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COVID-19’s Impact on Travel Has Shifted Consumer Loyalty Needs

(London, UK) Perceptions of loyalty points and miles redemptions has shifted in the wake of COVID-19. The lack of opportunity to travel since the beginning of COVID-19 is eroding the appeal of travel-related benefits from UK loyalty programmes. According to Auriemma’s latest research, 76% of credit cardholders enrolled in a loyalty scheme prefer to use their loyalty rewards for non-travel benefits. Meanwhile, only 35% of programme members intend to use their points or miles for travel-related benefits in 2021.

But how has this change in behaviour been impacting loyalty programmes, and how quickly, if at all, will these patterns return to previous norms?

The large volume of unused loyalty points mean high levels of financial exposure for brands on their balance sheets, which can cause a serious headache for company CFOs. Brands with loyalty programmes which are modelled heavily around offering travel redemptions, such as British Airways, Virgin Atlantic, Hilton Honors or Marriott Bonvoy, are at the highest risk in this scenario. As evidenced in April and May 2020 when Hilton Honors sold $1 billion Honors Points to American Express, and Marriot Bonvoy sold a similar $920 million points to American Express and JP Morgan Chase to build up much needed cash flow and reduce their points liability. This is only a temporary fix, however, and with travel restrictions still in place one year later, the problem of over-exposure persists for brands.

Some loyalty schemes have expanded their partnership approach to maintain member engagement and relevance. IAG Loyalty’s recent partnership with Nectar in January 2021 allows the direct  transfers of points between the two schemes providing low value redemptions to BA Executive Club members, also demonstrated with the launch of Virgin Red in November 2020 and its partnership with Greggs. Despite the apparent strengths of these partnerships, they can present poorer value to consumers which will test the theory as to how viable they are in the longer term, once travel restarts.

There remains hope as Auriemma found that 55% of consumers still enjoy earning travel rewards through their loyalty programme or credit card, many with plans to redeem these for travel-related benefits as soon as possible. With the continued effectiveness of UK’s vaccine rollout and the subsequent easing of restrictions, a return to travel could be around the corner.

“Now is the time for issuers and loyalty programmes to focus on member and cardholder engagement,” says Kate Morgan, Head of International Partnerships at Auriemma Group. “As consumer confidence in the ability to travel rises, the appeal of redeeming hard-earned points for bookings should, too. We have seen that delivering relevant, personalised offers and marketing is key, along with cancellation options that give customers the assurances they need to complete the booking process.”

While foreign holidays remain less of a certainty than domestic travel this summer, the airlines face a larger challenge than hotels who have a greater ability to turn the focus inwards on UK stays and vacations. Premier Inn owner Whitbread, UK’s largest hospitality company, is bracing for strong summer demand.  Nevertheless, as most hotel programmes exist without the cushion of commercial partnerships with non-travel-related loyalty schemes, the reopening of UK hotels might be the only opportunity for a profitable 2021.

“The nation eagerly awaits more clarity on the government’s foreign travel policy beginning on 17th May 2021,” says Kate, “and fingers crossed it is good news for the travel industry and the thousands of employees within this sector.”

Survey Methodology

Cardbeat UK

This Auriemma Group study was conducted online within the UK by an independent field service provider on behalf of Auriemma in November 2020, among 845 adult credit cardholders. The number of interviews completed is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification. The average interview length was 21 minutes.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call Kate Morgan at +44 (0) 207 629 0075.

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Auriemma to Speak on Co-Branding Sessions at Mega Event 2018

(New York, NY):  Auriemma Consulting Group will have two speaking roles at Airline Information’s Mega Event 2018, scheduled for October 31st through November 2nd in Long Beach, CA. Both of Auriemma’s speaking roles will discuss how issuers and brand partners can evolve and improve their co-brand programs in the current environment.

David Edwards, a director in Auriemma’s International practice, will speak on the panel “Driving Additional Revenue Streams from Co-Brands: Lessons from Non-US Markets,” scheduled for November 1st at 11:10 a.m.

The panel will focus on how co-brand programs have or will be impacted by new payment regulation, as well as key learnings from post-interchange markets. Edwards, in addition to the panelists from KLM Royal Dutch Airlines and Kobie Marketing, will share how co-brands can thrive amid regulation by adopting collaborative approaches, embracing change and designing innovative solutions that are both desirable and relevant to customers.

