Cards for the Rich: They're Different, Indeed

  It's hard to make rich people stand in line. They usually find a way to march right in, and if they can't, they have someone stand in line for them.
  But at four lavish cardholder-acquisition parties thrown by Stratus Rewards, a fledgling credit card brand that targets the super wealthy, promoters accomplished two miracles-getting the target audience's attention and making people wait.
  At all of the parties, which were held in Chicago, Dallas, Los Angeles and New York, Stratus Rewards displayed one of the world's largest diamonds. Women and some men quickly queued up to have a Polaroid taken of them wearing the Archduke Joseph Diamond, a 76.45-carat stone, says a spokesperson for Stratus Rewards, a Visa-branded credit card issued by Minneapolis-based U.S. Bancorp. Stratus Rewards is a membership company owned by Avacus Corp. of Santa Monica, Calif.
  Even Ivana Trump, one of Donald Trump's exs, was impressed. Ivana, who attended the New York bash, reportedly was overheard saying her largest diamond was a mere 42 carats.
  "We wanted to show what kind of lifestyle Stratus Rewards represents," says the spokesperson, who declined to disclose how many individuals signed up for the card at the party. (In late December, Stratus Rewards President and Chief Executive Allison L. Chittum announced her resignation for unexplained reasons; the company was expected to name a successor early this year.)
  The rich have always been with us, but many of the cards that cater to them, like Status Rewards, are relatively new on the scene.
  Stratus Rewards and Merrill Lynch & Co.'s Merrill + Visa, which operates on the Visa Signature platform, both were introduced last April.
  In October, U.S. Bancorp's Elan Financial Services card unit began offering a cobranded Visa Signature card for Northern Trust Corp., a Chicago bank whose core customer base is millionaires.
  Colors
  Coutts World, a MasterCard-branded charge card from the United Kingdom's Coutts & Co, made its debut in November. This card has a special pedigree. Coutts & Co is a more than 300-year-old private bank that counts Queen Elizabeth II as a customer.
  American Express Co. launched Centurion, the card most closely associated with individuals of extreme wealth, in October 1999. AmEx, which has always catered to the affluent, remains the issuer that the up-and-comers implicitly or explicitly target in their marketing materials.
  In some respects, the carriage-trade cards differentiate themselves by color. Stratus Rewards is white, and it aims for the same person who would carry AmEx's Centurion card, often called the Black card because of its ebony plastic. Stratus Rewards for a time called itself the new Black, though it has since stopped doing so.
  And then there is the purple Coutts World card, which Coutts & Co says in news releases is now the new Black.
  The Merrill + card from Merrill Lynch, the world's largest brokerage firm, also is black, but has a horizontal gray stripe across the top, above an image of the famous Merrill Lynch bull. MBNA Corp. is the card's issuer.
  Although the cards come in different colors, the only color issuers really are concerned about is green, as in high charge volume and annual fees.
  It'll cost you $1,500 for Stratus Rewards, whose sponsor estimates cardholders will charge $500,000 to $1 million annually. Coutts World charges a ?350 ($668.50) annual fee, but waives it if the cardholder charges more than ?50,000 (about $95,000) annually.
  Kyle Curtin, AmEx's vice president of establishment services for the travel-and-entertainment industry, declines to say how much it expects Centurion cardholders to charge yearly, but some published reports say AmEx doesn't expect anything less than $150,000.
  These charges are similar to climbing Mount Everest when one considers that the average U.S. credit card gets about $2,300 a year in charge volume.
  To find someone who has the financial means to charge $150,000, $200,000, $500,000 or even $1 million a year, issuers must be selective.
  Peter Barsoom, director of card payments for Merrill Lynch Consumer Bank, says the firm's Merrill+ card is targeting customers with base annual incomes of at least $250,000.
  All of the new cards are by invitation only, enhancing their exclusivity. In order to qualify for Coutts World, a Coutts & Co spokesperson says applicants must be a bank customer and have at least ?500,000 ($955,000) in liquid assets or ?5 million ($9.5 million) in fixed assets.
  And when AmEx introduced its Centurion card, the issuer only offered it to a select group of holders of its now $95-annual-fee Platinum card. Centurion's annual fee is $2,500.
