145-The Challenge of a Small Competitor-Part 1

Part 1: Segments and Products

There is a new, small, credit card issuing company in the market. The company is PartnersFirst and they promised to change the credit card world by making that world more cardholder friendly. This new firm, based in Wilmington, Delaware, has introduced an unusual credit card. The card has no fees and relatively low borrowing rates, along with less onerous penalties. The upstart company challenges the four giants in the industry, Bank of America, Citigroup, JP Morgan Chase and Capital One. Industry veterans formed and run this new credit card company. They believe that the company’s card should be particularly attractive in the light of new Federal rules that restrict credit card practices.

A few years ago, we did an extensive analysis of how a company whose market share was #3 or below in its industry could succeed against much better competitors. (See the Perspective “Rare Mettle: Gold and Silver Strategies to Succeed in Hostile Markets” on StrategyStreet.com.) More specifically, we studied these companies in hostile markets, where pricing pressure was intense and returns for most competitors in the industry were low. If a company could perform well in a hostile marketplace, its model would be instructive in all other marketplaces. We succeeded in finding a number of small competitors who performed well in these difficult markets. They had both growth rates and returns on investment above their industry averages. We named these successful smaller companies Silver competitors.

Once we found those successful competitors, we analyzed their business models to look for common patterns. Our analyses covered segments, product and service innovation, pricing and cost management. We will use our findings to evaluate the prospects for PartnersFirst. We will do this analysis in two parts. Part 1 of the blog will cover segments and products. Part 2 will cover pricing and cost management.


Silver competitors usually cannot win a Primary Supplier Role position with one of the industry’s largest customers. They rarely possess the infrastructure to serve these customers well. Instead, Silver competitors focus on the second sized tier of the industry’s customers. They focus on the industry’s large, but not the largest customers. As a rough rule of thumb, the largest customers in the industry, the industry’s Very Large customers, purchase 50% of the total industry’s volume. The second tier, Large customers, purchase the next 30% of the industry sales volume. The industry’s first tier of the Very Large customers may make up 7% of the number of the industry’s customers, while the second tier, Large customers, make up 13%. These are only rough estimates. The percentages will vary significantly across industries. (See Video #58: Customer Segmentation by Size on StrategyStreet.com.)

The Large customers that the Silver competitors serve tend to emphasize good service for a reasonable price in their own markets. These customers of Silver competitors are not large enough to negotiate the industry’s lowest prices so they pay slightly higher prices than the Very Large customers.

Successful Silver competitors also seek out the better performing Medium size customers. Again using rough rules of thumb, these Medium sized customers may purchase 15% of total industry volume and represent 25% of the total number of industry customers. The best Silver competitors focus their attention on Medium customers who are service-oriented in their own marketplaces.

PartnersFirst’s business model seeks some of the industry’s largest customers, Very Large customers. One of them is Service Employees International Union (SEIU). This union signed PartnersFirst to create a branded card for its two million members.

PartnersFirst pursues some of the industry’s first tier customers by offering an Affinity credit card. With an Affinity credit card, a sponsoring organization, such as the SEIU, agrees that the credit card issuing company will have the exclusive right to brand the credit card with the sponsoring organization’s brand and then market it to the members of the Affinity group. In order to win this business, the credit card issuing company must make a substantial payment to the sponsoring organization. Other sponsoring organizations for PartnersFirst include the Chicago Bar Association and Golf Magazine.

PartnersFirst is flying straight into the headwinds of competition with the biggest industry competitors for this industry’s Very Large customers.

Products and Services

In products and services, the best Silver competitors distinguish themselves by offering service levels that competitors achieve only sporadically. If the Silvers have channels of distribution, they rely solely on them to sell to the end user. They also protect the revenue base of the channel. The successful Silvers will cover a relatively broad spectrum of Price Points within the industry but will not offer a Price Point that their target segments will not buy. Because Silver competitors concentrate on customers who offer high service levels themselves, these customers tend to buy a mix of product Price Points skewed toward the higher end of the market, which helps the Silver competitors’ profit margins.

PartnersFirst emphasizes service and Reliability in its benefit package. It tries to make the card holders experience a good one. It listens, and responds, to its sponsoring organization customers. PartnersFirst allows its Affinity partners a say in the terms of the credit agreements on the credit cards. For example, the Affinity’s groups must sign off on any changes in rates or fees that PartnersFirst would like to make.

The company’s business model appears to fit nicely with the successful Silvers’ approach of offering high service to their customers, and of emphasizing Reliability in the customer relationship and company benefit package.

Part 2 of this blog will examine PartnerFirst’s pricing and costs.

Posted 10/19/09


The PartnersFirst credit card and program have disappeared from the radar screen. The credit card issuer for 2022 for the SEIU is FNBO. FNBO Direct is the online-only bank division of First National Bank of Omaha.  What sets FNBO apart from other Midwest banks is its award-winning customer service. The typical First National Bank of Omaha review from customers highly rates the bank — it ranks among the best banks in the Midwest in J.D. Power’s Customer Satisfaction Study and is a GOBankingRates Top 100 Bank of 2022

PartnersFirst had the right approach with its products and services but aimed too high with the segments it sought. It did not have the scale and capability to serve the industry’s largest customers. See HERE for more explanation



If you face a competitive marketplace, read these blogs. We wrote them to help you make better decisions on segments, products, prices and costs based on the experience of companies in over 85 competitive industries. Much of the world suffered a severe recession from 2008 to 2011. During that time, we wrote more than 270 blogs using publicly available information and our Strategystreet system to project what would happen in various companies and industries who were living in those hostile environments. In 2022, we updated each of these blogs to describe what later took place. You can use these updated blogs to see how the Strategystreet system works and how it can lead you to better decisions.