Pick a Card

Since the dawn of the credit card age more than 30 years ago, the big card companies have waged open war against each other to build their respective brands by whatever means necessary. The payment card world has seen Visa International and American Express Co. bash each other like professional wrestlers in their ongoing advertising free-for-all. The financial services market has witnessed Visa and MasterCard International slug it out for the hearts—and cards—of banks around the world. And the card associations and American Express took a back seat when Discover eliminated annual fees and introduced cardholder rebates in the 1980s.

Now that online retailing is coming of age, the card companies are taking their fierce marketing war to a new venue: the Internet.

Given that almost three-fourths of all consumer goods sold online are paid for with a credit card, Internet retailing promises a bonanza of new business for American Express, Discover, MasterCard and Visa. And just as they’ve done for years in the offline world, the card companies are already formulating strategies aimed at making their brand the most widely recognized on the Web.

Those strategies include:

— Forming alliances with big portal companies such as Yahoo and Excite or creating their own exclusive shopping sites.

— Signing marketing deals in hot Web selling categories or recruiting merchants in shopping categories where they can quickly build brand awareness.

— Launching advertising programs in conjunction with Web merchants to promote card usage.

— Offering consumer incentive programs.

While the card companies still are in the early stages of leveraging their brands onto the Internet, already they are having some success signing up online merchants and big search engines. “E-commerce is still in the development period and it’s important to align with major brands because their logos on a Web site generates interest and trust with shoppers,” says David Rockland, vice president of marketing, Reel.com, Inc., Emeryville, Calif., which has a marketing agreement with Visa.

Visa appears to be the early front-runner in the Internet retail segment, according to CyberDialogue, a New York electronic commerce research firm. Of the 14.5 million consumers who shopped online in 1998, about 64% of those consumers paid for their purchases with a credit card. And among those shoppers, 40% used Visa, 29% used MasterCard and 9% used American Express. (Discover card usage on the Internet is such a small percentage that the firm does not track it, according to Peter Clemente, vice president at CyberDialogue.)

Foster City, Calif.-based Visa got a jump on the competition when it struck a major co-branded marketing deal in 1997 with Yahoo, the No. 2 search engine on the Internet. Consequently, Visa has prime real estate on the Yahoo sites and is featured in Yahoo’s online shopping area, which hosts several hundred merchants in categories ranging from home and apparel to flowers and travel. “Visa is like having a double guarantee of security and shopping access,” says Grant Winfrey, senior brand manager for Santa Clara, Calif.-based Yahoo Inc.

Visa charges onward

Visa is looking at the primary shopping categories on the Internet, including travel, PC hardware and software and entertainment, for other potential marketing alliances. “We look for the consumers’ eyeball, a lot of transactions and where consumers may go to shop online for the first time,” explains Joseph Vause, vice president of electronic commerce.

Such alliances are key to Visa’s future Internet success. The online shopping sector accounted for only 1% of Visa’s 1998 charge volume of $610 billion, Vause says, but the association expects that charges made by its cardholders buying merchandise over the Internet could skyrocket to almost 10% of its total volume by 2003—eclipsing even the association’s mail-order business.

Not far behind Visa is Purchase, N.Y.-based MasterCard, which signed an exclusive agreement with Excite last June and has struck deals with the Lycos and Go2Net search engines as well. The Excite pact gives MasterCard exclusive payment card status on Excite’s Shopping Channel, where the company hopes to attract many first-time online buyers. “The goal is to build awareness and confidence in the benefits of shopping online so consumers know that it’s there and that it’s secure,” says Larry Flanagan, vice president of advertising for MasterCard.

Working on a very different track is Riverwoods, Ill.-based Discover Financial Services Inc., the credit card arm of Morgan, Stanley, Dean Witter & Co., New York. Rather than doing any outside deals, Discover is building Shop Center, its own online retailing channel located on the Discover Web site. Launched last October, Shop Center features between 10 and 20 merchants, which will change periodically to accommodate various promotions and holidays. Shop Center merchants give Discover cardholders special discounts for shopping on the site.

“What we look for is bringing merchants to one place where we can give cardholders a good online shopping experience,” says Joseph Bonefas, vice president of technology products for Discover.

Shop Center is a call to arms to get Discover cardholders to shop online, adds Bonefas. To encourage Discover cardholders to make online purchases through Shop Center, Discover negotiates discounts for cardholders, including percentage discounts on purchases, cash-back bonuses and free shipping, depending on the merchant deal.

“We are bringing merchants a customer through our site that they may not have gotten before, and converting that customer to a buyer,” says Bonefas, who notes that click-through sales rates on Shop Center exceed the industry average of 1-4%.

The road less traveled

While Discover may not be banging down the doors to place its banner at various merchant sites around the Web or on major portals, Discover believes it is moving with its market, which so far is a small online audience. Because a higher percentage of Discover cardholders continue to shop in traditional venues for now, the company is devoting limited resources to building online awareness.