  Visa introduced its high-end Signature platform for member banks in 1997, but put a heavy marketing push behind the product in 2004. Visa describes Signature as the card for the newly affluent. In its promotional literature, Visa USA says households with $125,000 or more in annual income represent only 7% of U.S. households, but they account for 15% of the country's spending.
  In its recent marketing campaign, Visa used black-and-white film clips and stills of Frank Sinatra to advertise the card, which targets individuals and couples who earn a minimum of $125,000 annually and have up to $1 million in investable assets.
  Carrying one of these cards means having unquestioned access to the finest restaurants, clothing and shoe stores, although sometimes it doesn't work out that way. Academy Award-winning actress Halle Berry was asked for a photo ID after she pulled out her Centurion card to buy a pair of sandals at a Charles David store in Beverly Hills, Calif.
  Segmented Marketing
  So what's causing all of this activity?
  Card marketing veteran Chris N. Theoharides, president of Advantage Consulting Group in Massapequa, N.Y., says that besides the obvious attraction of high charge volume, issuers are using segmented marketing to target the wealthy because of the ongoing poor rate of response to mass marketing.
  Mintel's Comperemedia reported in December that the overall response rates to credit card direct-mail solicitations ranged between 0.8% and 1% for most of 2004.
  At the same time that response rates have remained flat, card issuers have started doing a much better job of marketing to the wealthy, says James Accomando, president of Fairfield, Conn.-based Accomando Consulting Inc. Accomando has worked for such firms as MasterCard International and GE Capital.
  The growth of this segment is reflected in the recent success of Visa's Signature platform. Though it was introduced in the late 1990s, it only gained traction in the last 18 months, says a Visa spokesperson. During that period, Signature's consumer charge volume exceeded $80 billion from a handful of issuers. As a result, Visa rewarded Signature with a bigger budget for print, television and radio advertising and an upgraded site on the Visa.com Web site.
  There is one major drawback to issuing to the wealthy. "They don't revolve a lot of balances, says Theoharides. "But on the other hand, they have pristine credit and loan losses are low."
  Because most issuers expect to make their money from the interchange generated by much-higher-than-average charge volume often supplemented by annual fees, interest rates are low and penalty fees are moderate.
  The no-annual-fee Merrill+ Visa's interest rate is 5.90%. The card's business plan also doesn't rely on late and overlimit fees.
  Merrill Lynch's Barsoom, who expects cardholders to charge between $20,000 and $400,000 annually, puts it simply: "They're big spenders, and we're not going to sock it to them with late and over-the-limit fees if they screw up."
  Obviously, to reach the level of charges issuers expect, cardholders can't pinch pennies. Card companies are encouraging the opposite by opening up expensive merchant categories or offering rewards attainable only with very high spending levels. The current big one is use of private jets.
  Stratus Rewards says in its promotional literature that $8.35 billion is spent annually on private-jet travel and that the segment has grown by 50% in the past decade.
  In October, AmEx signed agreements with six private-jet companies-Bombardier Skyjet, CitationShares, Delta AirElite Business Jets, Le Bas International Air Division, Sentient Jet and TAG Aviation-that allow Centurion and Platinum cardholders use their cards to reserve a plane through AmEx's Private Jet Services Program. Cardholders either can rent a jet on demand, prepay for one or purchase fractional ownership, which means the cardholder's card is billed monthly.
  AmEx said in an October news release that cardholders can use their cards in the place of checks and wire transfers, which traditionally have been the means of payment.
  "Cardmembers have told us that they want the convenience of being able to charge all their private-jet fees and deposits to the American Express card," Rocco Laterzo, an AmEx senior vice president, said in a statement. "They like the idea of having these expenses included with their other American Express charges and not having to write a separate check."
  Stratus Rewards, which has a relationship with Marquis Jet, explains in promotional literature to prospective cardholders how many points they need to accumulate to secure an hour's free flight.
  The seven-seat Citation Ultra is the least expensive. A Stratus Rewards cardholder would have to charge $195,000 to accumulate the required 195,000 points needed to earn a free, one-hour flight. The most expensive is the 13-seat Gulfstream IV. Cardholders have to charge approximately $1.3 million to accumulate the required 1,295,000 points for a free, one-hour flight.
