Moneyball Marketing: What do MasterCard and Billy Beane have in common?

Written by Mark Sibthorpe Wednesday, 12 September 2012 06:03
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Mark Sibthorpe is the author of a Merchant's Guide to Credit and Loyalty


What do MasterCard and Billy Beane have in common?


A: analytics


In the book by Michael Lewis, Moneyball, ‘The Art of Winning an Unfair Game’, the author focused on the flaws that existed in the traditional way baseball management evaluated player performance. Major League Baseball (MLB) managers before Billy Beane used gut feel, intuition and experience in the place of facts that could be backed up by data (player stats).


Even today with all of the tools available to marketers, there are still many examples where gut feel makes the call: Groupon being the prime example of a ‘throw the dice’ marketing mentality.


MasterCard, on the other hand, with its recent purchase of Truaxis, sees an alternative to the Groupon approach. TruAxis, and a slew of other competitors, lets merchants attract new prospect by precisely targeting consumers that match the criteria a merchant sets. The idea being to create relevant offers without deep discounts normally associated with daily deals. This is done by targeting rewards and offers to credit card account holders via monthly statements, email or mobile coupons. It targets the offers by combining a number of variables such as purchase history and location, data captured each time a cardholder makes a purchase.


This approach, known as ‘Card-linked-rewards’ represent a significant leap over other offers solutions. This is because merchants are able to target specific types of consumers and success can be measured because the transaction data is captured at the point of sale (POS).


For example, take a merchant that wishes to attract clients from a competing convenience store. Card-linked-rewards make this possible. A merchant could select prospects that frequent 7-11, have done a transaction within 60 days and are located within 3 miles of designated locations.


Once selected prospects get pushed an offer as per the diagram below. If the offer is redeemed, the data is captured at the POS or by the issuer. Exact details of a transaction are tracked, including subsequent visits. This eliminates any guesswork giving marketers the necessary tools required to measure the return on investment. In fact, marketers can’t lose as they only pay for proven results.

Why is this such a big deal?

It’s a huge deal because merchants can target consumers based on transaction data without having to invest in proprietary loyalty systems to do it. In addition, merchants can target participants outside their own client base.


In the past, this meant dishing out significant amounts of money either to build a co-brand program or set up a loyalty program. Tesco’s is a great example of what this can mean to a merchants bottom line. It is well documented how Tesco pioneered traditional single merchant loyalty programs and its ‘Clubcard’ program was the grocers equivalent to Moneyball 7 years before Beane changed the way MLB was managed.[1]

Background on Tesco

In 1995, Tesco showed the world how data and statistics can help merchants become more competitive. It did so by introducing the Clubcard, a loyalty program that gathered detailed data on each consumer transaction. Tesco used the data to better server consumers and improve its product offering. The result is that Tesco began a movement that revolutionized loyalty.


The brains behind Tesco’s loyalty transformation (the original Moneyball), was Dunnhumby, the UK firm that put the Clubcard `project in place. This fact is supported by comments made by the  CEO at the time who said that, “Dunnhumby made it possible for management at Tesco to learn more about the business in 3 months than they had known in its entire existence up to then”. The result for Tesco is that this new knowledge, essentially the MoneyBall approach, propelled Tesco to become the number one grocer in the UK within a year of the Clubcard launch.


In 2002, the story behind the movie MoneyBall took place. The film, based on the Oakland A’s manager Billy Beane, demonstrates that subjective methods used at the time to select players made little sense. Especially for baseball, which, after all, is a game dominated by statistics.


Beane, like Dunnhumby, knew experience could be helpful for learning and becoming more efficient, but he realized that subjective decisions could also limit one’s perspective. To overcome this strategic weakness, the Oakland A’s changed from subjective to analytical methods and leveraged data to causally identify which players would be most valuable for winning games. The result was that Oakland was able to compete with better-funded baseball teams and win.


