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Co-branded Cards in Europe and the US 2006

Product Type: Market Research Report
Published by: Datamonitor
Published: January 2007
Product Code: R313-19388
Description
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.
    • 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
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