In its second-largest acquisition, Amazon buys the company for $970 million.
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But some retailers are willing to put a preferred partner up front regardless of market share. Travelocity.com, an online travel site, for example, promotes the use of MasterCard on its site and has MasterCard as its default card. And Travelocity’s partnership with MasterCard shows how such arrangements can benefit both sides.
As part of an aggressive campaign by MasterCard to work with online travel sites to promote its card brand, Travelocity and MasterCard are jointly sponsoring a cruise promotion through the end of this year.
Customers who book a cruise on Travelocity and pay for that cruise using a MasterCard receive a free stored-value card worth $50 to $250, depending on the price of the cruise purchased.
While neither side will reveal how much each partner pays for the promotion, executives say the costs are shared. And each claims it gets a lot of incremental business because of the promotion. “Our market share on cruises booked by Travelocity during the (first) six-week period of the promotion was 72%,” about double MasterCard’s normal market share, Ward says.
The stored-value card offered is branded by MasterCard and can be used to make purchases anywhere that accepts MasterCard. Yet, because the card is promoted as a way to pay for purchases on the ship and at port during the cruise, many consumers use the card to cover those expenses. “We do not track the usage, but our experience is that consumers will typically use the card at the places where you subtly hint they should use it,” Ward says.
Another benefit for MasterCard is that this promotion presented an opportunity for the association to introduce its line of stored-value cards. MasterCard is hoping that many of the cruise customers who got a free card will purchase more of these cards in the future.
While MasterCard has chosen to put much of its promotional resources in the burgeoning online travel business, other associations seem to be going after a broader range of retailers. At the American Express web site promoting its Blue card, a product specifically promoted as being a safe instrument for paying for goods online, there is a list of dozens of retailer partnerships that offer special deals when their merchandise is paid for with an American Express card. Under the “apparel” logo, for example, there are 13 offers. While many of the offers give free shipping as an incentive, an offering between sister companies Marshall Field’s and Target stores offers a 10% discount on any purchases at Fields.com or Target.com with an American Express card.
On its travel section, American Express has an offer with Midwest Airlines where fliers can get $75 off a ticket that costs $250 or more. The ticket must be purchased online with an American Express card.
While Discover executives say they are not currently conducting any promotions, they add that they have worked with online retailers to promote the Discover brand in the past. They decline to discuss the results. However, industry observers say Discover has routinely sent e-mails to cardholders that contain hyperlinks to web sites of retailers that offer bonuses to customers who pay with Discover.
Some experts, however, are critical of such efforts to give away goods or discounts in order to acquire market share. Jupiter’s Leathern questions whether such promotions produce the desired long-term brand loyalty that the card companies seek. “This is less about brand loyalty and more about the offer,” he says. “Customers might switch cards just to get the reward, but they won’t necessarily use that card in the future.” Joint efforts between retailers and individual card issuers-such as the affinity-branded cards that involve frequent flyer miles-are different, he says, because they require continual use of the card to accrue points toward a reward.
Perks call the shots
However, others see merit in the MasterCard-Travelocity promotion because of the way it ties together cruise bookings from Travelocity, online payment on a MasterCard and payment of ancillary costs with the prepaid card. “Promotions only work if you can find a good niche where the offerings and the desired purchases match up,” says Ken Kerr, senior research analyst for Gartner Group’s G2 unit. “The MasterCard/-Travelocity offering is a good match, particularly since the prepaid card is promoted as a way to cover travel-related costs.”
But others still argue that offerings need to encourage more long-term behavior than what is offered by the one-shot-deal promotions. Diogo Teixeira, CEO of Boston-based Livermore Research, a credit card consulting firm, contends that co-branding deals between such large card issuers as Citibank, MBNA, and Bank One and such retailers as Disney Corp. and L.L. Bean are more interesting than what the associations are doing with retailers. Such partnerships typically transcend Internet shopping in that customers with cards co-branded by a card issuer and a retailer receive discounts or rewards when they use the cards anywhere. But those deals can also create a big factor when customers make purchases at those retailer’s web sites.
“Most people don’t think about whether they want to use a Visa or MasterCard; they pick the card with the most perks and that is decided by the individual card issuer,” says Teixeira. “Some of the cobranded deals, such as that between L.L. Bean and MBNA and between Disney and Bank One, could go a long way toward influencing customers to use those co-branded cards when they are purchasing goods on the retailer’s Internet site.”
Aside from offering consumers freebies, one way that card associations and retailers may subtly encourage consumers to use specific cards is through such programs as Verified by Visa and MasterCard’s Secure Card offerings. American Express’ promotion of its Blue card could have similar benefits.