  To emphasize that private-jet rentals are a key part of its program, Stratus Rewards held two of its four acquisition parties in private-jet hangers in Santa Monica, Calif., and at Dallas' Love Field.
  How can Stratus Rewards cardholders accumulate so many points? One ways is to charge a jet rental to their Stratus card.
  Merrill Lynch also has an agreement with Marquis Jet. Merrill Lynch is encouraging its customers to use their Merrill+ Visa credit card or Visa Signature Rewards debit card to purchase a Marquis Jet card, which allows 25 flying hours. Marquis Jet card's prices start at $109,900. Merrill began advertising its alliance with Marquis Jet in the November/December issue of Elite Traveler magazine.
  Private-jet rentals have become a hot market for cards since the Sept. 11, 2001, terrorist attacks on New York City and the Pentagon. Tracey Deakin, chief operating officer of Le Bas, a private-jet charter company based in San Luis Obispo, Calif., says the private-jet market for card issuers has always been there, but it literally took off after 9/11.
  "The affluent can afford to fly on demand, and they feel safe and secure in private jets," says Deakin.
  The Stratus Rewards spokesperson adds that the wealthy "are done with standing in line (to clear security) at airports, and they're done with first class in commercial aircrafts."
  But not all of the newer card-acceptance markets for the wealthy are up in the air. AmEx recently signed charter agreements with Fraser Yachts Worldwide, International Yacht Collection and The Sacks Group Yachting Professionals. And AmEx has a program in which cardholders can say bye, bye to hotel rooms and instead rent a private villa using their cards.
  Card companies frequently survey wealthy customers to determine what new services could be a hit.
  According to AmEx's Platinum Luxury Survey released last July, 59% of respondents said they wanted experiences, such as fine dining, travel, entertainment, cultural/arts events and sporting events. This "experiential" focus is in contrast to traditional rewards of airline miles or free hotel stays.
  "In the real world, affluent consumers aren't relaxing poolside or eating bonbons," says Peggy Maher, senior vice president of AmEx's consumer charge card unit. "They are working long hours, juggling personal and professional lives, and are constantly pressed for time. Cardmembers are looking to ease their busy, often hectic lives with experiences that make them feel special."
  Stratus Rewards also knows this. It offers cardholders an opportunity to attend a yoga class with Academy Award-winning actress Gwyneth Paltrow, or have dinner with other wealthy people in the basement of the Louvre in Paris to view artwork that's not on public display.
  Coutts & Co, however, wins the blue ribbon for the most unusual and ego-gratifying way to get its wealthy cardholders to use their cards. With Coutts World, cardholders can hire a well-known writer recommended by Coutts staff to pen the cardholder's biography, says the spokesperson.
  There also are concierge services, such as getting a cardholder a good table at the hot restaurant of the moment. Visa says it offers members that issue Signature peak-demand access to nearly 700 upscale restaurants throughout the world. The cards also provide hotel room upgrades, or seats at a successful Broadway show that's been "sold out" months in advance.
  Clearly, reaching the affluent cardholder calls for different rewards and marketing tactics than those for the middle-class or subprime segments. Consultant Accomando says issuers know they cannot mass market to the wealthy. Because of this issuers have to figure out new ways to reach them.
  The most lavish so far has to be the four Stratus Rewards acquisition parties, each of which cost $500,000. As mentioned earlier, the Archduke Joseph Diamond was on display, and so were the newest Aston Martin and Bentley automobiles. There also were white tiger cubs and giraffes. Cirque du Soleil, a circus that prides itself for not using animal acts, also performed.
  Stratus Rewards is a start-up, so it had to make a good impression. Most established issuers do their marketing to the affluent rather quietly, often one-on-one. Diane Sommers, senior vice president and managing director of Elan's credit card program, says Elan markets the Northern Trust cobranded Visa Signature card individually to the bank's customers.
  Merrill Lynch's Merrill+ card is an integral part of the financial services Merrill offers clients through its Total Merrill program. "We spend a lot of time talking to clients and financial advisors to assess cardholder needs," Barsoom says.
  This more personal approach is a card-marketing tactic that the issuers of cards for the affluent use to differentiate themselves from their rivals. It's something they may have to use more often as the club of issuers for the big spenders gets larger.
  "It's a very competitive market," says Barsoom.