Essentially, the MoneyBall approach removes the mystery and magic, the art, which had been a large part of the MLB’s management mantra; as it was for marketing guru’s up till the time Tesco.  


Subsequent iterations for loyalty programs increased the demands on marketers to quantify decisions. For a new program in particular, because of high costs, predicting growth was a big concern. For a case in point, take Nectar ( This program was set up to compete with Clubcard and is one of the original coalition loyalty program. And in 2002 when it launched they really got it wrong. Management sent a mailer to 10 million UK homes, as well as converted members of existing programs to the new Nectar program. These initiatives created a huge demand from consumers looking to sign up for this coalition loyalty program.


This unexpected demand that attracted over 50% of UK households within 18 months meant an unexpected load on its online services. This caused and many related issues leading to server outages. There were many other problems caused by the high demand, any of which could have derailed the program had the coalition offer not been so compelling. In the end, Nectar’s servers were shut down for 6 weeks as a result of the unexpected load.[2]

Richard Campbell, the marketing director at LMUK, which ran the Nectar operations, claims that the company did undertake extensive testing of its web capability. “We did a lot of testing and due diligence and anticipated the number of online registrations from our experience with other LMUK operations in Canada, Holland, Spain and the Middle east,” he says. Campbell adds that despite a year of planning, demand outstripped the company’s most bullish traffic forecast by a factor of four times.


Steve Adams, a senior consultant at Dragon Brand Consulting, which specializes in web usability, disagrees. Adam, concludes that Nectar’s problems were the result of ‘Poor planning and time scales.’


Regardless of which of the two is correct, the fact is Nectar marketing drove millions of consumers to choose the card. All told, the campaign generated 4 times more consumers than anticipated to catapult the revolutionary coalition program ahead of Tesco’s clubcard.


This gave Sainsbury the data it needed to compete and the added advantage of cross-promotions. Management at Nectar estimated at the time that all participating merchants increased market share 3% on average. The impact of this achievement was reflected directly on Sainsbury’s bottom line. Essentially Nectar sparked a reversal of Sainsbury’s declining market share in the UK grocer market.

Fast Forward to the digital economy and m-payments

Today Tesco’s is in a slump[3] while Sainsbury has been steadily gaining value since 2007. This has prompted management at Tesco to invest £1 billion to improve its UK performance.[4] Tesco and Sainsbury loyalty wars started in 1995 but the pendulum shifted in 2003 when Nectar launched.

A resume of the programs reveal that both the Clubcard and Nectar revolutionized the way merchants interact with consumers and created competitive advantages for the participants. Nectar’s advantaging winning the day due to the advantages cross promote, the perceived added value of the shared rewards, and efficient analytics.


This is why Card-Linked-Rewards are so exciting from a merchant perspective. Card linked rewards allow merchants to attract consumers outside of their own client base, but it does not tie them to a specific loyalty program. Unlike a co-brand, these offers are made to debit and credit card holders on behalf of merchants via statements. What makes this different from affinity or co-brand programs is that the recipient of the offers is not already a client of the merchant, nor do they have to sign up for a new loyalty program in order to use the offer.


For example, in the case of a company like Shell, it could used data held by a card issuers in order to target Esso clients. This is because data from every transaction is available to issuers via transaction data provided by card networks.


Issuers essentially use cardholder data in order to create targeted offers. This means that the results can be captured at the point of sale (POS). So, unlike other daily deals or online offers, merchants know exactly what they are paying for. Not that POS transactions account for 96% of retail sales, while online and other channels accounts for only 4%. As a marketer, it is not hard to figure out where you would spend your money.


The appeal of card-linked-rewards has not gone unnoticed by marketers, in fact, according to a recent report by Aite Group (2011), card-linked-rewards are projected to generate $115 billion in sales by 2015.


From an issuer perspective its not hard to figure out how these initiatives can add value to their card programs: consumers appreciate the relevant offers and issuers can avoid the cost of funding expensive rewards. Card-linked-rewards have overcome the perceptions of merchants caused by the daily deals industry, best illustrated by silly Groupon like offers.   


