Commonwealth Bank is the largest of Australia’s big four financial service providers. At present, the Bank offers a range of award credit cards to, both, retail and corporate sectors. Profitable growth in retail and corporate card segments is a key part of the bank’s strategic direction. The main differential between cards is centred around fee structures, with little difference between them that is obvious to most consumers. The award scheme points can be redeemed for air miles, gifts and vouchers. Under this initiative, the Bank plans to set itself apart from the rest by launching a new credit card, which will allow clients to assign their award points toward a not for profit organisation.
This initiative also creates a whole new paradigm within which cards are compared by prospective consumers, and puts the Bank at the very fore front of the credit card market. This card is unique, and is not currently available from other financial service providers in Australia. Research indicates there is a high demand for a socially responsible and ethical approach to banking. As such, the new card appeals to the growing philanthropic market in the retail sector. For the corporate sector, it reflects positively on their contribution in the community. CBA will utilise its current market penetration, strong brand image, management experience and distribution channels to ensure the card compliments their existing product suite. Profitable growth, retention of clients and an increased share penetration index have been forecasted as a direct result of bringing the new card to market.
CBA has strong brand recognition. It is voted number 59 in the 2010 Forbes “world leading companies” Top 500 Brands survey (Forbes Magazine, 2010). The bank views its brand as its most valuable asset. Despite CBA having a strong brand image, banks in Australia remain unpopular. Consumers perceive the big four of price gouging; particularly so, as the banks delay or fail to pass cuts in the interest rate. Credit card retention and acquisition, in both corporate and retail sectors, is a key part of the bank’s profitable growth strategy. CBA plans to expand the credit card awards portfolio with a new product. The new card enables retail and corporate clients to automatically transfer award points to cash donations for non -government organizations (NGOs) and charities.
This card is to be branded CBA’s “Community Card”. This positions CBA as a market leader and the first financial institution to introduce such a product into the credit card segment. CBA stands to gain significant competitive advantage. The new credit card stands to assist CBA’s corporate clients with their social responsibility obligations. A Harvard Business Review 2006 article notes “government, activists and the media have become adept at holding companies to account for their activities. Myriad organizations rank companies on their corporate social responsibility (CSR) and, despite sometimes questionable methodologies, these rankings attract considerable publicity.
As a result, CSR had emerged as an inescapable priority for business leaders in every country” (Kramer, 2006) For the personal card holder, it is a vehicle to give back to the community. A survey conducted by Givewell noted that philanthropy is on the rise and estimated that, in 2009 Australians contributed over $1.8 billion total donations (Givewell, 2010). The Australian Taxation office notes that philanthropy is at its highest ever recorded. In the 2010 tax year, there were 4,649,646 recoded deductions for gifts and donations in individual tax returns. In 2009 there were 4,400,786 recorded dedications, a growth of 2.064 per cent in a 12 month period (Australian Taxation Office, 2012)
1.2 Background data on credit card market
In the wake of the global financial crisis, many overseas banks have increased their credit scorecards and are reluctant to take on additional unsecured debt. The Australian credit card market is in good shape when compared with these overseas markets. This is due to prudent lending practices and the government’s credit card regulation reforms. Craig James, Chief Economist for CommSec, notes that we have a responsible population when it comes to credit card debt behaviour. “Aussie consumers pat yourselves on the back – you’ve mastered the plastic fantastic. People are using their credit and debit cards as much as they ever did, but smartly. Aussies are using their credit cards, but paying off the debt by the due date” (James, 2012)
Strength in market makes the credit card sector a popular strategic choice for growth in the finance sector. Banks are able to charge annual fees and interest rates that generate a high level of profit. CBA’s main cards competitors are ANZ, Westpac and National Australia bank in the retail market and Amex, ANZ and Westpac in the corporate card sector.
(Reserve Bank Australia, 2012)
Strong competition for business has led to a spike in enhanced loyalty programmes and rewards for new and existing customers. Presently, there are no corporate or personal awards credit cards in the market that allow customers to cash their points as donations, with two main types of award programmes available. The first is the ability to accrue and redeem frequent flyer points for travel. The other allows clients to earn points to redeem gifts such as home appliances, supermarket and, department store gift cards and petrol vouchers. Predominantly, corporate clients opt out of enrolment in awards schemes, due to fringe benefit tax implications for employees. The issue of who owns the points, employer or employee, is one that is yet to be solved. Both external and internal market research has seen a decline in retail clients selecting cards with awards. The majority of customer feedback collected at point of credit card application has confirmed that there is a lack of perceived value in these programmes.
