Less than a month into the New Year and the e-retailer and marketplace announces plans for three additional U.S. fulfillment centers.
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.