“All markets around the world have or will be impacted by new payment regulation,” Edwards said. “But consumer desire for rewards and benefits is greater than ever – they will choose co-branded products over and above new alternatives.”

Jaclyn Holmes, director of Auriemma’s Payments Insights practice, will share proprietary consumer research in the presentation “Which Rewards Set Co-Brand Programs Apart – A Consumer Perspective,” scheduled for November 1st at 2:25 p.m.

The presentation will detail how consumers’ usage and perceived value of card benefits vary drastically, depending on the benefit offered.  Issuers and brand partners alike are designing increasingly attractive credit card programs to capture the attention of young, affluent cardholders. Session attendees will learn which benefits best capture the attention of prospective cardholders, as well as which benefits drive increased card usage and retention.

“Rewards card value propositions have grown increasingly complex, with issuers offering robust benefits ranging from comprehensive protections and warranties to elite experiences,” Holmes said. “In this evolving landscape, it’s critical to understand your customers and their motivations for card selection.”

Attendees can schedule a one-on-one meeting with Auriemma’s team to discuss how the firm’s research and advisory work can help navigate the current environment most effectively.

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Second Look Offers Potential Benefits for Issuers and Brand Partners Alike

(New York, NY):  The battle for market share among branded credit card programs seeking prime and superprime customers has been fierce. Rewards have grown ever richer and, as the cost per acquired account rises, marketing efforts come with diminishing returns for both brands and issuers.

In contrast to the proliferation of products targeting prime and superprime customers, there has been relatively little product innovation for customers with less developed credit profiles, whose access to credit tightened as a result of the recession and some of the sizable regulatory changes that occurred soon afterward. But, increasingly, both issuers and brands are considering “second look” programs, which use different underwriting criteria to reevaluate declined applicants for credit with separate terms. For the benefit of brands and issuers, second look programs can approve more credit applicants and drive incremental sales by expanding credit access to customers who have lower FICO scores or thin credit histories.

“This segment of under-served customers is a significant opportunity for issuers and brand partners,” said Steve Serra, Senior Director of Partnerships for Auriemma Consulting Group. “With the intense competition now underway for each new cardholder, portfolio growth is a pressing concern, and issuers cannot afford to ignore any sizable pool of potential customers.”

At a time when many brands may be experiencing portfolio stagnation, second look programs can expand the penetration rate of a given co-brand or private label card by underwriting customers who would otherwise be declined for the primary credit program.

These second look programs layer onto an existing primary credit program, often in partnership with a second issuer. Second look programs can be seamlessly integrated into the application flow within existing point-of-sale (POS) technology to provide a smooth customer application experience.

“Previously, these customers would have been declined at POS and forced to look outside the brand for quality financing options,” Serra said. “These second look programs provide a better customer experience, strengthen a brand’s relationship with its retail customer and make store employees more comfortable offering credit.”

Brand partners that use second look programs can drive significant uplift in their credit application approval rates – typically 10 to 20 percent of customers who are declined for a primary program can be approved by a second look program. More approvals also translate to more loyalty – having a branded card motivates shoppers to spend and shop more, with 30 percent of co-brand and private label cardholders saying they have increased their spending with a retailer after being approved for its branded card, according to Auriemma Cardbeat research. A second look program can also drive incremental sales for a brand – in some cases, up to 10 percent year-over-year – according to a recent Auriemma case study.

Given the significant potential to increase approval rates and drive sales growth, brands should incorporate second look issuing rights into their issuer co-brand and private label agreements to ensure that the opportunity is available to them at any point in their contract term.

The benefits of second look programs are also manifold for card issuers. Issuers that build second look capabilities can increase the size of their card portfolios and gain greater market share. Additionally, many brands are looking for deeper underwriting as they have deep pools of under-served customers with an appetite for credit, and most major issuers do not offer second look services today. Thus, the ability to offer second look services can be a major point of distinction for issuers seeking to win brand partnerships.

“Second look programs are beneficial for customers and card programs alike,” Serra said. “Through collaboration, brands and issuers can better serve their customers, improve the acquisition experience and drive more loyalty and sales.”

