Co-Opetition - Adam M. Brandenburger [92]
So what you’d really like to do is to charge a low price to your own customers without, at the same time, threatening your rivals’ customer bases. If you could do that, your rivals wouldn’t have to respond. This is a rather curious idea. Given the rules that normally govern business-to-consumer dealings, it doesn’t even sound possible. But GM discovered a way of changing the rules. We’ll see how with the story of the GM Card program.
General Motors Leads the Charge Flat demand and competition from foreign car manufacturers made the early 1990s a difficult period for the Big Three—General Motors, Ford, and Chrysler. In 1992 GM chalked up the largest annual loss in U.S. corporate history, around $4.5 billion.
Part of the solution to GM’s problem was to make better cars and make them more efficiently. GM hoped that the Saturn Corporation, an autonomous unit it had established in the mid-1980s to make small cars, would catalyze improvements throughout GM. Another promising sign was a late–1992 boardroom coup led by John Smale, a GM director and retired chairman of Procter & Gamble. This led to a major shake-up of GM management.
That still left the issue of how cars were sold. In response to flat demand and increased competition, each of the Big Three relied heavily on cash-back offers, dealer discounts, end-of-year rebates, and other incentive programs.
In September 1992 GM changed the game. It teamed up with Household Bank, a major issuer of co-branded credit cards and, together, they launched the GM Card under the MasterCard umbrella. Cardholders would earn credit equal to 5 percent of their charge volume, which could be applied to the purchase or lease of any new GM car or truck. Under the rules of the program, the credit was applied after the customer negotiated his or her best deal on the vehicle. These credits could become quite substantial: the limit was $500 a year, with a ceiling of $3,500 over seven years.
Visa USA President and CEO Robert Heller wasn’t impressed. At the 1992 American Bankers Association bank-card convention, he joked that it wouldn’t be long before pizza parlors joined AT&T and General Motors in offering cards. Within a year, Heller had been ousted from his position, and people were talking about the possibility of a McDonald’s credit card.
The debut of the GM Card was supported by a marketing blitz that included 30 million direct-mail shots—referred to by GM as “targeted tonnage”—7 million telemarketing contacts, and extensive TV and print advertising. GM spent $120 million on the campaign. While small in relation to GM’s total marketing costs, this figure was unprecedented for a credit-card launch.
The GM Card rollout was the most successful ever in the credit-card business. After only twenty-eight days, there were 1 million accounts. The previous record holder, AT&T’s Universal Card, had taken seventy-eight days to reach that number. In less than two months, there were over 2 million GM Card accounts, and card balances topped $500 million.14 At the one-year mark, the GM card program had 5 million accounts and $3.3 billion in outstanding balances. Two years out, there were 9 million accounts—and the program hasn’t stopped growing.15
In the first year of the program, GM honored 55,000 card rebates. Through February 1994 there were 123,000 GM Card rebate redemptions worth a total of $40 million (an average of $325 per car). Projections suggest that as the program matures, some 25 percent of GM’s nonfleet