Positioning of Multi-Product Programs in Retail

Navigator Edition: November 2014
By: Ryan Douglas and Doug Berkowitz

For decades, consumer credit has been offered by many national retailers in the form of sales financing, private label credit cards (PLCC) and co-brand credit cards. Over the past fifteen years, we have observed a trend in select retail sectors, initiated by department stores and discounters, of retailers progressing from a single credit product to a multi-product offering. Some retailers, including TJX and Toys “R” Us, have added a PLCC product to their existing co-brand offer, while others have added a co-brand card to their existing PLCC product (e.g., Gap, Best Buy, Macy’s). This multi-product trend is less prevalent in some sectors such as specialty apparel (PLCC) and furniture (sales finance).

As portrayed in Figure 1, several national retailers have transitioned to a multi-product offering after initially launching a single product. A notable slowdown in retailer adoption of multi-product offerings occurred during the recent financial crisis when issuers were reluctant to launch new programs, and in some cases, rationalized product offerings especially in sectors such as petroleum (gas cards). In most cases, issuers and retailers elected to shutter or de-emphasize co-brand products in favor of PLCC. Reasons for retrenchment ranged from excessive competition from bank-branded value propositions (petroleum), to the inability to generate sufficient purchase volume outside the retailer in order to support the incremental cost of operating a co-branded credit card, to insufficient approval rates on the co-branded product. As an aside, of the programs displayed in Figure 1, seven have reverted back to offering a single product (marked with “*”).

Figure 1: Credit Program Transitions to a Multi-Product Offering

Fig-1_-Credit-Program-Transitions-to-a-Multi-Product-OfferingSource: Retailer websites and take-one applications, retailer store visits, First Annapolis Consulting observations.

For retailers that offer both co-brand and PLCC products, how the product offering is positioned to customers is a critical component of program success. Proper product positioning contemplates the customer and store associate experiences and maintains a strong focus on the stated objectives of the program (e.g., promote loyalty, drive incremental sales, increase profitability, etc.). There is a range of ways in which retailers position the multi-product offering in the market today. A number of retailers allow their customers to choose the product that they would like to apply for (e.g., Sears, Amazon, American Eagle), while others appear to steer a certain product to applicants (e.g., Best Buy, Walmart, TJX). Saks Fifth Avenue has a unique co-brand upgrade model, where applicants receive a PLCC card, and then have to apply for an upgrade to receive the co-brand card. Figure 2 further describes the various strategies and offers additional examples of associated programs.

Figure 2: Positioning the Multi-product Credit Offer

Fig-2_-Positioning-the-Multi-product-Credit-OfferSource: Retailer websites and take-one applications, retailer store visits, First Annapolis Consulting observations.

Although motives for expanding to a multi-product offering can vary, we have observed some common themes associated with the introduction of each product. Through the introduction of co-branded products, some retailers aim to attract a segment that prefers a general purpose card to PLCC, while others hope to create a larger revenue pool for the program. Some view it as a loyalty play, adding an external value proposition so customers can earn rewards for everyday purchases and have increased incentive to return for incremental purchases at the sponsoring retailer (to redeem their rewards). Successful retail co-brands tend to have a combination of sufficient sponsor retailer-based spend and brand affinity to drive significant outside purchase volume.

PLCC is commonly used to deepen underwriting, and thereby increase new account volumes and program reach. Many retailers have also found that highly creditworthy customers prefer PLCC to co-brand as a means of accessing an attractive card program value proposition without taking on superfluous credit. Additionally, many retailers prefer PLCC for its sole focus on increasing retail sales / credit penetration. Of course, since its inception, PLCC has been used as a financing program; allowing retailers to offer promotional financing or a dedicated line of credit to increase sales of big-ticket items.

For more information, please contact Ryan Douglas, Senior Consultant,; or Doug Berkowitz, Senior Analyst, Both specialize in Credit Card Issuing.

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