How Has Reform Legislation
Affected Credit Card Advertising?
Research and Analysis:
Senior Vice President of Research,
Kantar Media’s Intelligence Sector
The credit card industry has been rocked by the recession and the collateral damage to debt-strapped consumers. Revenue has declined as customers cut back on credit card purchases and reduced their outstanding balances. Write offs on delinquent accounts have soared to record levels. By some estimates, card lenders have absorbed as much as $150 billion in losses.
Even as the economy shows signs of strengthening and troubled financial companies return to profitability, the outlook for credit cards remains challenging due to reform legislation approved by
Congress last year. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) makes it more difficult for the banks that issue consumer credit and debit cards to charge penalty fees (for example, overdraft charges) or raise interest rates, two major revenue streams.
The new rules are expected to severely crimp industry revenues. JPMorgan Chase, for example, recently told shareholders the bank is projecting a $500-750 million hit to its credit card income.
As card issuers comply with the CARD Act and seek new ways to replace lost revenue, changes to card products and programs are certain to follow. Given industry competitiveness and its reliance on
marketing, we were curious to exploreif andhow this transition is being manifested in media advertising campaigns. In particular, what’s happening to ad budgets and to the content of ad messages for
consumer credit cards?
From the Kantar Media ad monitoring database, we examined historical media ad spending trends within the credit card category stretching back 5+ years and covering TV, internet, magazine, newspaper, radio and outdoor (direct mail solicitations are not included in our analysis).
Then, we zoomed in on a handful of the largest category advertisers and isolated their specific spending on consumer cards. Corporate promotion and sponsorship advertising were filtered out at this step.
Since TV gets the overwhelming share of the media budgets at these card companies, we analyzed the content of all their TV commercials from September 2009 through March 2010 and noted main themes and message points. This time period spans both sides of February 22, 2010 - the date when the new federal regulations for consumer credit cards took effect.
After peaking in 2005 at $2.17 billion, category ad spending declined by more than 35 percent during the next four years and finished 2009 at $1.40 billion.
At the bottom of the financial crisis, credit card advertising was pacing even lower, at an annualized rate of just $1.25 billion.
While total category spending has started to rebound and posted two consecutive quarters of solid growth, the gains are mostly attributable to just two advertisers. Several major marketers have yet to restore their media budgets.
Most of the major card issuers continue to focus on rewards programs as the key selling point in their TV commercials.
The impact of reform legislation on new card programs and product innovations is most apparent in some recent TV advertising from JPMorgan Chase. While the new rules are also prompting other banks to make product changes, this news is generally not being conveyed through their TV advertising. Presumably, direct marketing (which is not part of this analysis) is fulfilling that task. The following sections discuss these findings in greater depth.
Ad Spending Trends
Category ad spending in measured media peaked in 2005 at $2.17 billion. Entering 2008, expenditures had fallen back nearly 20 percent to about $1.80 billion. As the credit crisis took hold in late 2008, card advertising swiftly plunged and finished 2009 at $1.40 billion, the lowest level of annual spending since 2002.
After four consecutive quarters (Q4 2008 through Q3 2009) where the annual rate of category spending sunk to $1.25 billion, expenditures have recently rebounded. Q4 2009 was up 38 percent and Q1 2010 rose 45.6 percent as compared to the depressed levels of a year ago. Even with these gains, category spending has only been restored to the levels of 2003.
Category figures do not reveal the complete story. Among the seven leading marketers who account for over 85 percent of credit card ad expenditures, spending patterns have been extremely varied.
The 2009 meltdown in category advertising was primarily attributable to budget slashing by Capital One and Citigroup. Combined, these two companies lowered their card spending by a total of $290 million as part of larger cost-containment initiatives within their organizations. Reductions at Visa and MasterCard took out another $98 million of spending but these were offset by a total gain of $78 million from American Express, JPMorgan Chase and Bank of America.
TOTAL CARD AD SPENDING: 2008-2009 ($ millions)
ADVERTISER 2008 2009 %
American Express 324.6 350.1 7.9%
JPMorgan Chase & Co 163.2 183.2 12.2%
Bank of America 39.0 71.2 +82.4%
Visa USA 318.5 281.1 -11.7%
MasterCard Intl 259.5 198.9 -23.3%
Capital One Financial 207.5 108.8 -47.6%
Citigroup Inc 216.8 24.7 -88.6%
Source: Kantar Media
Over the past two quarters, ad expenditures at these companies have diverged even more dramatically. For the six months ending March 2010, Amex and Chase more than tripled their ad budgets versus the year-ago period and accounted for nearly 40 percent of total category spend. New credit card product launches contributed to the hikes.
Citigroup and Capital One continued to reduce media spending even further from their already low levels of a year ago, although we observed a pickup by Capital One at the end of Q1 which has continued deep into Q2.
