Let's Make a (Cobrand) Deal

  When Travelocity.com was looking to launch a cobranded card, the online travel agency wanted an issuing partner that could develop a program to attract consumers by making it simple to get a card and to access rewards points.
  What the Southlake, Texas-based company found was a lot of "clutter in the marketplace, and we didn't want the 'me too' card," says Victoria Treyger, Travelocity vice president of merchandising and consumer marketing. "The goal was to develop a card to really break through the clutter."
  Travelocity ultimately chose Barclays PLC as its issuing partner, in part, because of its ability to sign on new cardholders quickly with instant credit decisioning and to enable cardholders to secure rewards points immediately at the point of sale, Treyger says.
  Creating a successful partnership is a balancing act. Issuers want cardholder balances from valuable consumer segments, and retailers want customers to return more often and spend more money. As such, the development of cobranded programs involves identifying and tapping into more of what a retailer's customers want and need.
  Issuers, for example, are getting more creative with reward redemptions, such as instant access to points during checkout. They also are adding buying incentives, such as offering double or triple points when cardholders purchase merchandise at the cobrand retailer's stores.
  GE Money and its cobrand partner eBay Inc. found another way to meet the specific needs of holders of their MasterCard-branded card. "One of the things we found when we did customer research is that free shipping was very important," says Margaret Keane, president and CEO of GE Money's Retail Consumer Finance business. "So the rewards were structured around how to give points for free shipping."
  But retailers do not want to just give away services through their cobranded deals without getting anything in return. "The retail partners want to make sure we are providing incremental loyalty and value over and above what they would get anyway from a regular shopper," says Chuck Moore, the U.S.-based chief marketing officer for Barclays, which besides Travelocity has cobranded cards with Barnes & Noble, Vegas.com and other merchants.
  The way to do that is to start with customer research. "We research and talk to the retailer's customers about brand affinity, what kinds of things consumers are looking for the retailer to provide them," says Keane. "We'll bring in customers who shop at that retailer and at their competitors and do research around the value proposition and what the reward structure should look like."
  At Barclays, Moore says, discussions with retail customers involve marketing, operations, customer service and even information technology. "We really try to get not just the senior executives in but people who work with customers," he says.
  The bank has to understand the partner's technology and platform as well to integrate processes such as instant credit, Moore says. "It's not slapped on," he says.
  Vegas.com, which introduced its card in July, says one reason the company chose Barclays as a partner was because of the instant credit-processing technology it offers, says Bryan Allison, the city travel-destination Web site's vice president of marketing. "It's their integration process and their openness to new technology," he says. "We're looking at wireless applications that will allow instant decisioning out in the field, which Barclays has been doing for some time. From our perspective, Barclays is interested in new ways to reach potential cardholders and is an innovative company. That was an excellent match for us."
  SYSTEM INTEGRATION
  Travelocity similarly was attracted to Barclays' instant credit-decisioning capability and its ability to integrate its system with the Travelocity system. "All the customer fills out is three lines, [and they can be approved for a card," Treyger says. Plus Barclays was flexible enough to enable customers to redeem points easily during checkout by accessing the points when they pay, she says.
  Treyger would not provide details, but she says the card is performing well. "The program has exceeded all our budget and goals and Barclays' too," she says. "It hasn't even been a year since launch and already we've seen two times the results of the old card [issued by Citibank]."
  When Travelocity's card contract with Citi expired, Travelocity began looking for a more-flexible partner to develop a new program, says Treyger.
  Issuers say pricing has to be competitive for cobranded cards, but developing the value proposition to the consumer is what drives the product. Customers want flexibility. They want immediate gratification from discounts and aspirational rewards, for which they have to build up points over time, observers say.
  "They want to get some value today and then they want to get something really big and cool and fun later," says Moore. "We have to work with the retail partner to make sure we have both that will attract the customer and make them feel good about the product and the retailer."
  The other piece is that consumers have become more sophisticated and know rewards programs. "It's important to keep the program fresh and create tiers where customers can have aspirational rewards," says GE Money's Keane.
  PROGRAM VIABILITY
  Issuers also want to make sure the programs can build a viable card base that generates revenue over time. Barclays in particular says it is discriminating about which cobrand partners it chooses.
  "We look at financial stability and growth," says Moore. "We want to grow with them."
  He says the bank also looks for a cultural fit. He points out that there are some cobrand partners that want to keep the program at an arm's length and let the program run itself. But the most successful ones are focused on building customer loyalty by keeping the programs fresh.
  "At Barclays, it's an interactive relationship," Moore says. "We continue to modify the program, and we do constant work with partners on messaging information to cardholders."
  JPMorgan Chase & Co. says it looks for retailers that have strong loyalty programs already in place.
  Cobranded card programs are a core part of Chase's card strategy, says Tom O'Donnell, senior vice president at Chase Card Services. "We're aimed at building on loyalty with those companies and accelerating the existing programs," he says, noting it does that by giving customers more ways to earn points on a program.
  Chase also focuses its programs on integrating with the existing behavior of the retailer customers.
  O'Donnell points to its cobranded card program with the Wawa convenience-store chain launched in October 2005 in which Wawa gives cardholders gift cards as rewards.
  "We determined gift cards to be the rewards because that is what has been established by customers," he says. "It was already the way they pay, so we just built on that."
  Chase in May revamped its Sheetz convenience store cobranded MasterCard to add gift cards for other leading retailers as a reward option. The card also features "blink," Chase's contactless function that works wherever MasterCard's PayPass technology is accepted.
  Catering to customers' demands for faster checkout, GE Money also has a contactless cobranded card with Meijer stores.
  Creating an attractive value proposition is one aspect of developing cobranded deals. Another consideration for cobranded programs is that credit qualifications are more stringent. Therefore, industry analysts and market observers suggest that issuers offer more than just the cobranded option for a retailer's customers.
  Dan Stiel, president of Stiel Direct, a consulting firm that has worked with major retailers and issuers on cobrand deals, such as the Daimler Chrysler card with Bank of America and the Circle K card with Chase, says issuers should look at card programs from the credit-underwriting perspective. "Some banks are more conservative and some are more liberal in their underwriting," he says, noting that demographic targets play into cobranded programs.
  HISTORY CHECKS
  Stiel says issuers should consider providing credit products for consumers specific to their credit histories, such as offering a cobranded card to individuals with high credit scores. The issuer and co-brand partner could offer a private-label card or a prepaid card to consumers with bad or no credit.
  "Retailers should make sure the issuer has the ability to support a robust array of card products to suit different consumer segments," says Stiel.
  Barclay's Moore agrees. "It's important for a program to have a broad appeal," he says. "We have to work with a partner to maximize how many customers we can enroll in the program."
  GE Money says it also offers private-label card options for retail deals. Keane says a private-label card is good for customers who would not qualify for a cobranded card. "Then you can introduce the cobranded card once the customer demonstrates they can handle the credit," he says.
  Chase, however, says it is only interested in prime and superprime card customers, who tend to spend more than consumers with lower credit ratings do, according to O'Donnell. That brings a higher level of customer to the retail partner, he says.
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