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Co-branded Cards in Europe and the US 2006

Published by: Datamonitor

Published: Jan. 17, 2007 - 70 Pages


Table of Contents



TABLE OF CONTENTS

INTRODUCTION 9

Who is the target reader? 9

Scope of the briefing 9

How to use this briefing 10

MARKET CONTEXT 11

Introduction 11

Co-branding was first introduced in the US in the 1980s 11

Co-branding brings together the strength of an issuer and merchant partner 11

Co-branded cards are issued in partnership between an issuer and merchant 11

These partnerships leverage the assets and resources of each player to create a strong value proposition, frequently including a loyalty offering 13

Co-branded card programs are formed through either straight partnerships, self issuance or the conversion of a private label portfolio 15

Co-branding offers significant benefits to both parties 17

Issuers benefit from higher spending levels, access to a customer base, lower acquisition costs, cross-selling opportunities and added value in a competitive market 18

The primary benefits for merchants are additional revenue and sales 20

The potential costs for both partners are considerable 22

TRENDS IN CO-BRANDING 24

Due to a combination of competition and the potential benefits, co-branding is growing in importance 24

Intense competition in many markets has forced issuers to look more closely at co-branding partnerships 24

The proportion of co-branded cards in the market place has grown 26

Co-branding is now prevalent in many merchant sectors, leading issuers to look beyond this “traditional” list 28

Relationships between card issuers and their partners have evolved 30

PRODUCT FOCUS 32

Club models 33

Basic Club models are the simplest form of loyalty program 33

Advanced Club Programs give cardholders a greater range of benefits 37

Points based models 41

Basic points based programs 42

Advanced points programs 45

Multi-retailer programs 51

FUTURE FOCUS 57

The market outlook varies by region 57

Co-branding will provide an opportunity for growth in slow growing markets 58

Co-branding will allow issuers to increase market share in growing markets 59

However, co-branding will not be the answer for all issuers and merchants 61

APPENDIX 64

Research methodology 65

Future Readings 66

Datamonitor’s custom research capabilities 67

Cards & Payments Team contact details 69

How to contact experts in your industry 70





LIST OF TABLES

Table 1: Presidents Choice points awarded by PC Financial Services, 2006 47

Table 2: President’s Choice, cinema redemptions, 2006 48

Table 3: Datamonitor’s forecast for pay later card numbers across five markets, 2005 - 2010 57

Table 4: The number of co-branded revolving cards in the UK, 2001-2005 64

Table 5: The proportion of co-branded revolving credit cards in the UK, 2001-2005 64

Table 6: The number of co-branded and private label payment cards in the UK, 2001-2005 64

Table 7: Current relevant Datamonitor publications, 2006 66

Table 8: Future relevant Datamonitor publications, 2007 67





LIST OF FIGURES

Figure 1: Defining card partnership models, 2006 12

Figure 2: Combining brand and expertise in a co-branding relationship, 2006 14

Figure 3: The average co-branded card has twice the average annual spend levels, USA 2004 20

Figure 4: Payment cards offering rewards have increased in popularity, USA, 2004-2005 25

Figure 5: The proportion of co-branded cards being issued has grown, USA, 2003 - 2005 26

Figure 6: The proportion of co-branded cards in the market place has more than doubled, UK, 2001 - 2005 27

Figure 7: In the UK, co-branded cards have tripled in number, whilst private label cards have declined, 2001 - 2005 28

Figure 8: The Travelocity credit card rewards consumers for staying loyal to the brand. 29

Figure 9: Datamonitor’s classification of co-branded card loyalty programs 32

Figure 10: The Jeep MasterCard, essential statistics, 2006 34

Figure 11: The Carrefour Carte Pass - essential statistics, 2006 36

Figure 12: The Porsche Card - essential statistics, 2006 38

Figure 13: The Champions League Card, essential statistics 2006 40

Figure 14: Toys “R” Us Visa card - essential statistics, 2006 42

Figure 15: Amazon.co.uk MasterCard - essential statistics, 2006 44

Figure 16: President’s Choice MasterCard, essential statistics, 2006 46

Figure 17: Tesco Clubcard credit card, essential statistics, 2006 49

Figure 18: Nectar Credit Card, essential statistics 2006 52

Figure 19: Nectar Card holder can redeem their points for a variety of goods online 54

Figure 20: The Web.de Barclaycard, Essential statistics, 2006 55

Figure 21: Datamonitor’s core consulting capabilities 68


Abstract

Introduction

Co-branding is an increasingly popular option for both card issuers and merchants across Europe and the US. This report provides an overview of the market, examining how the partnerships work, the potential benefits and costs for both parties and trends. It also provides a detailed review of many programs in the market and concludes with a discussion on the future of co-branding.

Scope

  • Introduces and discusses different models of co-branding partnerships, explaining the key motivations for entering into co-branding agreements.
  • Examines recent trends in co-branding in Europe and the US.
  • Several co-branding arrangements are examined in detail, segmented by the construct of the loyalty proposition.
  • Provides Datamonitor's Cards and Payments team's view on the outlook for the co-branding by region.


    • Highlights

    Through a co-branding relationship, customer acquisition costs can be as little as 15 per cent of what they would be through direct mail or other means. Issuing banks are also increasingly benefiting from the cross-selling opportunities that stem from these relationships.

    Despite the obvious advantages of entering into a co-branding agreement, there are many pitfalls that should be avoided by both parties. From the issuer's perspective these include the risk of losing revenue from its existing customers as they switch to the new program. Both parties face reputational risk in the event of a failed program.

    As a result of the success of co-branding partnerships in established areas such as airlines and hotels, issuers are now looking to different sectors to gain customers. These opportunities include web based retailers as well as other retail sectors.

    Reasons to Purchase

  • Discover what makes for a successful co-branding relationship, and the risks associated with them.
  • Compare the product offerings of the most interesting and innovative co-branded products on the market.
  • Learn Datamonitor's' Cards and Payments Team's assessment of future opportunities in co-branding in Europe and the US.


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