We live in a society devoted to credit cards. As such, a plethora of opportunities exists for using the behavioral bias towards this type of tender for purposes of pursuing sales growth and/or gathering useful data.
Electronics retailer Circuit City (NYSE:CC) has decided to enter the crowded co-branded consumer credit card business. Its partner is none other than major financial institution JPMorganChase (NYSE:JPM). The release gives the details of the Visa card, which basically helps Circuit City shoppers accumulate rewards for multiple purchases at the retailer.
Consumers love these plastic reward programs, and businesses love the chance to either build or increase the level of loyalty their customer base holds for them. The one issue I see with these initiatives is the question of whether or not they've become overexposed. Even if they have, it's a catch-22: Ubiquity may devalue the power of a certain marketing scheme, but it nevertheless obligates a company to follow the crowd and make an offering of its own. These kinds of cards are everywhere, whether they are plastic credit devices or just simply plastic that automatically gives you the savings found in the week's sales flyer once it is swiped at the point of sale (think of those cards we all have from our local supermarket sellers). So even though having one of these programs doesn't necessarily make a retailer unique anymore, a company does not want to differentiate itself in a negative fashion by not having one.
Customers who earn rewards come back and spend again (hopefully increasing their spending the next time around). For Circuit City, the co-branded card is intended to increase same-store sales and give the company a better idea of buying patterns inherent in the traffic it captures. Such knowledge can aid in the management of inventory portfolios and the planning of selling schemes. Major retailers from Sears (NYSE:S) to Wal-Mart (NYSE:WMT) and from Best Buy (NYSE:BBY) to Target (NYSE:TGT) are all clamoring for bigger slices of the consumer electronics pie.
Of course, it's not like the old days, when retailers wanted to promote the use of their own exclusive store card. In these times, people want the flexibility of a Visa or a Discover so they can shop wherever they see fit. But with that Circuit City or Sears logo staring at a person every time he or she uses it, it's likely that the person will return to the box whose brand is on the little rectangle.
Circuit City wants to sell more DVDs and PCs and televisions than Motley Fool Stock Advisor recommendation Best Buy. The credit-card strategy should help, but as indicated by the company's latest earnings report, there's a lot left to be accomplished. Best Buy is the more "it" electronics retailer right now, especially with the younger set it seems; a more comprehensive and exciting advertising campaign would be something the company should consider.
More on credit cards:
- What Will You Do With Your Credit?
- Rates Pinch Credit Card Issuers
- Managing Credit Cards Intelligently
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Fool contributor Steven Mallas owns none of the companies mentioned.
