Tag Archives: American Express

Credit card “versioning” to target different user segments

American Express recently launched two versions of its Blue Cash Card.  The Blue Cash Everyday has tiered reward levels (3% at supermarkets, 2% at gas stations and drug stores, and 1% on other purchases) and carries no annual fee.  Blue Cash Preferred features higher reward levels (6% at supermarkets, 3% at gas stations and drug stores, 1% on other purchases), but carries a $75 annual fee.

This continues a trend seen in recent months, with leading credit card issuers launching different versions of the same card, with one version offering greater rewards and/or bonuses, as well as higher annual fees.  These leading issuers believe that heavy credit card users will be willing to pay the annual fee in exchange for the potential to earn the greater rewards.  These heavy spenders generate significant interchange income for the issuers.

The following table is a comparison of different versions of the same card, which have recently been introduced.  In most cases, the premium card offers higher reward levels as well as bigger incentives (for their first purchases, reaching spending thresholds, or for anniversaries).  And in the case of Citi, there is also variation in the APR for its three ThankYou cards.

As credit card issuers seek to generate additional noninterest income, we should expect to see more credit card versioning.  Issuers must carefully set pricing, rewards and incentives for the different versions of the cards, and clearly communicate the benefits of each version to appeal to different cardholder segments.

Leading U.S. financial institutions grow marketing spend in 1Q11

Financial institutions (FIs) reported continued strong growth in advertising/marketing spending in their quarterly financials.  The 10 leading financial institutions in the chart below spent a combined $3.0 billion on marketing in the first quarter of 2011, a growth rate of 19% over the first quarter of 2010 (and this comes on top of a 18% increase between 1Q09 and 1Q10).  8 of these FIs reported double-digit growth rates in 1Q11, with particularly strong growth rates for Discover (+60%), Capital One (+53%) and Citi (+31%).

 

For most FIs, this increased marketing has not yet translated into significant revenue growth.  In the coming quarters, they will be expecting to leverage some of the beneficial impacts of their investment (such as growth in checking accounts, as well as improved customer retention and satisfaction) into increased revenue as economic recovery continues.

One FI that can show the bottom-line impact of its marketing investment is American Express.  Following the financial crisis, Amex shifted its marketing focus to drive increases in card spending, which has resulted in strong growth in recent quarters.  In the most recent quarter, its U.S. Card unit reported an increase in card spending of 15%, which translated into a 9% rise in noninterest revenue.

Financial marketing spend continues to recover

Third-quarter financial data released by the large U.S. banks this week pointed to the continuation of a trend observed in the previous quarter: year-on-year growth in marketing spend. Marketing represents a leading indicator for banks, as it is one of the first expense categories to be hit at the start of a downturn. The corollary is that an increase in marketing spend is indicative of banks’ expectation that economic conditions are improving.

The following are changes in marketing spend for leading financial institutions between 3Q09 and 3Q10 (quarterly changes are not generally regarded as reliable, due to seasonal factors):

  • Huntington: +152%
  • Capital One: +140%
  • American Express: +68%
  • Discover: +68%
  • Chase: +48%
  • PNC: +40%
  • SunTrust: + 13%
  • Key: +11%
  • Wells Fargo: +6%
  • Bank of America: +6%
  • U.S. Bank: -21% (although note that U.S. Bank 3Q09 marketing spend was much higher than usual, due to the launch of a number of marketing initiatives)