The heat is on in the Canadian credit card industry, as credit card companies, faced with increased competition and a more demanding and discerning consumer, attempt to sell, up-sell and cross-sell to increase their penetration of the market – all the while warding off U.S. advances.

‘Canada has been earmarked as one of our five top global markets,’ says Beth Horowitz, a long-tenured Amex executive – promoted this summer to regional president and GM of Amex Canada, and president and CEO of Amex Bank of Canada. ‘I think we will continue to get a very robust level of investment throughout the business – that’s a recognition that Canada is a complex, dynamic, as well as a very competitive marketplace.’

There’s a rash of new card offerings in the Canadian marketplace including Toronto-based Molson Canada’s I AM. Canadian Platinum Plus MasterCard (issued through independent issuer MBNA Canada); the CIBC ‘entourage’ American Express card with ‘smart-chip’ technology – the result of a partnership between Amex and CIBC (making CIBC the first Canadian bank to offer both Amex and Visa); and most recently, BMO’s Mosaik MasterCard, the first Canadian credit card that customers can build and customize themselves. Issuers are fine-tuning their offers to appeal to a broader range of consumers, or more to specific niche segments.

Not surprisingly, more cards mean more marketing – and the mainstay of the credit card marketing business has traditionally been direct mail. While that hasn’t changed, for one thing, its country of origin has. Canadian credit card issuers are increasingly feeling the pressure from marketers south of the border, as they all attempt to break through the clutter with new card offerings and incentives.

‘U.S. competitors have come out with a big blast in the marketplace because they had no prior relationships. And they have very deep pockets – the amount of money they are putting into the Canadian marketplace is astounding. It’s obviously because their playground in the U.S. has become more diminished,’ says Ernie Johannson, VP marketing and business development at CIBC.

U.S. companies like Capital One and MBNA have certainly turned it up a notch, as they attempt to amass card users the world over with hard-hitting direct mail pieces. MBNA, for example, has become the second largest MasterCard issuer in Canada through affinity marketing programs with over 400 membership organizations, universities and schools, as well as sports associations.

In fact, credit card mail volume in Canada hit an all-time high in 2001 with 208.3 million solicitations sent to Canadian households (up from 196.7 million offers the previous year). A substantial increase, in spite of terrorist threats, anthrax fears and an economic slowdown, and one that is continuing this year, according to Mail Monitor, the direct mail acquisition tracking service from BAIGlobal, now part of Synovate of Tarrytown, N.Y.

In the first quarter of 2002, Canadian households received 59.4 million pieces of credit card-related direct mail (with a penetration of about 70% of households) vs. 45.8 million mailings and a 45% household penetration in the first quarter of last year, says Andrew Davidson, VP of competitive tracking services for BAIGlobal. And U.S. solicitations, he adds, accounted for 62% of all offers to Canadian households during the first quarter this year.

‘U.S. entrants have made the credit card market increasingly competitive and the pressure is on for marketers to come up with innovative campaigns that break through the clutter. Given the high level of standard [basic] card penetration and the strong relationships that Canadians have with their banks, marketers should focus on promoting the benefits of a gold or platinum upgrade in order to encourage a response,’ he says, citing credit card household penetration rate in Canada of about 88% – 78% of which own standard cards, 24% Gold cards and 14% Platinum.

And while it may seem incredibly cluttered by Canadian standards, there’s still plenty of room for growth, say experts. Response rates in Canada, says BAIGlobal’s Davidson, are higher than in the U.S. simply because of the lower level of household clutter (average of 2.4 offers per month per household in Canada vs. 5.4 in the U.S.). In the first quarter of 2002, the response rate was 1.2% in Canada, compared to 0.5% in the U.S., he says. (Not surprisingly, unaddressed mail, which made up 22% of Q1 2002 offers, reaped a much lower response rate of 0.5%).

‘There is still a lot of opportunity to issue new cards,’ says Brenda Woods, VP consumer products, marketing at Visa Canada. ‘People often say ‘it’s a saturated market’ but just look at the cards that are going out there. Financial institutions are just beginning to fine-tune what it is that people are looking for.’

