Dec 19, 2005

Encouraging card usage in China

Much has been said about China’s efforts to crack down on tax-evasion and fraud, usually in terms of severe punishment. In other words, the proverbial stick. Very little has been said about the carrot, the positive incentives the authorities are using to bring the shadow economy out of the dark.

What did Chinese authorities do to encourage retailers to declare more of their cash sales? They created official, pre-printed receipts with a scratch-off award section. Customers now demand the receipt when they pay their restaurant bill or purchase goods in stores, with the hope of winning a prize. The receipt in this picture has a scratch-off area at the top right (called “Award Area”) and instructions in Mandarin and English below (“Scratching the covering area, you will get the award or the words for thanks.”)

My Asian colleagues like to tell me how much the Chinese enjoy gambling and playing games of chance. Receipts with a scratch-off award are a typical Chinese solution to the problem of getting customers to request an official receipt and getting merchants to provide the receipt.

Bankers are facing a similar problem. Less than 10 percent of Beijing merchants accept cards. How do you get customers to more frequently present their card for payment and how do you get merchants to accept the cards? Here the banks cannot use the negative techniques that the authorities use in their fight against the underground economy. But they can use the carrot.

What kind of marketing technique can help encourage card usage and merchant acceptance in China? If you ask a typical marketing-savvy credit card executive, say from the US, the UK, Singapore or Hong Kong, I can almost guarantee that he or she will recommend a loyalty points program. The reaction is automatic. If the only tool you have is a hammer, all problems look like nails. A loyalty points program in China? Getting points or cash back worth 1 or 2 percent of credit card purchases sounds more and more like a weak offer even in countries where you can use your card almost everywhere (see my prior post on this here). Transposing the same concept to a country where 98% of cards are debit cards, which generate less fees than credit cards, and where you can only use the card for a small percentage of purchases, means that customers will have to wait a painfully long time before getting anything meaningful. A loyalty points program in China? Sounds like a pretty bad idea.

Why not learn from the scratch-off game awards on receipts? If the Chinese authorities put game awards on receipts to get customers to ask for them more often, why not put game awards on credit and debit card receipts to get customers to use plastic more often? Click here for an example of games that encourage card usage. This is much better adapted to the Chinese market than the typical loyalty points programs offered by most banks.

A recently released McKinsey report shows that certain dynamics in China's market tend to favor large domestic banks, with their extensive branch networks and existing customer relationships. However, the report suggests that foreign card providers have the marketing knowledge and the experience in managing partnerships to outdo local players with new card products that target high-spending customer segments. For example, the survey indicates that car ownership and high mobile-phone usage are good predictors of high credit card spending; a co-branded card with a mobile operator could therefore be an effective avenue for gaining access to high-quality customers.

Global credit card companies undoubtedly have lots of marketing knowledge and experience with co-brand relationships. They could indeed outdo local players if they adapt their techniques to fit the Chinese market.

Prior posts on receipt promotions:
Games that encourage card usage
Credit card receipt promotions

Prior posts on debit cards:
Competing for debit card market share
Accelerating card acceptance at cash heavy retailers
"Shop with your ATM card: easy as 1, 2, 3 ... 4?"
Cash is king!

Prior posts on why enhancing the payment experience is more important than loyalty:
Key success factor #1: Focus on enhancing the payment experience
The commoditization of points, miles and other loyalty currencies
Turkey: How a superior shopping experience increases shareholder value
Why is enhancing the payment experience so important?

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