In a nutshell, co-brands exist based on the theory that a compelling product offer tied with customer affinity to a brand will result in strong card performance. Co-brand partners can also provide an issuer with access to high-value customers and sales venues that a bank does not possess on its own.
Partnerships to issue co-brands include a range of structures, from ventures jointly controlled by the issuer (or, in rare cases, several issuers) and the brand partner, to more traditional structures where the issuer maintains more control over the programs and basically pays a royalty fee to the partner in exchange for access to the company’s customer list and the ability to use the brand’s particular partner sales channels (e.g., retail stores, internet sites, customer magazines, loyalty programs catalogs) as a means to promote the card.
In research First Annapolis conducted this year, we reviewed a total of 723 co-brand programs in 31 European countries. Perhaps not surprisingly, the country with the most co-brands was the UK, with over 70 programs. In total, 49% of co-brand card programs we studied are Visa, 38% MasterCard, 7% American Express and 6% Diners.
Figure 1: Co-Brand Landscape in Europe
Affinity, retail, and airlines the most common
Source: 2011 First Annapolis Consulting study of 723 programs in 31 countries.
Note: Other travel includes hotel, auto, and all other travel besides airline. Other includes telecommunications, media, insurance, and all others not shown here.
Disparity in co-branding
Germany - a somewhat stronger economic power with a greater population than the UK, but with far less history of revolving credit - has only about 30 programs – less than developing markets such as Portugal, Turkey, Greece, Poland, Russia and Romania. France is not even in the Top 10, largely as a result of both former restrictions by card authorities on the issuance of co-brand cards and also the strong presence of retailers that issue their own cards in-house.
Apart from affinity programs, which account for nearly 40% of the programs in our study, the two most popular forms of co-brand partner sectors are retailers and airlines. Airlines represent the ‘crown jewel’ of most domestic co-brand markets for a number of reasons including the relative affluence (and hence card spend) of airline fliers and the presence of widely-recognized frequent flier programs. In fact, two of the companies with the most co-brand programs in Europe are Lufthansa, with programs in 14 countries and British Airways, with seven.
Some of the leading issuers of co-brands include Bank of America (the former MBNA), which has long put a strong focus on the affinity sector, Spain’s La Caixa, Citibank, American Express and Barclaycard. American Express issues co-brand cards both on its own (for years, it was the only co-brand card issuer in France) with key programs such as those with British Airways and Air France, and also acts as the network for co-brands issued by other banks.
Figure 2: Banks Driving Partnerships
European issuers by number of programs
Source: 2011 First Annapolis Consulting study of 723 programs in 31 countries.
Make co-brand strategy fit into overall card strategy
In Europe, as with much of the world, there are three key, inter-related trends which are confronting the co-brand industry:
- A shift in issuer strategy resulting from the worldwide economic downturn- some issuers no longer rely as heavily on partners, as they seek to improve retail branches as their main sales channel.
- The rationalization of partner deals - issuers are focusing more attention on shifting economics from up-front compensation to profit or revenue sharing, and are placing a stronger focus on overall contractual details.
- Issuers are altering value propositions in search for stronger performance balanced by higher margins – often via a greater focus on products for affluent customers.
Issuers looking to enter or improve their co-brand positioning should begin by ensuring that co-brand offerings fit with their overall card and banking strategies. In terms of customers, this means confirming that the bank is seeking out non-relationship customers. In terms of channels, this means determining whether it, or its brand partners, will serve as the key sales channels for the cards and in either case what marketing support it desires from its partners.
Figure 3: Best Practices for Driving Growth
Ensure that co-brand ‘fits’ with overall strategy: attractiveness vs proprietary approach, infrastructure, etc.
Source: 2011 First Annapolis Consulting study of 723 programs in 31 countries.
Stand alone or addition?
In terms of products, the bank must decide whether it will use co-brands as a stand-alone customer loyalty vehicle or whether its existing customer loyalty programs(s) will compete with the co-brands. Finally, the bank must decide how to utilize (or develop) its internal operations capabilities to properly sell and then manage the co-brand accounts (e.g., a sales and relationship management staff, partner-branded customer service, reporting to the partner, etc.).
Banks also must employ a consistent co-brand strategy. Some issuers have chosen to focus only on offering programs tied with the largest potential partners in a market. Others instead focus on a narrow sector, such as T&E, while there are successful issuers who have been opportunistic and formed deals with a variety of brand partners.
No matter the strategy, however, our experience across many varied markets is clear – if they choose to offer them, issuers must be focused on enable their co-brand programs to succeed.
This means issuers must cultivate broad organizational support within their organizations for selling the cards, must build (through equitable contracts) and maintain (through effective ongoing communication) good relationships with their partners to ensure sales support from the brand, and must focus on constantly maintaining a strong customer value proposition. Without the commitment of both the issuer and its brand partner at senior levels of the organization, co-brand will not reach the potential that this unique channel is capable of providing to each entity.
Figure 4: Co-Brand Landscape in Europe
European countries with the most co-brand programs
Source: 2011 First Annapolis Consulting study of 723 programs in 31 countries.
As seen in Cards International, September 15, 2011.
For more information, please contact stephen.mendelsohn@firstannapolis.com or erik.howell@firstannapolis.com
