While there are significant untapped
product development opportunities for credit card issuers to
distinguish themselves, Anja Sönksen, senior
consultant at Edgar, Dunn & Co, sees more sustainable
opportunities through employing marketing advances, especially in
the area of process innovation.

Business is tough for credit card executives in Europe. Major
environmental changes such as the introduction of new technologies,
the implementation of SEPA, the strong growth of prepaid cards, new
entrants to the market and an increasing empowerment of cardholders
will impact the credit card market and provide real challenges for
decision makers. Nevertheless, most marketing executives in Europe
have an optimistic view of the future, a study by global strategy
consultancy Edgar, Dunn & Co and the European Financial
Management & Marketing Association has revealed. Nearly all
credit card issuers interviewed intend to increase their annual
investment in marketing innovation, typically citing annual budgets
of €5 million ($7 million) to €10 million. Card executives also
predict an expected increase in issuing revenue in excess of 10
percent over the next two years.

The study asked card executives in France, Germany, Italy, Spain
and the UK about their overall credit card strategy, and their
views on marketing innovation in particular. Marketing innovation
cannot be discussed as a stand-alone activity, but must be placed
in the context of the issuer’s business strategy. It is therefore
important to first understand the overall strategy pursued by
credit card issuers, and especially how issuers are planning to
sustain a competitive advantage.

Study framework

In order to appreciate the basis for competitive advantage pursued
by credit card issuers, the study used a framework that included
three potential sources of competitive advantage: customer
intimacy, which is based on a customised product and an emotional
value and brand; product leadership, which can be realised through
a superior differentiated product as well as being first to market;
and operational excellence, which can be realised through low price
and high reliability.

Having identified the competitive advantage pursued by issuers, the
study explored whether this competitive advantage would drive the
type of marketing innovation conducted by them. Surprisingly,
despite most credit card issuers identifying customer intimacy as
their basis for competitive advantage, the majority of them
indicated that they will focus on product development as their most
important priority for future marketing innovation activities. This
is not an entirely consistent strategy, as product development does
not necessarily entail customer intimacy.

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Product development, and consequently the pursuit of product
leadership, can be achieved by introducing new products, by
bundling products, by introducing a unique loyalty programme or by
innovative pricing. There is plenty of room to launch new
co-branded card products in several countries where a focus on the
small business segment has not yet been exhausted, including
France, where the co-branding ban has been abolished. While there
are still significant opportunities to introduce products that
result in the creation of new markets, the primary challenge for
some players appears to be the length of time involved in bringing
a new product to the market.

Achieving operational excellence through delivery channel
innovations was listed second. Examples of this strategy include
not only the introduction of new and efficient sales and
communications channels with cardholders, but also one-to-one
marketing, usage stimulation and offering a limited number of card
products to achieve economies of scale.

When asked about future marketing priorities, finding new ways to
target customer intimacy came in third place. To pursue this
strategy, issuers need to develop state-of-the-art segmentation and
risk management systems, apply customer profitability analysis or
develop targeted card product for niche segments such as students,
the unbanked, expatriates and so forth.

The study further revealed that the primary objective for issuers
appears to be the acquisition of new customers. Clearly, most
credit card issuers believe that there is still plenty of untapped
demand for credit card products. Even in more mature markets such
as the UK, the main focus among issuers is typically to acquire new
customers. As credit card markets continue to mature, this focus
might change over time, as issuers will increasingly focus on
growing revenues from existing cardholders.

Most of the internal challenges marketing executives face when
pursuing an innovative marketing strategy concerned slow
time-to-market, internal inertia, lack of creative thinking or an
unclear business case.

When asked about the most innovative credit card issuers,
respondents identified issuers that took risks in introducing ‘out
of the box’ concepts, such as Spanish bank La Caixa for its efforts
in offering a very wide range of personalisation alternatives for
its credit card products, or US bank Chase for being first to
market with a branded contactless credit card offering (blink).
Turkey’s Garanti Bank was also praised for leveraging its merchant
relationships to support its cardholder loyalty programme, and Bill
Me Later was named for leveraging existing acquirer relationships
and merchants’ websites as a sales channel for their credit at
point of sale offering.