“A large part of equity is still offline so we need to reach critical mass on the Web first,” says Bonefas. Discover will mention its Web site prominently in its advertising campaigns, including print, cardholder statements and television.

Although Discover’s plans for online shopping may seem small, analysts say the company is on the right track in concentrating its marketing efforts offline. “The way to go is to communicate to consumers through traditional media the virtues and values of using a credit card on the Web,” says CyberDialogue’s Clemente.

Turning to TV

Visa’s Vause believes that one reason Visa is building brand awareness on the Web is that consumers see Visa as a trusted payment brand, which is helpful in enticing them to shop online. To that end, Visa is adding online merchant references to its traditional advertising, including television and print media.

During the 1998 holiday shopping season, for example, Visa ran a TV spot featuring San Francisco-based eToys Inc. similar to its other merchant-oriented spots touting Visa as being “everywhere you want to be.” While eToys did not provide numbers, Vause claims that the commercial helped boost eToys’ sales volume by tenfold over the previous holiday season. And in one of the first TV spots to combine online marketing in the offline world, MasterCard spotlighted its newly signed Excite deal in a high-profile ad that aired during the series finale of “Seinfeld” last May.

American Express, which is highly regarded among analysts for matching the medium to the message, also is using traditional advertising to promote online card usage. AmEx plans to tout its loyalty program for MovieFone Inc., one of the largest movie ticketing and listing services, with 30-second trailers at participating movie theaters, ads on 777-FILM and in The New York Times. (Leaving no medium unturned, the card company also plans to push the MovieFone deal through the AmEx Web site, on MovieLink.com, in statements to cardholders and eventually on TV.)

Such co-marketing deals that give online retailers exposure in association advertising also gives the associations inroads into the new legions of online merchants. Signing the big online merchants gives associations and card companies exposure in the online world and may eventually lead to more deals with legions of smaller online merchants.

Internet Retailer Top 500 Guide

Historically, the associations have had to woo traditional merchants first to get them to accept credit cards and most recently to promote their brand over competitors at the point-of-sale. Nailing down the biggest and most popular retailers is considered the first step in creating brand preferences among shoppers. That is where the battle is just beginning on the Web.

For example, MasterCard is focusing on striking deals where there are the highest levels of online transactions, especially in the travel and entertainment segment. “We are very interested in co-marketing deals with a few key merchants,” says MasterCard’s Flanagan. “We bring one of the top-branded products in the country, more than 200 million payment cards and credibility to even the biggest online merchants.”

Duality won’t do

The association is working off an A-list of top retailers in major online segments that do not already have relationships with its competitors because MasterCard is seeking exclusive partnerships. “We’re not into duality,” Flanagan declares.

The association’s co-marketing approach, in which it trades online promotion for offline promotion, has resulted in some high-profile alliances. San Francisco-based Preview Travel, which has a marketing deal with MasterCard, says making the user feel confident and comfortable using the site to make travel plans is paramount to generating repeat customers. “We are going to have to prove by performance that our site is secure for transactions, but having MasterCard there reinforces that,” says Chris McAndrews, executive vice president. “The MasterCard name adds credibility at a time when electronic commerce is trying to overcome a huge threshold of security concerns for potential online customers.”

Not all merchants want to be limited to one card company, however. Westbury, N.Y.-based
1-800-FLOWERS, which has done online deals mostly with Visa and Discover and has had talks with American Express, believes it’s better to work with all four card companies to drive traffic. “What we don’t do is preferred deals that prod customers to use one card over another,” says Robert Befumo, relationship marketing manager for 1-800-FLOWERS’ interactive division. “We let the customer make their own decision.”

Quid pro quo

American Express, which has been devising its online strategy since 1995, also sees the online world as a new place for its higher-end cardholders to shop. “It is becoming an increasingly important channel,” says Andrea Levine, vice president of global marketing. Those cardholders presumably are taking their offline charging habits into the online world, with an emphasis on travel and entertainment.

As such, the company is signing merchant deals that fit that background, including MovieFone, the travel site MSN Expedia and The Disney Store Online. “AmEx has a strong track record of doing solid partner marketing,” says Levine. “We are experts in direct marketing and we know how to cultivate the most value for our customers and our merchant partners.”

Most of Visa’s merchant deals are co-marketing agreements, which work more like a quid pro quo than a flat-out payment deal for Web site real estate. For instance, Visa will be featured prominently on the home page of an online merchant, while the merchant receives exposure to Visa cardholders through Visa advertising and direct mailings from issuers. “We bring power of brand and access to Internet-ready purchasers,” says Vause. “And we have audiences that can be tailored for a merchant.”

