Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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Although MasterCard cannot determine whether a cardholder makes a purchase-the merchant and the credit card issuer track data-it can determine whether the messages are opened. “Merchants tell us the program is bringing incremental sales,” says Jennifer Lavelli, vice president of Internet marketing for MasterCard. “The ability to deliver personalized value is nirvana for consumers.”
One reason the program has delivered incremental volume to Internet retailers is a low attrition rate for the program, according to MasterCard. Less than 0.5% of those who register drop out of the program, Lavelli says. Since launching the program in 1997, MasterCard had registered about 5,000 users as of the end of 2000.
Individual card issuers have their own success stories when it comes to generating incremental sales for Internet retailers. NextCard says cardholders who use its concierge service increase their online purchasing activity by 30%, compared to cardholders who do not use the service.
While Internet retailers acknowledge success partnering with individual card issuers, one of the benefits of partnering with a brand marketer such as MasterCard and Visa is that they get greater mileage out of joint marketing campaigns.
“Visa and MasterCard have the ability to push promotions with merchants out to their card-issuing members, who then push it to their cardholders, so it’s a great way to stretch your marketing budget,” explains John Herr, senior vice president of sales and marketing for Buy.com. “Sometimes they even approach us about a promotion and will pay us to run it, so in that instance marketing dollars flow to us.”
Buy.com last year partnered with Visa to participate in a promotion sponsored by Visa and the NFL in which Visa cardholders who made a purchase at Buy.com were entered into a sweepstakes. Weekly drawings awarded such prizes as electronics, with the grand prize drawing a trip to the 2001 SuperBowl. “Visa and the NFL are two great brands to partner with for marketing purposes and the promotion did deliver repeat buyers,” says Maggie Ford, promotion manager for Buy.com. “We are also starting to look at doing promotions with individual issuers.”
Typically, promotions with individual issuers are not as grand, but are effective nevertheless. Incentives such as merchandise discounts, free shipping and low-price guarantees are pretty standard fare, but some issuers are starting to stretch the promotional boundaries. Discover offers its cardholders a 7% cash back bonus on each purchase at Barnes & Noble’s bn.com, which is a tenant in its shopping mall. The bonus-part of which the retailer provides-is credited to the cardholder’s account. Other Internet retailers in the mall include FTD.com and SmarterKids.com. In the real world, Discover cardholders get up to 1% back
First USA Bank, the credit card issuing subsidiary of Bank One Corp., offers consumers carrying its Buy.com co-branded platinum card a 5% credit for each $1 spent on the card at Buy.com and a 1% rebate at other merchants. Rebates are redeemable on merchandise at Buy.com.
“A lot of the promotions that card issuers are using in the online world have proven effective in the offline world,” says Jill Frankle, director of retail e-commerce for Gomez. “Free shipping is used a lot during high traffic periods, such as the holiday shopping season, but it’s a subsidy and there are a lot of other meaningful values that can be offered.”
One such value is convenience. Several card issuers include search engines in their shopping malls that allow consumers to locate Internet retailers carrying the type of merchandise they desire. Retailers do not pay for placement in the search process. The malls choose retailers based on compatibility with other merchants and their willingness to underwrite incentives. Many of the search engines also perform price comparisons for a specific product carried by more than one Internet retailer and even provide products reviews.
“Merchants want their affiliation with a card issuer to be more than just low price, they want to provide a level of service that makes its easier to shop online and facilitates cardholders going to their site,” states Marc Metcalf, president of Brodia Inc., a San Francisco-based vendor of e-wallet technology. “The idea is to put all customer services in one place.”
Brodia, which supplies e-wallet services to six of the 11 largest credit card issuers and MasterCard, is employing that strategy to help issues build a broader array of shopping services and secure transaction applications around its technology platform. The company has financial backing from MasterCard and Morgan Stanley Dean Witter, Discover card’s parent. It also has relationships with more than 500 online merchants that it can deliver as marketing partners to credit card issuers.
“Card companies are investing in Brodia because it can help them capture more volume from online shopping and that is enough to warrant an equity investment,” adds Gomez’s Jamieson.
The issue that won’t die
In addition to convenience, security is another value that card issuers are convinced will help them encourage cardholders to use their web sites as a gateway to online shopping. Granted, security is not an issue with seasoned online shoppers, but it is with novice online shoppers. A high percentage of consumers new to Internet retailing abandon their shopping carts at checkout for fear the account data will be intercepted. To support those claims, Discover quotes figures from Boston Consulting Group that say 44% of Internet users do not shop online for fear of becoming victims of credit card fraud.
To address security concerns among its cardholders Discover has included a virtual credit card in DESKSHOP 2.0 that allows cardholders to create a single-use credit card number when making an online purchase. The single use account number protects the cardholder’s actual account number from being intercepted online, thereby reducing the potential for fraud.