Barclaycard runs rings round rivals

On April 8, viewers of the latest TV advertisement for Barclaycard will see secret agent Bough and his bungling boss Latham lost in a far away location, stranded on someone’s roof.

Luckily for Bough and the witless Latham, Barclaycard signed a deal last year with mobile phone operator Cellnet to develop a digital mobile phone to give them – and potentially 9 million other Barclaycard customers who may have strayed off the beaten track – the ability to find out exactly where they are, as well as providing access to emergency services.

The 5m jointly funded advertising campaign, by the country’s biggest card issuer and the second biggest mobile phone operator, will promote a product that looks likely to leave the competition standing.

The handsets are offered at a reduced price of 50 to Barclaycard customers – with free connection, a monthly line rental of 15 and a 20 per cent discount on calls. The phone features a Barclaycard button which can call up services such as International Rescue, Road Assist, customer services and bill payments.

The benefits for both brands are clear. Cellnet’s general manager Steve Rowley points out that having access to Barclaycard’s 9 million customers will obviously build market share in a highly competitive sector. It also bypasses retailers and helps reduce one of the greatest problems of mobile phone marketing: churn – when customers sign up for an initial period and then fail to renew their contracts.

Rowley says 25 per cent of Cellnet’s customers quit soon after the initial subscription. “Out of our 2.4 million customers, 600,000 leave each year, though these are replaced by 1.5 million a year,” he says. “The fact that many of these customers come in at a discounted rate means it does affect the bottom line.”

Barclaycard’s commercial director, Shaun Powell, claims the churn rate of his 9 million customers is just 1.5 per cent.

The joint deal also encourages greater use of the phone because customers gain Barclaycard Profile points for calls. In return, the credit card giant takes a cut on each call.

But it has provided some problems for Cellnet. Retailers cannot be happy that the mobile phone operator is bypassing them with a deal that offers more favourable terms, and the mobile phone trade association has tried to take Cellnet to the telecoms watchdog Oftel, claiming the deal contravenes the terms of its licence. The association backed down in the end.

Barclaycard benefits from offering its customers added value, encouraging them to use Barclaycard’s services more – customers gain Profile points for paying utility bills on the phone – and offering rival credit card customers an incentive to switch.

Barclaycard is using new product development as an added-value strategy, while its main competitors attempt to fight on cheaper price.

Rewarding customers for using the service with Profile points, for instance, means they are locked into the brand through distribution. Both brands have dominant market positions and access to the resources of larger parent groups, Barclays and BT.

Powell says the Cellnet deal will become central to his marketing efforts.

“This isn’t simply an added-value offer, this is full-blown alliance marketing,” says Powell. Cellnet is Barclaycard’s long-term partner, he says, and the company intends to develop additional facilities with the phone operator.

Though this form of alliance is common in the more saturated US markets, alliance marketing in the UK has largely been confined to mutual endorsements by washing machine and detergent brands.

Powell is evangelical about the need for big brands to form strategic alliances for building market share. “This is where marketing is going,” he says.

If this is true, Barclaycard’s competitors have been surprisingly slow to get involved. Whereas Powell made clear his intention to get involved in the market as long ago as 1994 – when Barclaycard signed a less ambitious deal with Mercury One-2-One to offer more limited services – other card issuers have done virtually nothing. The deal with Mercury One-2-One is still available, though Barclaycard is not supporting the link-up with advertising.

Powell says Barclaycard benefits from being a standalone brand from parent Barclays. Rival banks such as Lloyds treat their credit cards as an add-on service, rather than as central to their marketing efforts, he says. This gives him greater freedom to innovate.

Other banks have certainly toyed with phone link-ups. Although Midland Bank says that it is not involved in any negotiations with mobile phone operators, TSB announced a deal with Vodafone a day after the Barclaycard-Cellnet deal was struck, though this appears to have foundered. It had intended to develop a similar phone to Barclaycard’s using TSB Trustcard (MW October 20 1995), but the plans have been shelved because of the bank’s pre-occupation with its merger with Lloyds.

Barclaycard has also benefited from the discomfort of its main rival, Access, which has seen its marketing and new product development efforts paralysed while unfriendly sale negotiations between its bank owners and Mastercard have continued.

Only NatWest is known to be actively engaged in negotiations to set up a similar deal with a mobile phone company – understood to be Orange – but it would probably be a year late to market.

One obvious service that would benefit from a mobile phone deal would be First Direct, but a spokesman for the bank says it is not involved in talks.

Seemingly, most banks fail to recognise that the technology is already available.

The bulk of new product development by banks has centred on upgrading ATMs (cashpoints) or testing hi-tech PC and television banking, as well as electronic purses.

The hi-tech, low-interest Mondex trial in Swindon, involving the use of stored value cash cards and 300 special stationery BT telephones that refill cards with cash, can easily be performed with digital mobile phone handsets.

Powell confirms that Barclaycard is also considering the possibility of developing a smart card which could load an electronic wallet with cash through the phone, as well as transferring payment from bank accounts and transmitting account details directly to the handset screen.

Rowley says the phone could also be plugged into a computer. Cellnet is looking at the possibility of customers calling up the latest information on how their shares are performing.

The problem for other banks and mobile phone companies is that once customers are locked in, deals can be made to bring in other service providers, such as motoring organisations – Cellnet already has a deal with the RAC – travel and tour operators, high street retailers and even supermarkets.

The problem for Barclaycard’s rivals is that they are so obsessed with cheaper competitors gnawing at their ankles that by the time they decide to commit to the new technology, the game may already be in another field.

Ironically they may be condemned to fight it out on price because their brands do not provide enough added-value.