Nextcard - a Marketing Case Study

Company Overview

NextCard was an internet-based provider of consumer credit founded in 1996 with a mission to revolutionize the credit card industry with its online application and approval process. Their product, NextCard Visa, was promoted as the "First True Internet Visa" and was marketed exclusively through the company website. The NextCard Visa could be used for both online and offline purchases and offered product and service enhancements specifically designed for the internet enabled consumer. At the company's inception these unique services were not offered by their competitors. These services included: a customized application process that provided a 30 second approval process, ability for consumers to personalize credit cards, internet account management, reward points program, and 24/7 online customer service representative. NextCard was able to provide a differentiated Visa product and offered services to increase customer loyalty and profitability.

Problem Definition

From its inception, NextCard received accolades from the marketing and financial communities. The company won multiple awards for their marketing practices and branding campaigns, as well as their ability to process applications with patented 30 second approval rating system. As a result of online direct marketing efforts and co-branding initiatives, NextCard increased the number of consumer accounts from 40,000 in 1998 to 708,000 accounts in 2000.

During the dot.com period, internet companies routinely spent more on sales and marketing than they collected in revenue (Bonanas, 2001) and NextCard fell into this category. Their marketing expenses alone were approximately equal to their revenue (Net of Interest charges) in 2000. The company's aggressive marketing strategy practices cost over $3 million per month for advertising expenses. In addition, their tracking system used to calculate an affiliates' commission was erroneously reporting data that erred in favor of the affiliates. After NextCard realized the mistake, they announced they would continue to base commissions on this data - effectively doubling their expenses.

In this paper, we have identified the main contributor to the demise of the company as NextCard's failure to identify that the web-based marketing programs employed by the company targeted lower credit quality consumers that defaulted on their accounts and did not implement effective corrective measures. Ultimately, NextCard's collapse was attributed to the banking subsidiary loan losses, brought on by approving too many people through online promotions. The company and investors believed that the company had developed a "better mousetrap" for lending - that its systems and credit scoring allowed it to capture quality borrowers through its 30 second approval process and aggressive Internet marketing (Noland, 2002).

Situation Assessment

SWOT Analysis

In today's dynamic business environment it is vital that organizations constantly assess their position in the market. With the entry of new competition, and the evolution of the diverse consumer wants and needs, businesses should look at internal and external factors as an opportunity to strategically position themselves for success.

For purposes of this SWOT analysis, we have chosen to examine NextCard pre-demise in an effort to better assess how its strong presence and affiliate marketing could have been more strategically monitored to generate a better outcome.

Nextcard is an internet based provider of consumer credit with strengths that include:

- Consumer perks (personalized cards, internet account management, reward points, 24/7 online customer service)

- Expanded and improved response time for efficient customer service

- Partnerships generate national brand awareness and allow for cross marketing ventures

- Low operating costs

As strengths are measured by the impact and effectiveness of competitors, NextCard cannot afford to just keep up with the competition - rather it must exceed their offerings.

NextCard's internal weaknesses can be perceived as:

- Low finance performance equals high debt level

- Banner ad marketing expenses

- Inadequate risk-management policies and procedures

- The off-line population segment is not targeted due to their lack of internet access

Just as a organization's strengths can validate its success, the weaknesses outlined above make NextCard susceptible to negative market forces and aggressive competitors.

The opportunities available to NextCard are as follows:

- Internet marketing constructs an extensive community of buyers

- Growth of the internet and its users provides opportunity for immediate access

- E-commerce expansion allows for international as well as domestic reach

As a compliment to the internal strengths of a business, external opportunity factors have the potential to make a NextCard more enduring and profitable.

NextCard threats are:

- Possible rejection to on-line enrollment/marketing

- Competition will increase due to the low barriers to entry in the market: offline companies are coming online

- Speedy review of account allowed for error (consumers with poor credit approved)

While preparing for success, business should also be equipped to counter things that have the potential to adversely affect operations.

Alternatives

The most significant problem associated with the demise of NextCard is their aggressive marketing and lack of focus on their financials. The company was incorporated in 1996, changed their name to NextCard in 1998, went public and opened NextBank in 1999, and was subsequently closed by the FDIC in 2002. In addition to offering instant, online, customized credit approvals, NextCard was cited for its technology and surgical targeting methodology. (Credit Card News, 1999) The company grew rapidly as a result