With over 30 years of experience crafting profitable, long-lasting partnerships in the Cards and Payments industry, Auriemma is well-suited to facilitate these collaborations between issuers and brands. For more information, please contact Steve Serra at 212-323-7000.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognized experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximize their performance. Auriemma serves the consumer financial services ecosystem from our offices in New York City and London. For more information, call Steve Serra at (212) 323-7000.

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Auriemma to Speak at Co-Brand EMEA Conference in London

(London):  Auriemma Group will have two speaking roles at Airline Information’s Co-Brand EMEA Conference, scheduled for 21 February in London.

David Edwards, Director in Auriemma’s Partnerships group, will chair the conference with opening remarks focused on optimising co-brand programmes and identifying opportunities as the industry absorbs new EU regulation under Interchange Fee Regulation (IFR), Payment Services Directive (PSD2) and General Data Protection Regulation (GDPR).

“With the launch of new co-brands since IFR was implemented, the co-brand market is demonstrating that there is still an ability to successfully grow and be profitable,” Edwards said. “However, to be successful in this changing market, there is huge importance in understanding where opportunities for growth have been created, how to adapt to more flexible commercial arrangements and how to talk directly to new and existing cardholders to derive additional value.”

Opportunities for growth include starting new programmes in the current environment, optimising co-brands with card-linked rewards and better understanding the needs and motivations of the consumers.

Jaclyn Holmes, Director of Auriemma’s Payments Insights group, will lead a discussion on consumers’ expectations from payments players, including features that have implications on spend, engagement and acquisition. Using proprietary data from Auriemma’s UK Cardbeat study, Holmes’ presentation will detail UK consumer attitudes and expectations on retailer offers and benefits, card personalisation and card selection criteria.

“With the right messaging, card issuers and co-brand partners can develop successful offers, encourage stronger engagement and build consumer trust,” Holmes said. “But to do so, it’s critical to recognise cardholders’ lack familiarity and understanding of regulatory language. There’s opportunity to build consumer education, and the brands and issuers who get the communications right will be at an advantage.”

Attending retailers can schedule a one-on-one meeting with Auriemma’s team to discuss how the firm’s research and advisory work can help navigate the current environment most effectively.

About Auriemma Group

For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, call +44.(0).207.629.0075.

About Ai | Airline Information

Ai is an established leader and innovator in commercial aviation conferences. Since 2005, Ai has hosted thousands of airline and travel professionals at the company’s groundbreaking conferences, forums, workshops, webinars and networking events.

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Co-Brand and PLCC Programs Are Crucial to Driving Omnichannel Loyalty

(New York, NY):  As consumers migrate from brick-and-mortar stores to online shopping, merchants have turned to omnichannel strategies and experiences to bolster loyalty and retention.

But consumers’ behavior has become increasingly fragmented: In the quest for deep discounts and convenience, allegiance to one particular merchant has taken a backseat.  In this environment, a key question facing merchants is what the future of shopper loyalty looks like, and how they can best position their offerings and experiences to capture it.

To answer it, merchants are increasingly turning to payments – an oft overlooked component of the shopping experience that can unlock store traffic, sales, and long-term brand loyalty.

“Increasingly, merchants are re-thinking the way co-brand and PLCC programs can deepen consumer loyalty,” said Gary Rezak, a director in Auriemma Consulting Group’s Global Partnerships practice. “These programs have the power to increase omnichannel productivity, boost in-store visits and drive new behaviors.”

The evidence that a card program can stimulate positive shopping behaviors is mounting, with 30% of co-brand and private label cardholders saying they spend more at the related and 73% reporting they feel more loyal to the related merchant, according to Auriemma’s February issue of Cardbeat®.

Here are other loyalty indicators well-executed programs can deliver to merchants:

  • More in-store visits. Even as store footprints shrink, garnering in-store visits is still king among retail performance metrics. Generally, cardholders have higher shopping frequency and larger average order sizes than non-cardholders. With more price competition than ever before, special sales events and mail-order coupons often do not achieve the same sales lift as they did historically. But card programs can provide a reason to return to the store – again and again. If a cardholder returns to the store just once early in its cardholder relationship, he or she is far more likely to return later: 30% of co-brand and private label cardholders say they’ve increased their spending with the retailers since getting the card, according to Auriemma’s Cardbeat research.

