With the economy improving, major credit card issuers once again are boosting their advertising spending to pre-recession levels. But with shifts in consumer spending, coupled with regulatory changes, issuers are focusing on different goals than before the economy collapsed.
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 cited in a Tower Group report “Business Strategies for Credit Card Issuers to Address New Regulation and Increase Profits.” (see chart)
“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, TowerGroup research director, tells PaymentsSource.
That means consumers may be more apt to respond to new advertising for cards, observers note.
And issuers are obliging. JPMorgan Chase & Co. and Capital One Financial Corp., for example, made sizable increases in ad spending last year, according to research from New York-based Kantar Media Intelligence (see chart). Chase’s spending on card advertising jumped 97.3%, to $361 million from $183 million in 2009, while Cap One’s spending jumped 84.7%, to $200.8 million from $108.7 million.
In terms of regulatory pressures, card issuers anticipating a reduction in debit card revenue caused by interchange-rate caps imposed by the Fed under the so-called Durbin amendment to the Dodd-Frank Act also may be refocusing their ad efforts to emphasize 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,” says Mary Beth Sullivan, managing partner of Washington D.C.-based Capital Performance Group. “Some banks are thinking of putting more emphasis on credit cards from an income standpoint” and as debit cards become more regulated, she says.
Belt-Tightening
With the shift in consumer spending behavior to a more “tightening-of-the-belt” mentality, consumers also are seeking out cards with the best rewards. Indeed, most card ads on television in particular highlight travel or cash-back rewards, observers note, including cards from Chase, Cap One and Discover Financial Services.
Concurrently, to protect their portfolios from the massive default rates experienced during the recession, issuers are pursuing the lowest-risk consumers, namely the affluent market. And in a new twist, issuers are competing more for business from existing cardholders instead of focusing on new-account acquisitions. And that is one reason most ads are focusing on rewards, says Ron Shevlin, senior analyst at Aite Group.
Indeed, consumers are spending more on cards. According to company reports compiled by PaymentsSource, U.S. annual credit and charge card sales volume increased 6.3% last year, to $1.86 trillion from $1.75 trillion in 2009, following a 9.3% decrease from $1.93 trillion in 2008.
However, though issuers are targeting good credit-risk customers, the competition is fierce. “This is the tail-end of a bad time for credit cards, so the fact that spending is up is hardly surprising,” Shevlin says. “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.”
Both Cap One, with its Venture card, and Chase, with its Sapphire premium card, have increased their ad spending to support new niche rewards products, notes Jon Swallen, Kantar Media senior vice president of research. Both cards feature flashy commercials that tout travel rewards.
Cap One earlier this year launched a national TV ad campaign featuring Alec Baldwin from television’s “30 Rock” sitcom to promote the Venture card. Chase in one ad features a family that discovers a dinosaur bone on vacation but the woman listening to the story only hears the part about the travel rewards.
Also of note in Kantar’s research is the decrease in ad spend by card brands Visa Inc. and MasterCard Worldwide. Visa’s ad spend in the U.S. dropped 24.9% last year, to $203.5 million from $270.8 million in 2009. MasterCard’s ad spending dropped 66.8%, to $65.7 million from $197.7 million.
Neither company would comment, but Kantar’s Swallen says the data may reflect their belief that consumer spending has not regained enough for them to re-invest in advertising.
“It didn’t pick up as much as those companies may have expected, and to me it sounds like [the decrease in ad spending] is likely connected to the outlook on consumer spending,” Swallen says. Especially surprising is Visa’s reduction in ad spend because the company sponsored the Winter Olympics in Vancouver early in 2010, he says.
Visa, however, referred to a quote in the company’s fourth-quarter earnings report from last year in which CEO Joseph W. Saunders cited a shift in market resources that placed increased emphasis on key non-U.S geographies. “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,” he said.
In terms of expectations for 2011, Kantar cites a boost in ad expenditures by AmEx and Chase as a sign overall industry ad spending may be on the rise. In January and February this year, AmEx’s ad spending was up 17.9% from a year earlier, while Chase’s was up 48.7%, according to Kantar.
“What’s interesting to me is the product mix,” Swallen says, noting that for AmEx the mix of ad spend 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.
AmEx has focused on small-business ad spend, particularly for the Open program, which supports small businesses, Swallen says. “It’s a very optimistic campaign and tied to ‘booming’ businesses,” he says. “One aspect is the connection with the Baby Boomers who own the businesses, and another is the concept of business growth.” AmEx declined to comment for this story.
For Chase, the switch in emphasis was the opposite AmEx’s, as its Ink small-business card ad campaign did not get nearly the level of advertising supports as it did two years ago , garnering only $4 million out of $46 million spent on credit card ads, Swallen said. Instead, most of the ad spend during the first two months of the year was for Chase personal cards, particularly the Freedom cash-back rewards card and several cobranded cards, including Chase’s Disney, United Airlines and Continental Airlines cobranded credit cards, Swallen says.
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 last year.
One trend of note is that all the Chase cards support travel rewards, says Swallen. Sapphire emphasizes travel rewards, as do Chase’s other emphasized cobranded cards, Swallen notes. Chase declined to comment on its ad spend.
Bucking Trend
Most companies are focusing more on promoting just one product, such as Capital One with its Venture card, but 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,” says Swallen. “Everybody else is doing advertising around one card.”
AmEx and Chase are casting a much broader net, Swallen says. “That strategy requires more money, and [those two issuers] are spending more to do it,” he says.
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 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 says. “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,” he says.
As the economy improves and the card market proceeds under new regulations, expect issuers to do more to appease the pool of good-credit-risk customers with travel-related and rewards card advertising.
