The Credit Card Industry. Ryan Burkard, Giampiero Giunta, AND Ruchi nanda. Why Credit Cards?. Complex industry Well-known advertising campaigns Relevant to everyone . A card association earns revenue from a merchant fee and an interchange fee.
Ryan Burkard, Giampiero Giunta, AND Ruchi nanda
Merchant bank gives payment to retailer minus fees
Cardholder Purchase ($100)
Merchant Bank /
Card network submits payment minus a fee (%) back to merchant bank ($98)
Submit charge to merchant bank and then on to card association
Card association forwards charge to card’s issuing bank
Issuing bank forwards the original charge to the consumer who pays the balance due ($100)
Issuing bank submits payment back to association minus an interchange fee (% of transaction) ($99)
An industry framework used to determine attractiveness and competitive intensity of an industry
Together, the credit card industry is very lucrative and, unsurprisingly, was heavily regulated by Credit Card Act of 2009 and Dodd Frank Wall Street Reform
Dodd Frank Wall Street Reform
-16% in credit card issuing
Source: Ibisworld, Bloomberg, Seeking Alpha
‡ Giunta, Nanda, & Burkard
After the financial crisis, there has been a significant decrease in consumer spending and advertising allocation…
…resulting in more practical marketing choices
Effects of financial crisis realized
Source: Bloomberg: Company 10-Ks
American Express and Capital One have remained with high expenditures.
MasterCard and Visa have dropped significantly in their ad expenditures
We will look further into this.
American Express airs the most ads
Visa and MasterCard spent a lot in 2006, however they aired much fewer ads compared with Am EX
Higher profile events?
Olympics, Super Bowl
Visa and MasterCard’s ad expenditures and airings declined a lot
Source: Consumer Bureau
Source: Mastercard 10-K (2002)
One in four cardholders has become a fan, friend or follower of their credit card brand or issuer
Source: Synergistics Research Corp.
Large transactions > fewer customers > better customer service
High price point
Low price point
Many small transactions > connection with banks (no vertical integration)
Broad customer base
Makes key acquisitions in the information technology market: Bundle
Performs about 30, 000 credit card experiments a year
Uses every client interaction, including ads, as an opportunity to cross-sell
Its advertising strategy is a paradox, but not really
Source: Bloomberg News
Sports heavy, especially College sports
Capital One Bowl
Capital One has a low price point target the college aged person
Drama and Adventure TV series
Caters to the lifestyle of the customer with the ideal credit score of 760
Entices with exclusive memberships, and shared reputation i.e. gold and black cards
Its advertising strategy is purely complementary
Source: American Express
Mostly on Drama/Adventure TV series
Major network TV shows to reach a large number of people.
Reinforces signaling advertising strategy
Strong correlation between years
Heavier advertising towards the later part of the year
Holiday season: remind shoppers to use their American Express cards to buy the gifts!
MasterCard and Visa attract the largest audience by being very involved in all American events and using memorable advertising strategies
Obviously major cuts in ad spending across the board, except for golf
Why did MasterCard cut spending?
Went public in 2006, possibly advertised very heavily to gain investors’ interest initially
Now taking a similar path to Discover less advertising
Increased profits with similar revenues. The stock has performed very well
Drastic changes in overall advertising efforts across all months
Minimal ads in 2010 compared to 2006
Arnold Palmer Invitational presented by MasterCard in March
Overall, not much of a trend in month-to-month spending
Very heavy focus in sports
Slow decline in all other program types
Why such a drop in Spending from ‘06 to ’10?
MasterCard is their main competitor, maybe they don’t need to advertise as much because MasterCard is not.
Drop in ad expenditures while consist number of ads
Lower cost for each ad
Still a strong effort in 2010 despite less spending
Less Olympic ad spending contributes to the overall spending reduction of Visa
Significant overall decline in Ad Expenditures
October through January
February expenditures are so much higher because of the Olympic ad campaigns
Oct. – Jan. high due to NFL season
‡ Giunta, Nanda, & Burkard