 

  • More special experiences. Perks and VIP experiences for cardholders, such as dressing room reservations, free alterations and special access to cardholder-only events are increasingly successful in generating in-store traffic and engagement. Look for an increasing focus on soft benefits, brand partnerships, personalized delivery, “surprise-and-delight” offers and special events embedded in value props going forward. And encouraging cardholders to “unlock” such perks could also be effective: When cardholders are given the opportunity to unlock richer rewards with increased spend, 25% say they spend enough to hit the reward threshold, according to Auriemma’s Cardbeat research.

 

  • More cross-channel sales. Consumers who shop in all three channels – store, online and mobile – are often the most profitable. Driving top-of-wallet behavior is crucial for online and mobile shopping, particularly without a store employee to remind the cardholder of the benefits. Knowing that your online or mobile shopper is an existing cardholder is a critical component of generating top-of-wallet spend. More retailers will begin requiring known customers to create log-ins for online check-out. While the sign-up process may be an initial speed-bump, its overall benefits, including prompting existing cardholders to use their card for savings or free shipping, is invaluable to drive spend without disrupting the check-out process.

 

  • More cross-over customers from non-tender loyalty programs. The value of loyalty programs is two-fold: data capture and targeted marketing. Increasingly, merchants are leveraging loyalty programs to screen and pre-approve potential credit-worthy applicants. However, there is potential for cannibalization between the two programs. (According to Auriemma’s Cardbeat research, 53% of cardholders enrolled in both a credit and non-tender program believe the rewards between both programs are the same.) Merchants can break this pattern by ensuring both programs have distinct value propositions with calibrated richness. In addition, enrollment in both programs can be highly attractive to customers, and increase in-store visits, if consumers can multiply rewards to accelerate their redemption opportunities in-store.

 

“Even in a challenging environment, there are numerous opportunities for merchants to break through the clutter, communicate compelling messages and engender more loyalty,” said Diana Middleton, Director of Auriemma’s Brand Partner Roundtable, an information-sharing group for senior retail payment executives. “As customers change the way they shop, merchants must ensure they have laid the groundwork to be the top-of-wallet tender for any transaction in any channel.”

About the Brand Partner Roundtable

Open exclusively to brands, including retailers and T&E partners, the Brand Partner Roundtable focuses on designing and executing card programs that benefit members’ core retail business. Discussions give participants the tools and information they need to improve their program’s value proposition and acquisition strategy, eliminate fraud, and fine-tune mobile and digital enhancements.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Industry Roundtables, contact Tom LaMagna at (212) 323-7000.

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Auriemma to speak at Two Co-Brand Conferences in May 2017

 

Auriemma Group will have co-brand-focused speaking roles at two separate conferences in May 2017.

Marianne Berry, Managing Director of ACG’s Payments Insights practice, will be presenting at CARD Forum’s Co-Branding Opportunities track on Tuesday, May 9th from 3:15-3:55 p.m. Using proprietary consumer research, Berry will share information on the consumer lifecycle of retail-oriented cards, specifically co-brand and private label, examining everything from acquisition to rewards redemption.

Attendees will learn about the demographics of retail-oriented card users, how retail cards are acquired, how to increase loyal, top-of-wallet usage, how to motivate activity on infrequently or unused retail cards and which benefits consumers prize most highly.

“In the retail environment, leveraging a retail-oriented card for greater consumer spend and brand loyalty is paramount,” Berry said. “This presentation will share how the consumer thinks about benefits and redemption options, as well as the offers that can overcome the ‘one-and-done’ phenomenon that stands in the way of loyal usage.”

Gary Rezak, Director in the Auriemma Global Partnerships practice, will speak on a panel at the third annual Co-Brand Conference produced by Airline Information. The session, scheduled for Tuesday, May 23rd, will focus on interchange, mobile wallets, and other key industry topics. The panel will be moderated by Madeleine Anderson, a former British Airways senior loyalty marketing executive.

“This session’s focus will arm portfolio managers with best practices on how to interpret the key industry trends that have implications for their programs,” Rezak said.

Auriemma’s presence at these co-brand-focused events is a testament to its long history in transaction advisory and consumer research centered on the co-brand space. In addition to traditional advisory services, Auriemma’s co-brand offerings provide a 360-view of the space, including ongoing work in improving portfolio profitability and increasing consumer usage.