TOTAL CARD AD SPENDING ($ millions)
ADVERTISER Q1 ’09 Q4 ’08 - Q4 ’09 - Q1 ’10 %
American Express 109.9 335.1 +204.9%
JPMorgan Chase & Co 48.9 164.2 +235.7%
Visa USA 116.0 130.5 +12.5%
Bank of America 27.3 36.6 +34.0%
MasterCard Intl 115.5 73.2 -36.6%
Capital One Financial 92.7 43.0 -53.6%
Citigroup Inc 65.3 12.0 -81.6%
Source: Kantar Media
Ad Messaging: Rewards Programs
Consumers have come to expect rewards for using their credit cards and issuers use reward programs as a marketing tool and point of competitive differentiation. Historically, a large volume of the ads from card
issuing banks has focused on rewards whereas the card networks (e.g., MasterCard, Visa) have mostly engaged in image building. Our audit of TV ad messages airing from September 2009-March 2010 showed these traditional themes remained dominant, even as the underlying business structure for credit cards was being reshaped by the CARD Act.
% Share of TV Ad Occurrences By Main Message Theme: September 2009-March 2010
ADVERTISER Building Image Rewards Other Card
Visa USA 96% 4%
MasterCard Intl 83% 17%
American Express 4% 80% 16%
JPMorgan Chase & Co 78% 22%
Bank of America 99% 1%
Capital One Financial 46% 54%
Source: Kantar Media
The emphasis on image advertising by Visa and MasterCard is understandable. These companies earn a fee every time their card is used as payment so their marketing objective is to drive merchant acceptance and consumer usage.
The continued message focus on rewards programs by card issuers implies business as usual. However, credit card reform will curtail some very large and profitable revenue streams which have been used to subsidize the rewards programs that consumers have become accustomed to. As card issuers scramble to find new revenue and realign internal costs, reward programs are likely to become less generous by reducing perks and/or imposing extra fees on members. Not surprisingly, it is unlikely that consumers will glean a hint of these downgrades from current ad messages.
Our review of TV spots confirmed that rewards programs are still the predominant pitch point from the leading card issuers, reaffirming the primary marketing battleground even as programs become more restrictive. The ads predictably outline program parameters and the potential rewards customers can earn – travel, merchandise, cash rebates, etc. They accentuate the positive and skip over limitations. Any required disclosure of specific terms and conditions for the rewards programs is left to other
communication channels, such as direct mail or Web sites.
Ad Messaging: New Product Introductions
On another front, our examination of credit card advertising found some evidence that the CARD Act is spurring new card programs and product innovations that marketers are aggressively promoting via media advertising.
Two prime examples come from JPMorgan Chase. In September 2009 it launched Sapphire, a new personal credit card targeted at affluent consumers, a market segment that is more attractive to issuers under the new protective legislation. Through March 2010, measured ad spending was $55 million and the core ad message has been centered on rewards.
During the same time period, Chase introduced an adjunct product named Blueprint. This is an online tool that helps Chase cardholders manage their spending and borrowing. A core feature is the development of an individualized plan for paying down balances over time (a behavior that generates interest income for the bank). From launch through March 2010, Chase has spent $59 million in measured media to promote Blueprint.
Blueprint’s proposition is consumer control and greater transparency regarding interest payments to help customers reduce the total amount of interest they pay on revolving balances. Yet the CARD Act already mandates that monthly billing statements provide more disclosure on finance charges and show the savings from paying off the balance more quickly. While Blueprint goes a bit further, Chase has essentially taken a legal requirement and cleverly turned it into a marketing sales point.
At the other end of the spectrum, advertising for some other recent credit card introductions stick to familiar themes and selling points that evoke the pre-CARD Act era. For example, in Q4 2009, American Express rolled out a new “Premier Rewards” program for its Gold Card touting bonus points on select types of purchases. In late March of this year, Capital One broke a major campaign to launch the Venture card and a rewards program that offers double travel miles on each purchase.
As the credit card industry attempts to recover from the recession, it is also grappling with how to adapt its product portfolio and marketing approaches to meet the requirements of pro-consumer Federal legislation that took effect in February.
American Express and JPMorgan Chase, the two largest issuers of credit cards, have boosted their ad budgets significantly in recent months as they try to take market share from weakened rivals. Other major advertisers have been slower to ramp up again and the net effect is that total category ad spending, despite a year-over-year increase of 41 percent in the past two quarters, remains more than 20 percent below its 2006 peak.
TV still accounts for the majority of credit card ad spending and a majority of TV ad messages continue to feature rewards programs as a primary product benefit, even as the CARD Act legislation is forcing card issuers to scale back their rewards programs in order to align total costs with diminished revenue. However, there are some early examples of credit card product innovation that seem to have been influenced by the CARD Act and that marketers are aggressively promoting via media advertising. About Kantar Media
Established in more than in 50 countries, Kantar Media enables exploration of multimedia momentum through analysis of print, radio, TV, internet, social media, and outdoors worldwide. Kantar Media offers a full range of media insights and audience measurement services through its global business sectors – Intelligence, Audiences and TGI & Custom. Combining the deepest expertise in the industry, Kantar Media tracks more than 3 million brands and delivers insights to more than 22,000 customers around the world. (http://www.KantarMediaNA.com).