Credit card issuers are growing rewards, for example, in an effort to increase loyalty among cardholders. Amex Canada has added Roots and WestJet Airlines to its Membership Rewards loyalty program. Royal Bank also recently launched a new loyalty program called ‘Ultimix’ to give Avion, Gold and Platinum Preferred Visa cardholders instant rewards and points, including coupons and sweepstakes offers. Montreal-based Diners Club renewed its 13-year agreement with Air Canada’s Aeroplan frequent flyer program, while Sears Canada struck a deal to allow its cardholders the ability to use their cards and collect Sears Club points at Pharmasave store across Canada.

The major challenge, says CIBC’s Johannson comes down to creating a connection with today’s consumers, who have so much choice with so many new offerings and entrants.

‘What it really comes down to is being able to build customer relationships by offering product niches or value-based products,’ she says. ‘Our strategy is around [the latter]. That’s why you see us in a lot of reward and loyalty programs – to give consumers a reason to make us the first card in their wallet. The top two reasons to choose or switch a credit card is because of the benefits or rewards on the card. Second is pricing.’ In addition to its ‘entourage’ American Express card, some of CIBC’s rewards-based, co-branded offerings include the CIBC HBC Rewards Visa Card, and the CIBC Shoppers Optimum Visa card.

Last month, in an effort to cater to the increasingly educated and demanding consumer, Toronto-based BMO unveiled its Mosaik MasterCard – research, according to BMO, showed consumers were paying for never-used features like reward/loyalty programs.

‘It’s to try and provide the individual customer the opportunity to actually choose the features, rates and rewards that they want, and the flexibility to change those features as their needs change,’ says Michelle Field, VP, cardholder services, BMO Bank of Montreal. ‘Will we have every single feature that is out there on the market? Probably not. But the consumer and research helped us pick the right ones.’ Mosaik and it’s 900 potential combinations (of rewards/features/affinities/rates and card designs) is being targeted at new customers, as well as to BMO’s existing three million MasterCard holders, which are being automatically converted, she adds.

An awareness campaign created by Ove Design & Communications in Toronto, includes statement stuffers, direct mail and telemarketing, which began last month, as well as new support from newspaper and magazine, kicked off last week. ‘Direct marketing is our key medium, but we are launching a new value proposition and a new brand so it is important to establish that in the market,’ she says.

For its part, American Express Canada will target its various products to niche segments of the market – like golf nuts. Earlier this year it launched the American Express Tiger Woods Credit Card. At an annual fee of $99, it offers Tiger fans and golf enthusiasts a range of golf benefits (freebies and discounts) from ClubLink, one of Canada’s major golf course and resort operator, Golf Town superstores and publication, ScoreGolf. The card, only available in Canada, was promoted through billboards, newspaper and print ads and radio, as well as direct mail – creative handled by Ogilvy and Mather – with the tag: ‘As unique as the man who inspired it.’

‘More recently we’ve started to look at smaller more niche plays which are important to our growth strategy. The Tiger Woods card is an example of something we’d like to see more of in the future in terms of identifying specific target segments within the marketplace and coming up with relevant and unique value propositions to tap into those opportunities,’ says Amex’s Horowitz, adding that one of her priorities is undertaking a robust segmentation of the market. Amex relies on direct mail to sell its offerings (which include co-branded cards with Air Miles and Costco), as well as mass media for overall branding (it will launch its first mass campaign in six years in Canada next spring). It is also stepping up its focus on the online channel.

‘Direct mail – while it remains a mainstay to our business – doesn’t provide much dialog. And it’s also a channel that’s been flooded. In a telephone interaction, you can do much more of a needs-based sell. And on the Net, that opportunity for dialog is there,’ she says. In fact, she adds, the most important channel, in terms of acquiring new customers, for the Tiger product was the interactive channel – the campaign included a Web site and ads on partner sites, including Clublink and Golftown.