CBA personal credit cards are currently sold through the branch network, online and over the phone. A customer is able to apply for, or upgrade a card, 24 hours a day. CBA utilises the same distribution channels for its corporate clients, with the addition of a dedicated relationship manager.
2.0 SWOT analysis
The following SWOT analysis helps to understand key strengths and weaknesses of the new credit card. It also describes opportunities and threats of the product, in both, the retail and corporate segments. Strengths Weaknesses * Reputation * Industry experience * Existing market share * First mover advantages * Distribution channels| * Costs of bringing new product to market * First mover risks and disadvantages * Little known about not for profit / community groups (not core business)| * Increased market share * Product embraced by customers / Improved customer satisfaction * Improved brand equity and brand loyalty * Increased profits and shareholder value * Enter new market segments * Convert switchers to CBA| * Changing customer tastes and demographics * Government policies * Product easily replicated by competitors * Threat of substitutes through non-bank lenders (store cards)|
From the SWOT analysis, the most important issues to consider are: how CBA will adapt the product and remain competitive against substitutes, and other banks copying the product. CBA must monitor the market closely to avoid a price war between competitors. The key opportunities will be capturing new clients in a new market and the competitive learning gleaned from being the first to launch the product.
3.0 Financial objectives
Using the 2012 Annual Report as a baseline, CBA has set targets for sales volume, market share and profit for the 2012/2013 financial year. (Commonwealth Bank Australia, 2012) There is strategic congruence of sales targets, marketing strategy and the overarching organizational strategic direction of profitable growth.
3.1 Sales volume
* Achieve a minimum 4% growth in new card sales, initiated by branch staff in the retail market before 2012 / 2013 end of financial year. * Achieve a minimum of 3% growth in new card sales from remaining retail distribution channels (phone and online) before 2012 / 2013 end of financial year. * Increase corporate card sales by 5% in 2012 / 2013 financial year. * Migrate 20% of existing non awards corporate customers to the new product by December 2014. * Increase transaction volume of credit card book by 15% this financial year.
3.2 Market Share
* Increase retail market share from 32% to 37% in the 2012 / 2013 financial year. * Increase corporate market share from 12% to 17% in the 2012 / 2013 financial year. * Decrease customer attrition rate by 15% across both sectors by the end of the 2012/2013 financial year.
* Additional $364 million in lending fees collected in late payment and annual fees across from the retail sector. * Additional $453 million in lending fees collected from corporate clients in late payment fees, annual fees and customer maintenance fees. * Increase credit card interest earnings assets from 12.71% yield to 20.00% yield, both sectors combined.
3.4 Break Even Analysis
The break even analysis indicates that 500 new cards must be sold across each segment every month to break even. As staffs become more experienced in selling the product and the consumer more familiar, the costs should decrease in line with the experience (Kotler, 2008) curve. Less money will be spent on training employees and advertising. Fewer products will need to be sold in order to break even.
4.0 Marketing segmentation and positioning
Both the corporate and retail markets have been divided into segments. Niche marketing was considered due to the specificity of the Community Card however, CBA is prepared to take an educated risk by marketing to a wider group as, internal research indicates, it has a large credit card customer base with homogeneous preferences. “Aggregate enough minority tastes and you will often find a new market” (Anderson, 2006) 4.1 Corporate market
* Heavy users and non- users of CBA’s current corporate card offering. * Organizations with a minimum of 50 employees and an annual turnover of a $500k minimum. * Primarily but not limited to white collar industries such as: advertising, human resource management, department stores, large scale hospitality clients (hotels) and travel agents * Organizations with highly centralised purchase decisions. * Companies seeking an edge on their competitors through improvement and / or diversification into social responsibility. * Not for profit organizations
4.2 Retail market segments
* 35 – 49 and 50 – 64 year olds with a 54% clustering around the 50 – 64 age bracket.
* Annual income in excess of $75k per annum.
* Professionals, managers, executives and business people who are accomplished in their fields
* People with a tertiary qualification.
* Upper middle and upper class.
* Native Australians (individually focused as opposed to collectively focused).
* Culture orientated and socially aware.
4.3 Target markets
People and businesses who want the freedom and flexibility a credit card provides, and have an emotional connection to making the world a better place, or a desire to improve their sustainability image.