Brands and issuers attending these conferences can book a one-on-one meeting with Auriemma speakers to discuss how the consultancy’s research and advisory work can aid in acquiring more customers, generating greater spend and creating deeper consumer loyalty.

About Auriemma Group

Auriemma is one of the most recognized and respected boutique providers of advisory consulting services to the Payments, Lending, and Retail industries.  Our rich history of engaging with Brands started 30 years ago, with the introduction of the first co-brand credit card program.  The work we do with Retailers in the context of Payments has helped them tangibly improve customer acquisition, retention, service, and loyalty.  Our range of services includes Industry Roundtables (best practices and benchmarking), Partnerships (co-brand and private label), Corporate Finance (transaction advisory), and Payment Insights (consumer research).

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Three Things to Watch in Co-Branding for 2017

(New York, NY):  For the past several years, there has been an unprecedented level of activity in the U.S. co-brand marketplace, with many of the country’s largest programs coming to the end of their existing issuer and network contracts. That growth will continue, but in new pockets of the industry, according to Auriemma Group, a boutique management consultancy focused on the consumer payment industry.

Recently, many marquee retail and T&E programs, such as Amazon, American Airlines, Costco and Cabela’s, conducted competitive selection processes that received an extremely high level of interest from potential issuing partners. With few deals of that size expected to hit the market in 2017, Auriemma anticipates co-brand expansion will come from several less-explored areas.

“The U.S. co-brand market has been extremely active for the past few years and while a few major programs did shift partners, the overall landscape did not change that dramatically,” said Gary Rezak, Director of Partnerships for Auriemma. “Most of the leading issuing banks and payment networks still have the desire to grow, and they are actively seeking new partnerships.”

More online/mobile-only companies will start co-brand programs. As consumers continue to shift their spending away from traditional brick-and-mortar locations, the co-brand issuing community is starting to look online as well.  “Some of these less traditional retailers are generating large volumes of traffic and revenue,” says Rezak. “These newer companies need additional tools to generate loyalty and for many, a co-brand card is an ideal solution.” And while issuers might not have been that interested in these types of partnerships a few years ago, they certainly are today. Companies that cater to a difficult to reach audience, such as millennials will be particularly attractive.

Issuer interest in de novo programs will extend to more established companies. With credit card portfolios remaining lucrative for issuers, there will continue to be a strong push to increase assets. And while banks continue to actively acquire customers for their proprietary card products, competition for customers is intensifying, with costs for rewards and acquisitions escalating. Co-brand will become an increasingly attractive option. “Co-brand partnerships enable unique value propositions and exclusive marketing channels,” said Rezak. Auriemma anticipates new co-brand programs to come from a variety of industry sectors including financial, auto and telecommunications. In the past, issuers were solely focused on Retail and T&E, but as opportunities for new partnerships in these sectors have diminished, issuers have become more willing to broaden their partnerships targets.

Second-look issuing will continue to gain traction. Traditional co-brand issuing banks tend to cater to prime credit consumers, but most brands have customers from all ends of the credit spectrum. Second-look programs allow a brand to cater to more customers, without disrupting the prime issuer’s program.  “We’ve seen more brands negotiating for the right to offer second-look programs as part of the contract process,” Rezak said. “The sub-prime credit market has a lot of opportunity and we anticipate that many second-look programs will begin in 2017 and beyond.”  When implemented correctly, these types of programs have little downside.  Issuers focused on second-look programs have developed an expertise in managing the increased risk associated with this population, without disruption to the consumer, brand partner or prime issuer.

While 2017 may not be the year of the marquee deal, it holds plenty of promise for both issuers and brands in less-trafficked corners of the industry.

 About Auriemma Group

Auriemma is a boutique management consulting firm with focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, please contact Gary Rezak at 212-323-7000.

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EU Pullbacks Haven’t Axed Rewards Payment Cards—They Still Rule

(London, UK):  One year after the implementation of Interchange Fee Regulation (IFR), the majority of British consumers continue to favor payment cards that reward them with points or miles for their spending, according to recent research by Auriemma Group.  The EU-mandated cap on credit and debit card interchange fees reduced the revenues earned by card issuers, prompting many to scale back their rewards schemes in 2016. Despite these cutbacks, over half of UK credit cardholders in the Auriemma study say they earn rewards for payment card usage, and they respond enthusiastically by concentrating their spending on those cards.