From an industry perspective MasterCard’s recent purchase of Truaxis that merchants are switched on to the benefits. Truaxis co-founder and CEO, Schwark Satyavolu, said that becoming a part of the MasterCard family will allow his company to scale its technology platforms and continue to grow its issuer distribution pipeline globally.


"Together, we will increase the affinity and success of loyalty programs for financial institutions and merchants while delivering more relevant offers to cardholders worldwide," Satyavalou said. 1.6 million US based consumers have signed up for the services. Trueaxis claim to have created $1 billion in offers.


The MasterCard move illustrates another parallel to the MoneyBall story. This is reflected in comments made by Phil Nugent.[5] Nugent says, “There are always new things coming down the pike – and success typically is found when one discovers a healthy balance between the best of the old and the new. Whether it’s new theories, technologies or products, the rate of change has increased by an order of magnitude in recent years – and it won’t be slowing down anytime soon. That said, not everything new is worth your time (think Groupon). However, it’s equally true that just because it’s new does not mean that it’s merely a fad or otherwise unworthy of your time.


Understanding card-linked-rewards

Sample of vendors offering card-linked-rewards include:

  • Cardlytics 
  • Access Development
  • Affinity Solutions
  • Bankons
  • TruAxis 
  • Linkable Networks 
  • Edo Interactive 
  • Freemonee
  • Rewards Now 
  • CardSpring / First Data


How money flows

Typically the merchant pays the vendor which shares revenue with the issuer. Consumers can either receive a rebate at the time of purchase or a credit applied to their account.

Detailed revenue model for card-linked-rewards is as follows:[6]

  • Issuers automatically enroll active accounts into the program
  • Shopping frequency increase: 30% of subscribers will redeem offers 12 times each year;
  • Average offer value: 5% or more;
  • Offer placement fee: 4%, a figure that represent the market average;
  • FI revenue share: 35%

Figure 1: Example of revenue model

Portfolio attributes

Credit/Debit Card Assumptions

Number of accounts


Percentage active


Number active accounts


Average US$ per purchase transaction per active account – non-incentive


Average annual spend per active account


Number transactions per year per active account



Average merchant funded incentive transaction


Average merchant consumer incentives


Average merchant placement fee


Average revenue share percentage for FI


Average FI revenue share per transaction



Participation percentage


% accounts redeeming merchant funded incentive offers

# accounts redeeming


Average merchant funded redemptions per active account


Number of transactions


Gross dollar value of incentives transactions


Gross dollar value of consumer incentives


Revenue share for FI


Merchant placement costs


Revenue per participating account



In addition to issuer involvement, there are several other enablers driving growth in this segment. For example, acquiring processors are enabling the card-linked-rewards approach by bridging vendors and merchants.


First Data is a case in point. As a global acquiring processor, First Data processes payments on behalf of hundreds of thousands of merchants. Therefore, its contributions to enable card-linked-rewards is to enable merchants to easily select a vendor and to create offers that would go through the card-linked-reward vendor’s issuer networks.


Summary of results claimed by First data:[7]

  • Increase percentage of cards used by 2%
  • Increase card spending by 2%
  • Increasing customer acquisition by 15%
  • Improving annualized retention by 2%

Through their channel they claim to have relationships with over 10,000 national, regional and local retailers in multiple verticals.


In conclusion, one can’t help but consider the implications of card-linked-rewards from a merchant perspective. To this end, Nugent’s blog comes to the rescue once again and offers some valuable insight. He says, “Yes, change is hard. But that doesn’t mean it should be ignored. In fact, adaptability to change is an essential skill these days. Without it, you will soon feel lost in your own office. Just remember that you should always seek a balance, for by keeping the best of the old and adding in the very best of the new, you will be certain to find yourself on the winning path.”


If that’s too complicate just think “Moneyball!”

Last modified on Saturday, 29 September 2012 20:37

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