass mailings), while banks began to tap the travel market through business cards.

|Pay Now' and |Pay Later'

In recent years, the "segmentation map" has been remade around people who like to "pay later" versus those who like to "pay now."

In the 1980s, American Express introduced Optima for the "pay later" crowd, but stumbled. Now the company has regrouped and is trying again with a redesigned card, new advertising, and signing of mass-market merchants like K mart.

So the field has gotten crowded. Discover occupies a good portion of the local-spending market. The banks' airline cards have done a good job getting the pay-now travel market, as has AT&T. And fast-growing debit cards are taking a big chunk of local pay-now transactions.

Bargain Hunters

A similar evolution occurred in marketing to value-seekers via rebates and discounts.

The Discover card had a rebate feature from the beginning. MasterCard made a brief foray in 1987 with its Master Plan for Travel, which rewarded spending on the gold card. Airline cards came on the scene in 1988, and in 1991 MasterCard introduced MasterValues as a challenge to Discover's local-oriented rebate appeal.

General Motors' MasterCard raised the ante on rebates, allowing 5% of dollar volume to be applied to a car purchase. General Electric Co.'s Rewards MasterCard and the Citibank/Ford Visa card followed.

There may be more in an already crowded field. Can other issuers be successful with rebate strategies?

Focusing In

It may not be as impossible as it looks. What if we were to segment the market on a variable other than local versus travel usage?

Might there be an opportunity to develop a rebate-discount program that would appeal more to women than to men? Or vice versa?

What about age? Isn't a retired person going to respond differently to discount and rebate offers than would a twenty-something member of Generation X?

Better yet, what if we were to combine these two fundamental demographic variables, overlaying this new "segmentation map" on the universe of rebate and discount seekers? One could envision a rebate program designed for, say, younger men, or older women. The only way to see if this would work is to go ask them, and listen.

The sky is the limit. There is no shortage of customer segments to identify and research for their unique needs.

Even the basic variables of gender and age can continue to work for credit cards, not just on the rebate question but overall, as they have worked in other consumer product areas.

Ms. Black, a consultant, has held senior marketing positions at American Express Co. and MasterCard International. This article is adapted from a presentation to Faulkner & Gray's 1993 Credit Card Forum.

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