Cobranded credit cards: Time to shop around
By Lucy Lazarony • Bankrate.com

N. PALM BEACH, Fla. -- Competition, high costs and choosy customers are pushing credit card issuers to re-examine strategies in their cobranded card programs. Some card issuers are cutting corners on the reward programs; others are forming new partnerships.

What that means to the consumer is that careful shopping and comparison of deals offered can pay off.

"The customer is becoming more and more savvy," said Rob Rosenblatt, vice president of cobranding and strategic alliances for American Express. "They do the math."

Many cobranded credit card programs seek to entice consumers with 1 percent rebates on merchandise or travel, but that may be too low

What is a cobranded card? A card issued through a partnership between a bank and another company or organization. For instance, a large department store may cobrand a card with a bank. The card would have both the bank name and the store name on it. Many cobranded cards are also rebate cards that provide the consumer with benefits such as extra services, cash or merchandise every time the card is used.

a figure to attract and retain customers for the long run, said Rick Barlow, who designs frequency marketing programs for the credit card, hospitality and publishing business.

"How can you have a loyalty program if customers don't want to be in it? That's what you're seeing all around with the failures and near failures in the cobranding business," said Barlow, president of Cincinnati, Ohio-based Frequency Marketing.

Barlow said a strong cobranding program should offer customers a 5 percent "perceived" reward or benefit.

Travel still a favorite for cobranding
Travel-related rewards and rebate programs remain hot ticket items:

• Citibank and American Airlines have offered their widely popular cobranded Visa card for more than a decade.
• First Chicago NBD has a cobranded card with United Airlines and Marriott Hotels.
• American Express launched its Delta Airlines Skymiles Optima card less than two years ago.

Mary Johnson, vice president of cobranded credit card marketing for First Chicago, NBD, said their research shows that travel is always at the top of the list.

"People find travel and ways to earn free travel very appealing."

Everyday savings also popular
While free travel remains a lure for many consumers, other issuers have carved out a place for themselves with cobranded products that offer consumers savings on products that they use everyday.

• Chase Manhattan is among the issuers taking a more practical approach to cobranding with its partnerships with Shell Oil Co., Bell Atlantic and Wal-Mart.
• With the Shell and Bell Atlantic card, customers can earn free gas and telecommunications service, respectively.
• The Wal-Mart MasterCard with Chase boasts no such rewards or incentives but offers a fixed 14.48 percent annual percentage rate for purchases and a 9.9 percent on all balance transfers.

"It was really important that the card reflect what consumers value in Wal-Mart, and that's the everyday low price," said Sandra Jetton, senior vice president of cardmember marketing for Chase Manhattan.

Niche cards appeal to picky shoppers
Like many in the cobranding business, Jetton foresees a shift toward more and more niche products.

"The days of coming out with a cobranded program and signing up 3 million or 4 million customers are gone," Jetton said.

One such niche is entertainment-related cards.

• Wachovia recently launched a cobranded card with BMG Entertainment, a music and video publisher and distributor.
• First USA has launched cards with TicketMaster, SamGoody/Musicland stores and Six Flags theme parks.
• Catalog retailer L.L. Bean recently partnered with MBNA for a card.

Industry consultant Jeff Baxter, president of SJ Baxter & Associates, a Forest Hill, Md.-based consulting and qualitative research firm, said he expects to see more collaboration with retailers such as L.L. Bean that represent a particular lifestyle.

The card offers 1 percent rebates usable with L.L. Bean purchases and 5 percent rebates on purchases of other products, plus free shipping -- a $4.50 value. Cardholders who enroll in L.L. Bean's Discovery School earn 10 percent off on L.L. Bean purchases.

"You have the rational appeal of saving money and the emotional appeal with the consumer of the lifestyle the retailer represents," Baxter said. "You can have a really strong value proposition."

-- Posted: Jan. 22, 1998