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3 Methods To Measure The Value Of A Branded Credit Card

By Ed Higdon. Posted in Insight

October 15, 2014

Does issuing a branded credit card mean more profits for the brand? In order to make that assessment, the retailer first has to know how to collect data and measure the incremental value of each customer. Here are three ways to measure the success of a branded credit card from a sales-based customer analysis.

A Typical Customer’s Gradual Spending Decline

Typically, customers spend less with retailers over the long term, especially those who originally have higher spending levels. To illustrate, a customer who shops at a retailer and spends $1,000 in that first year is statistically likely to spend less the following year, perhaps $800. The decline in spending continues over time.

The customers offered branded credit cards are those higher value individuals whose spending with the retailer is expected to trend this way. The question is: will acquiring a store credit card prevent that expected spending drop? Does a branded credit card alter a customer’s spending habits to the retailer’s advantage?

Method 1: Measure Customers Against Themselves: Pre- And Post- Card

The first way to measure the value of a branded credit card is to examine the differences in customer transactions prior to and post receiving the card. Ideally, the retailer will use customer data from their transaction history from 12 months before and 12-24 months after receipt of the card. How much more or less does the customer spend in possession of the card than they did in the year before receiving it?

Major retailers will have an easier time with this measurement; they often have massive amounts of customer data (up to 85 percent of transactions can be tied to an individual customer) even for customers who pay by cash, check or non-branded credit cards. Smaller retailers, on the other hand, may only know 25-50 percent of their customers. The less customer data a retailer has prior to the receipt of the card, the more difficult this comparison is to make.

Method 2: Credit Customers vs. Non-Credit

The second way to measure customer behavior is to pit them “against” one another. When a customer (Suzie) signs up for a credit card, find another customer (Mary) who matches Suzie’s spending habits prior to signing up for a credit card, and compare their behavior. Do Suzie’s spending habits change in relation to Mary’s after she signs up for a credit card? Observing both customers for 12-24 months after Suzie signed up for her credit card will help gain a clear picture.

By comparing shoppers with similar habits but different spending methods, a retailer can get a firmer idea of its total customer range, and whether branded credit card users truly out-perform others. Do the credit card users outperform similar individuals who do not have the card? This methodology is often more useful than Method 1, but more difficult to conduct.

Method 3: Measure Customers’ Lifetime Values

This method first requires a retailer to quantify the average customer’s behavior: how long does she shop with them, and what does she spend per year over that total amount of time?

Using the standard Lifetime Value methodologies to calculate spending for both credit and non-credit customers, a retailer also needs four or five years’ worth of customer data to track the differences in incremental value between the two groups.

Lifetime value is an important factor when it comes to gauging whether a new credit card customer is worth the cost of acquisition—after all the fees and taxes, even if the credit card isn’t worth the cost, the knowledge is priceless.

These three methodologies can help retailers measure the value and benefits of their branded credit card programs. Being able to determine credit card customers’ value in comparison with non-credit shoppers can help a retailer evaluate and improve their credit card initiative.