The major credit card associations, including MasterCard and Visa Canada see their role as one of providing and strengthening their respective brand names – both currently have mass media brand campaigns in the market. Visa Canada’s ‘The Whens of Life’ campaign, created by Leo Burnett, depicts times when a credit card is the best way out of a tricky situation, and this fall it will launch a campaign to support the busy holiday season, says Visa’s Woods, adding that Visa currently counts 24 million cardholders in Canada.

MasterCard is still leveraging its popular ‘Priceless’ campaign – which has achieved pop culture status, appearing in spoofs everywhere, including viral e-mail campaigns – with the fall launch of a Canadian priceless TV spot. It has also signed spokespeople Cassie Campbell, captain of Canada’s gold-medal-winning 2002 Olympic women’s hockey team, and hockey legend Bobby Orr, says MasterCard president Walt Macnee.

‘There’s a lot more segmentation going on in the marketplace. So our job is to act as a reminder of the brand to consumers, which allows issuing institutions to develop products that are differentiated,’ says Woods.

Here’s what our experts had to say about all this activity:

Robert Barnard, Founder, D-Code, Toronto

The part of the market that I focus on, young adults 18-34, isn’t particularly well served by credit card companies. There seems to be an acknowledgement by the credit card issuers of the student market, and then there’s competition for the Gold card level and beyond – where they make a lot of money – but there’s nothing for the 25-34 in-between, young professional market.

And yet, this group – 64% of which have credit cards – has a fairly substantial financial services background: according to our research, they are almost as likely to have an investment as they are a credit card. And they are going to increase their portfolio in the near future. They don’t have a mortgage, or kids, like older demos do, meaning they have a slightly higher disposable income, and they do more traveling, for example, than many older groups.

But there isn’t yet a product that fits the psychographic of this group. Credit card communications aren’t often directed at them. They [credit card issuers] should at least identify it as a target, and get to know the target. There’s a substantial number of American cards in the market and they seem to be much more aggressive with this audience.

I looked at interest at the BMO Mosaik card – with most customizable products, I find people ask for it, but it comes down to whether or not they actually do/use it. That’s where the marketing really has to kick in.

Steven Bochenek, VP, creative director, Lowe RMP, Toronto

Today, many marketers are tinkering with new strategies but ignoring basic DM tactics. Their letters are focusing on themselves, so enamoured are they of their celebrity-endorsed cards, low intro rates and points clubs.

But they forget: the letter of a DM piece is really about the reader. Don’t talk about yourself. Talk about me and how clever I’d be if I chose your card. Letter equals benefits. Brochure equals features. Letter’s about me, the reader. Brochure’s about you, the salesperson. Drayton Byrd of Ogilvy fame said, ‘Your letter sells, your brochure tells.’

Most card companies seem to suffer from this narcissistic tendency but the worst perpetrators that I’ve noticed lately are the large American companies (yes, those ones) who’ve set up shop recently in Canada. Their mailing strategy seems to be: blanket everyone with mail about themselves, using the lowest DM tricks, till they show interest.

Respectfully showing interest in the consumer, instead, could improve their pull significantly.

Peter Mosley, Instructor/consultant, Peter Mosley & Associates, Toronto

Amex’s Tiger Woods card is interesting, but there’s always a danger in picking spokespeople – God love the squeaky clean guys like Tiger, in this case. But what does that have to do with Amex? I still look at what a credit card means to me – and it means rates, available debt, and credit provisioning. Does the actual branding of a card – where you’ve got so-and-so’s name or face on it – really affect spending habits? Or people choosing one over the other? I’m not sure if it does.

I’ve always liked the idea that a card is part of a lending facility – BMO clients always had Mastercard, for example. It’s tied in to how you bank and what the relationship is like. Amex was the business expense card. They’ve got to play in to that user experience.

They have to build a relationship with me top to bottom – not just make it cool and say ‘here you go’; what can you do for me month to month?; can I flip credit to pay whatever off?; is there effective online self-servicing? (it’s still very draconian the way you have to do a lot of things).

The other questions I have is where is the lifecycle of this product? A big thing for a while was signing up university students. So is it a matter of upselling, or diversifying? I mean, who out there doesn’t already have a card?