Palo Alto, Calif.-based Virtual Vineyards, which has had similar barter arrangements with all four major players, agrees that the ability to target customers is the most valuable aspect of working with card companies. “These deals give us targeted exposure to a potential wine drinker, online shopper and affluent customer while associating us with a credible, trusted payment source,” says Rita Belle, Virtual Vineyards’ marketing director.

Discover offers merchants present on its Shop Center site access to Discover’s card base. Shop Center clearly puts merchants in an area where cardholders are ready to shop, a move that many analysts believe is the key to converting browsers to buyers and driving online sales.

Adding value online

While it seems that some card companies are making headway by signing deal after deal, not every one is expected to be a winner. “Everyone is scrambling to put these online deals together, but a lot won’t necessarily hold,” says David Pecaut, senior vice president, electronic commerce practice, The Boston Consulting Group, Toronto. Still, Pecaut concedes that creating brand awareness via links with major online merchants is the best way to take credit cards into a new domain.

Overall, retailers are looking to get the most out of their card company deals. “Any merchant has to look at the costs of attracting and retaining a customer,” says Thomas C. Edwards, chief marketing officer at Phoenix-based skymall.com, the electronic commerce arm of SkyMall Inc., and a former Visa executive.

The merchant, in seeking out card deals, must consider creating value to get consumers to try shopping on the merchant site. To do that, the merchant can see the card associations, and their support network of acquirers and banks, as the conduit.

“If you look at the varying channels, you have the association model with Visa and MasterCard financial institutions and the American Express and Discover model with direct relationships with merchants and cardholders,” notes Edwards. “The objective is to use those partnerships to stimulate usage and retention. If we can provide great value-added offers that make cardholders feel secure then we will continue to have those customers.”

And incentives are the weapons that the various card companies are using to fight for share of consumers’ wallets on the Web. For example, American Express made a minority investment last November in Mountain View, Calif.-based SaveSmart, a provider of interactive promotions technology, which automatically applies discounts to credit cardholder statements. The two companies started a pilot last June that provides local discounts and special offers to cardholders in the San Francisco area. Called American Express Online Offers, cardholders can enroll in the service by visiting the AmEx Web site.

When in doubt, discount

Last summer, MasterCard also did a one-time multiple merchant promotion with Santa Clara-based Yoyodyne, an online marketing company now owned by Yahoo. The promotion offered free space on Yoyodyne’s EZSpree shopping Web site to about 400 online merchants, including Barbecue Source, Virtual Vineyards and CD World. The program attracted 500,000 shoppers, who received special discounts for using MasterCard to pay online. The results of that one-time promotion are still being analyzed, says MasterCard’s Flanagan, noting that the association is more likely to stick to long-term deals in the future. One thing remains true. “Whether consumers are online or offline,” he adds, “discounts are always important to get people to shop.”

Aside from providing banner and card preference messages on portal sites, Visa also negotiates with online merchants for discount deals for its cardholders, many of which are centered on special events or holidays. In March, Reel.com ran a special campaign offering Visa cardholders discounts on Academy Award-nominated video releases. Visa did a similar discount campaign for Oscar-nominated soundtrack albums with Music Boulevard (which has since merged with CDnow).

Currently, Visa has close to 40 merchant relationships and plans to do about 10 online merchant promotions per year, mostly centered around holidays. Later this year, Visa also plans to launch Visa Rewards online, which will have a dozen different promotions with between 50 to 60 merchants.

Working the consumer side of the equation to generate interest in online shopping is only one side of the e-commerce coin. American Express has partnered with Pasadena, Calif.-based TicketMaster Online-CitySearch, a provider of locally developed online city guides, to help traditional merchants set up an online presence where eventually its cardholders can shop. After a pilot run in New York City, CitySearch rolled out nationally in March.

“AmEx has a unique opportunity to drive new customers to merchants,” says Levine. “What the associations don’t have is a direct relationship with both their customers and their merchant partners.” Unlike Visa and MasterCard, which sign financial service companies to issue credit cards with their brand, American Express issues its own cards and acts as the issuing bank. American Express also signs its own merchants for processing services, while the associations also rely on member banks to sign card-accepting merchants under the brand.

The power of brand

With so many different tactics and no blueprint to get consumers to use their cards to shop online, the card companies have their Internet crusade cut out for them. Because Visa was quickest out of the blocks in striking up online relationships, it has the early jump on its rivals. “The power of brand is being the first one out there,” says CyberDialogue’s Clemente.

Even while the first waves of online marketing attacks are under way, the war has not yet escalated enough to declare a victor. “There is some opportunity for a shakeup,” Clemente adds. The right deals in the online arena coupled with the right amount of promotion in the offline world could launch any of the card companies into the lead. But if consumers and merchants move into online shopping in the grand waves that are predicted, then the brand with the most power behind it—in terms of trust, utility, discounts and security—could end up with the most online market share.

With these players’ credit history, it should be one heckuva fight.