In summary, based on interviews with senior card executives and on
market observations, several key themes can be identified. First,
marketing innovation is, and should be, a subset of the overall
credit card issuing strategy. While this may be an obvious
conclusion, it is worth restating that any marketing innovation
should be consistent with the overall credit card issuing strategy.
For instance, an issuer focused on providing the lowest cost card
product should ensure that the bulk of its development efforts help
to reinforce its operational excellence instead of trying to
achieve product leadership.

Getting the marketing strategy in line with the overall credit card
issuing strategy needs to include an explicit decision on the
trade-offs of customer intimacy versus product leadership versus
operational excellence.

Furthermore, the study identified a clear trend of card issuers
allocating more resources to marketing innovation. The main
objective is to offset the risk of commoditisation and potential
downward pricing pressures due to SEPA. Most issuers are turning
towards marketing innovation to increase or protect margins and to
increase the number of cardholders and card spend.

Marketing innovation is focusing increasingly on product
development. The general sense among issuers is that new products
are required ahead of innovation focused on segmentation, channels
or other business processes, and that new card products will
improve margins, resulting in new customers and new revenue



Creating new markets

Throughout the interviews, card issuers shared their concern about
the ability to generate differentiation among stand-alone credit
card products. However, it seems that there are still significant
opportunities to introduce products that result in the creation of
new markets. What is meant by creating ‘new markets’ is that there
are still opportunities for issuers to introduce new types of card
products or new features that go beyond the boundaries of
traditional credit cards. The most obvious example is for an issuer
to create a new product category by combining a credit card with
another product. This is what Egg did when it introduced Egg Money,
a hybrid product combining a credit card with a savings account.
Another example would be to add a new feature that has not been
exploited by other issuers, and one issuer explained how they
successfully introduced a yearly reporting service for cardholder

It is obviously hard to forecast what these other ‘new markets’
might be, but examples could include developing hybrid products
such as a credit card linked directly with other banking products,
or packaging credit cards with regular current accounts and other
banking services. A third possible example for a new market could
be co-ordinating card issuing and merchant acquiring activities to
provide additional merchant-funded benefits to cardholders.

Compared to product innovation, however, process innovation will
create a more sustainable competitive advantage.

As already mentioned, most issuers are pursuing product innovation,
ie, introducing new credit card products. However, in the words of
one participant, product innovation is increasingly easy to copy.
In one example, an issuer launched a new and innovative card
product in an Eastern European market only for their major
competitor to launch a similar product two months later.

The study would suggest that pursuing process innovation which is
related to marketing might create a more sustainable competitive
advantage for card issuers. Process innovation is used here to
describe opportunities to innovate in marketing-related business
processes such as segmentation, one-to-one marketing, relationships
with distribution partners and so forth. This type of innovation is
typically harder for competitors to replicate because they are less
visible, and involve intangibles that are hard to imitate because
they concern segmentation expertise, home-grown systems, internal
client history and expertise or exclusive partner contracts.

However, only a small minority of issuers seems to have explored
innovative processes such as cardholder profitability analysis to
identify the most profitable customers at the individual cardholder
level and drive marketing activities on the basis of a value-based
segmentation. Another example would be the development of
one-to-one marketing and communication activities that are based on
mining customer-level data, or the development of exclusive and
mutual partnerships with channel partners.


Study recommendations

In conclusion, the study recommends that credit card issuers
consider setting an overall credit card issuing strategy first and
then assess some of the discussed marketing innovation
opportunities that fit within this strategy, such as cardholder
profitability analysis, developing hybrid products and establishing
new sales channels.

Considering these and many other opportunities, business might not
be so tough for card executives after all.