As part of its ongoing UK Cardbeat research, Auriemma surveyed 400 UK adults who own rewards payment cards.  Almost a quarter (23%) reported a change to their rewards programme in the past year—78% of them saying the change decreased the overall value of the card. Still, more than half of that same group say their usage was not affected by these changes, and 82% say a payment card that earns rewards is their most frequently used card.

The most widely held type of rewards payment card is cashback (37%), followed by supermarket (33%), and airline (21%). Despite their smaller market share, airline miles seem to be the most powerful reward, as these cardholders spend more in total and report higher satisfaction overall.

“Airline and hotel rewards are big-ticket and aspirational” noted Marianne Berry, Managing Director of Auriemma’s Payment Insights practice, which conducted the study. “Most consumers who have an airline co-branded card are consciously banking their miles earned toward a free ticket for a vacation or personal travel, so they’re very motivated to use that card to pay for everything.”  On average, cardholders say they need to spend £8,325 to redeem points for a flight, compared to £3,386 for a hotel room.

This perception of rewards’ intrinsic value translates into much more spending. On average airline rewards cardholders spend more per month (£1,182) on their airline rewards cards than retailer/grocery (£606) and cashback (£564) cardholders do on those cards combined. And 62% of their spend is outside the card’s partner brand (vs. 52% retailer/supermarket cards), suggesting a purposeful effort to earn miles with a range of purchase types. They also ascribe a higher value to their airline miles earned. About half (46%) of airline rewards cardholders believe a mile is worth £0.05 or more, while only one-quarter (24%) of their retailer/grocery counterparts believe a point earned is worth the same.

“Ultimately, industries vary in how they structure their rewards payment card programmes,” says Berry. “Those with airline cards spend more and have to wait longer to redeem, while those with retail or grocery cards get more frequent, but lower-value rewards. These rewards schemes appeal to different types of cardholders.”

On February 22, these findings (and more insights on UK rewards payment cards) will be presented by Berry at the 2nd Co-Brand EMEA conference in London, entitled, “Is Your Marketing Bold Enough?” Auriemma’s Director of International Partnerships, David Edwards, will act as Chairman for the event. Those interested can visit www.airlineinformation.org to learn more.

Survey Methodology

This study was conducted online within the UK by an independent field service provider on behalf of Auriemma Consulting Group in September 2016, among 400 adult rewards cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialised focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.

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Co-Brand and Private-Label Retailers Double Down on Brick-and-Mortar Acquisitions with Key Investments

(New York, NY):  As shifts in consumer preferences mete out consequences for retail stores, one segment is investing heavily in brick-and-mortar locations to generate new sales: co-brand programs.

Retailers that offer co-brand and private-label credit cards are ramping up direct marketing efforts through the physical point of sale and investing in technology, employee incentives, and other initiatives to modernize that channel and maximize its growth potential. According to a survey conducted by Auriemma, 57 percent of brand partners with physical, online, and mobile commerce footprints are forecasting in-store account acquisitions growth through end of year and planning to increase investments in the near term.

“Retailers are doubling down on store-centric strategies as a tool for increasing cardholder acquisitions,” said Diana Middleton, Director of Auriemma’s Brand Partner Roundtable, an information-sharing group for senior retail payment executives. “Brand partners are well aware that customers are changing the way they shop, and deploying tactical investments to boost what has historically been the best-performing channel.”

In fact, retail stores remain a leading outlet for card sales: physical locations generated 71 percent of account acquisitions in 2015, according to Auriemma’s Brand Partner Roundtable Benchmark Study, and tend to have higher applicant approval rates.

Planned investments reflect a bullish outlook on stores as part of larger cardholder acquisition strategies, despite slipping comparable sales and declining foot traffic. While retailers begin trimming their physical expansion plans and closing under-performing stores, and as consumers increasingly migrate to online and mobile environments, physical locations are expected to remain a key driver of account openings. Many brand partners still view store associates as the most effective means for communicating the value proposition associated with card products and delivering relevant information and offers to customers.