* Corporate social responsibility
* Flexible payment options
* Sustainable image
* Social responsibility
* Sustainability / give back
CBA will position itself as Australia’s socially responsible financial services provider with a passion for community. A bank that understands the bigger picture. By being first to market with the new product, CBA signals that it is different from the other banks. It is a bank that is dedicated to offering both retail and business customers an alternative, an avenue to give back to their elected cause, NGO or community group. This position will be enhanced through training its 38,000 employees to act as ambassadors on the features and benefits of the Community Card.
5.0 Marketing strategy and the marketing mix
5.1 Marketing Strategy
The first step in the marketing strategy is to make new and existing customers aware of the new product and how it will benefit the community. CBA’s message is that it is the ethical financial services provider, selling Australian’s the chance to give back to the community. The Bank plans to lead by example, offering the new product to its employees at a discounted rate. This will also allow for market testing and feedback. The Bank will communicate this message to its retail clients through local area marketing, television, radio and advertisements in selected newspapers that appeal to the target customer. The message for the corporate client is the same however; relationship managers will target potential clients through business development activities.
The product is to be sub-branded and operate on the MasterCard network. MasterCard is selected as it is accepted in 30 million locations worldwide, appealing to the target market’s desire for flexibility. With the acceptation of the awards programme, the new card has similar features and benefits to the existing suite of awards cards. According to the Innovation Bell Curve (Rogers, 1962), the familiarity of known features and benefits will assist in early adoption. The product will be popular with innovators.
It is the first of its kind.
The pricing objective for the retail segment is maximum profits. The corporate pricing objective is maximum market share, as previously mentioned CBA only holds 12 percent of the market. Mark up pricing will be used in both the retail and corporate markets. The new product is exclusive as it is the first of its kind, distinctive and there are no readily available substitutes. These factors make both markets less price sensitive. The Bank has selected a high value strategy for the retail market. The annual fee for the card will be $65.00.
This fee represents the midpoint in the total cards market. The debit interest rate on the card will be set at 21.59 percent per annum, slightly higher than the total cards market average. Retail customers will view this price as good for them and good for the community. CBA will also use a high value strategy for its corporate clients. The fee structure will differ slightly from retail as it includes a $130.00 annual fee and a $15.00 additional card fee per employee. The debit rate of interest remains the same as the retail card. This will prevent corporate clients from using their personal credit cards to save money on purchases.
CBA’s current distribution channels have significant competitive advantage in the banking marketplace. The bank has more branches; ATM’s and calls centers than any other bank. The website www.commbank.com was recently voted the most visited website in Australia in a report published by Neilson Consulting (AC Neilson, 2012). Given the age demographics of the target market, CBA will leverage off its staff in branches and relationship managers by using a direct to customer distribution model.
This provides the opportunity for potential and existing customers to ask questions and clarify any areas of interest. CBA feels this is important to the target market. The Bank’s website is to be updated with a quick fact sheet on the new card, an award points calculator, information detailing the work of the eligible NGO’s and charities, and frequently asked questions. Call center staff are to receive specific training. Upon approval, clients are expected to receive their card within five working days.
CBA will reach both target audiences through online advertising on the CommBank website, radio advertisements, and television and newspaper advertisements. Some mass marketing will be used to target corporate customers through direct mail outs. The end of financial year is an important time for promotion in both market segments. In retail, 30 June is when people do their tax returns and claim back deductions for gifts and donations. For corporate clients, the new financial year represents a clean slate and the opportunity to pursue different ideas for the business. When promoting the new Community Credit Card, the Bank will position itself as being unique, ethical, flexible and fair.
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Australian Taxation Office. (2012). 2012 Taxation Statistics. Australian Taxation Office. Forbes Magazine. (2010). World Leading Compaines. Austrade.
Givewell. (2010). Givewell Statistics. Retrieved october 06, 2012, from Givewell: http://www.givewell.com.au/statistics.asp James, C. (2012). CommSec Economic Insights. Commsec.
Kotler, P. (2008). Marketing Management An Asian Perspective. Jurong: Prentice Hall. Kramer, M. P. (2006). Strategy and Society. Harvard Business Review. Reserve Bank Australia. (2012). Bulletin. Reserve Bank.
Rogers, E. (1962). Diffusion of Innovations. United Kingdom : Simon & Schuster International .