Magazine Article | February 1, 2003

Success Is In The (Co-Branded) Cards

Source: Innovative Retail Technologies

At Canadian Tire Corp., financial services drive customer loyalty. And that approach has led Canada's largest retailer to convert more than 2 million customers from a store credit card to a co-branded MasterCard.

Integrated Solutions For Retailers, February 2003

Canadian Tire Corp. has the kind of everyday relationship with its customers that most retailers can only dream about. More than half of its customers do business in its stores every month. At the center of that customer relationship is one of North America's most progressive retailer card strategies. "Financial services has always been viewed as a way to enhance loyalty to the Canadian Tire enterprise," said Chris Mindorff, director of marketing operations for Canadian Tire Financial Services (CTFS), the retailer's card services unit. "For all that we've done, we still have some great opportunities to enhance customer loyalty and grow retail sales at Canadian Tire." To help deliver on their card growth strategy, Canadian Tire counts on TSYS, which is the top processor for retail card programs and the leading outsourcer in Canada.

Canadian Tire has long been on many short lists of progressive issuers. In fact, in the early 1990s, CTFS was one of the early innovators to pilot a store card in combination with a loyalty program. CTFS continued this innovation in the late 1990s by migrating its store cards to co-branded MasterCards. Like other TSYS clients who pioneered the co-brand strategy — such as Sears and Nordstrom — Canadian Tire sees the opportunity to extend its relationship with clients beyond its own stores and petroleum outlets. Today, it is one of the largest non-bank MasterCard issuers in Canada.

A few years ago, an analysis showed that less than 25% of Canadian Tire's sales were on its private-label cards; however, CTFS still accounted for a sizeable share of the company's profits. Expanding the card business was seen as a way to build more loyal customers while also increasing profitability to the enterprise. To date, Canadian Tire has converted more than two million of its private-label cardholders to the co-branded MasterCard with an integrated loyalty program that is bringing customers back to its stores and giving them greater value.

The success of the program has produced tangible results. The company recently reported 38% quarter-over-quarter growth in gross-card receivables. Today, CTFS generates more than 1/3 of the company's bottom line. And, the business is still growing.

The push toward co-branded cards follows a strategic plan to consolidate and build a single, company-wide loyalty scheme that would be closely tied to the card business. Until the change, Canadian Tire had separately managed programs for the retail stores, the petroleum outlets, and for the card business. "We have one customer with multiple shopping needs. So, we wanted one loyalty program with the goal of enhancing the customer's relationship with Canadian Tire," Mindorff said.

The result has been a stronger link between the cards and the store. This has generated crossover purchases and encouraged the customers' use of a preferred payment method, which is profitable for CTFS. Because the program is now managed on a single platform, Canadian Tire has also generated significant cost savings.

Gift Cards Eliminate Paper Pushing
Canadian Tire's relationship with TSYS continues to grow. Recently, the company announced that it will use the TSYS Retail Gift Platform to distribute gift cards in their stores. The result is lower fraud costs and improved efficiencies gained by migrating from a manual, paper-based gift certificate process to an electronic, automated one. By leveraging its relationship with TSYS, Canadian Tire minimized development costs by using the existing infrastructure, including authorization links and the back end settlement and reporting capabilities that existed with its retail card program. "By partnering with TSYS, Canadian Tire quickly implemented the gift card system while avoiding costly system builds and business complexity," says Mindorff.

TSYS will provide Canadian Tire with consolidated payment processing services through a single system, which displays both cardholder data and merchant or store activity data. Mindorff said the relationship with TSYS — which started in 1998 — has been an asset for the financial services group. Canadian Tire was seeking a technology platform that was flexible and allowed the company to move quickly. CTFS uses a variety of TSYS' products and services, including TSYS CardGuard (fraud management system), ACEadvantage (credit evaluation), and E-Business Services for Web-enabled applications. For its merchant settlement services, CTFS uses Vital Processing Services, a joint venture between TSYS and Visa USA.

At the core of the relationship is the TS2 processing system. "There was a lot of customization required in our old system, which made it costly and slow when we needed to make any changes," Mindorff stated. "In the past, changes could take months, but with TSYS' flexible, option-driven system, we can move quickly to leverage TS2 to meet our business needs." Canadian Tire is also anxious to further leverage TS2 to drive product development and pricing strategies. "The platform allows us to integrate many of our processing needs in one solution so that we can see and act on opportunities much faster than ever before," added Mindorff.