Still, retailers are adapting their techniques to reflect a growing digital audience and the reality of declining brick-and-mortar store visits. Increasingly, investments are designed to promote greater integration with omni-channel strategies for branded card programs.

“Brand partners are taking proactive steps to maximize the potential of this existing and very formidable channel,” Middleton said. “Program managers are identifying better and more personalized ways to serve customers, preserve face-to-face relationships, and bring the point of sale into the digital era.”

These methods include equipping stores with more sophisticated technology, identifying migration patterns between physical and digital customer touch points, and analyzing how shifting behavior affects customers’ lifecycle value. A key part of this strategy is identifying highly-active omni-channel shoppers in-store and delivering pre-approved offers at the point of sale.

New technologies, including tablets and other mobile devices as an acquisitions tool and more sophisticated customer relationship management (CRM) systems, could open an avenue for instant pre-approval, reduce application times, and eliminate friction.

A more fundamental long-term challenge will be sustaining leads in the absence of store footprint expansion, which has traditionally generated large sums of new customers and accounts. With fewer new store openings, brand partners will need to identify new potential cardholders within their physical footprint, as well as maximize the performance of digital channels.

“Today, brand partners have to be more strategic in how they target customers in their existing stores,” Middleton said. “Identifying that white space – customers that don’t have the card product – is critical.”

As efforts to optimize the in-store acquisitions channel continue, brand partners are also turning attention to online and mobile in particular. Program managers are investing equally in stores and more cost-efficient digital channels with a high perceived return on investment – especially as cost-per-acquisition in stores is expected to increase over time. However, challenges abound – from maintaining clarity of message and cutting through competing offers to improving opt-in rates and online targeting.

About the Brand Partner Roundtable

Open exclusively to retailers, the Brand Partner Roundtable focuses on designing and executing card programs that benefit members’ core retail business. Discussions give participants the tools and information they need to improve their program’s value proposition and acquisition strategy, eliminate fraud, and fine-tune mobile and digital enhancements.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space. We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines. For more information about Auriemma’s Industry Roundtables, please contact Tom LaMagna at 212-323-7000.

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Got Baggage? How Premium Airline Cards Benefit Consumers, Issuers, and Airlines

(New York, NY):  Few topics provoke as much consumer rage as the indignities of air travel.  Along with endless airport security lines and vanishing leg room, add-on fees are a major source of irritation for flyers.  Last year consumers spent a whopping $3.8 billion just on checked baggage fees, according to the Department of Transportation, and another $3 billion for the privilege of changing their flights.

Airline rewards cards, long favored by mileage hoarders, offer a way for consumers to fight back. By selecting the right credit card, savvy travelers can enjoy priority boarding, checked baggage, and make last-minute flight changes without racking up additional charges. And these premium benefits are broadening the appeal of airline rewards cards, according to recent research by Auriemma Group.

“People want to earn free trips: mileage is aspirational,” says Jaclyn Holmes, the Auriemma senior manager who directed the study. “But when it comes to the day-to-day flying experience, benefits like priority boarding or a free checked bag can make all the difference.”  Even consumers who would normally balk at paying an annual fee may change their minds when they consider avoided costs, she noted. “Over half of consumers who carry cards with premium benefits value these privileges more than the miles they earn for spending.”

Premium benefits are important to consumers, but they are important to airlines and issuers as well. Airline rewards cards with these benefits create an opportunity to better connect with the consumer, to provide them with a more positive experience, and to keep them brand loyal.

“Airlines and their card-issuing partners should continue to highlight the core benefits of mileage, how it is earned, and how it can be used,” says Holmes, “but it is equally important to focus on premium benefits offered, as they may be the tipping point in how consumers select their payment method and airline. Airline reward cardholders expect to be earning miles on their spending; to entice them you need to do more, you need to show them that your product will improve their travel experience.”

Survey Methodology

The study was conducted online within the United States by an independent field service provider on behalf of Auriemma Consulting Group in February 2016, among 800 U.S. credit card users (“cardholders”). The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted.

About Auriemma Group

Auriemma is a boutique management consulting firm with specialized focus on the Payments and Lending space.  We deliver actionable solutions and insights that add value to our clients’ business activities across a broad set of industry topics and disciplines.  For more information, call (212) 323-7000.

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