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