Best Practices inRetailer-funded Rewards and Bank-Retail Partnerships

October 5, 2007

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PresentersPanelists

Scott Johnson Senior Director – Marketing, Blockbuster

Cheryl Hintz Vice President – Payment Products, US Bank

Jonathan Silver President & CEO, Affinity Solutions

Moderator

Jonathan Gagliano Executive Vice President – Affinity Solutions

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Affinity Solutions OverviewRelationship marketing firm helping banks and retailers build loyalty through customized platforms focused on customer ‘affinities’

Pioneered merchant-funded debit rewards – coupon, automatic, experiential, SKU-level, enterprise

20 institutions, 4 of the top 10 debit card issuers

Developed customer segmentation models based on diverse credit, debit, and prepaid card programs totaling more than 40+ million cards

Established nearly 1,000 retailer relationships with over 40,000 locationsNational retailers with in-store offersRegional/local retailer network with in-store offersOnline retailers and offers

Value PropositionBank: reduces cost liability to support programRetailer: generates new shoppers and incremental purchase behaviorCustomer: up to 25% in rewards versus traditional programs at 25 bps to 100 bps

Developed and facilitated new partnership marketing opportunities for banks and retailers

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Program Currency

• Cash Back• Points• Rebates• Coupons• Other Products

• In-Branch– Print– Face to face

• Phone Center– Inbound– Outbound

• Direct mail• Internet/email• TV/radio/

publications• Affinity groups to

target

• Segment specific content

• Objective relevant content

• Interactive Tools• Data gathering

tools – surveys, polls, preference centers, automated information tools, indexes, search tools, etc.

• Brand consistent• Segment

consistent• Segment specific• Objective relevant• Currency specific• Revenue share• High perceived

value• High frequency• Status/aspiration

• High risk• High value• High tenure• Multiple product• Demographic• Life stage• Life event• By spend• By product• By usage• By activation

status• Affinities

• Customer satisfaction

• Increase share of wallet

• Increase activation• Increase usage• Reduce attrition• Increase cross sell• New revenue

streams• Increase profitability• Drive to lower costs• Increase acquisition

ObjectivesMerchant

Categories & Partners

Communication/Campaign

Touch Points

Dialogue Tools & Engagement

Devices

Segmentation/ Modeling/Targeting

AFFINITY’S VISION: Merchant-Funded Rewards Programs

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Our Goal Is To Ensure That Each Stakeholder Wins

Consumer

U.S. Bank Blockbuster

Gets• Opportunity to

profitably increase revenue/loyalty

• Access to a large consumer data base

Gets• Automatic rewards from

BLOCKBUSTER when cardholders use their check card

Gets• Relevant offers• Easy to earn and

understand

Gets• Incremental card usage• Enhanced customer loyalty

Gets• Partnerships with leading

retail brand• Differentiated offers for

U.S. Bank’s customers

Gets• Ability to target existing and

competitors' customers• Leverage of multiple mediums• Enhanced customer loyalty

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Positioning & Segmentation Model

CUSTOMER LEVEL DATA

Transaction History/Spend Data

Response History of Prior Promotions

Preference/Survey/Poll Data

Web Usage/Purchase Behavior

Demographic/Psychographic Append Data

Targeted Customer

CUSTOM MARKETINGSTRATEGY/BUSINESS RULES

Offers vary based on share of wallet in MCC/SIC

Customer lifecycle model

Threshold offers

Frequency offers based on spend over time

Offers tied to purchase cycle

Buying tools

Life event offers, e.g., new parents, new movers

Recognition/status rewards

Communication strategy

Encourage specific behavior, e.g., bonus for shopping on weekdays, when activity is lower

INFORMATION FROM RETAIL PARTNERS

Target life stages, lifestyles, and life events

Seasonal factors

Competitive set

Average transaction sizes/purchase cycle

How purchase decision is made

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Sample ‘Affinity Segments’Affinity Segment Savings from

retailers like …Plus exclusive services, such as …

And shopping content from leading magazines …

Home Entertain-ment Active

BLOCKBUSTER, Pizza Hut, Borders

Personalized DVD finder

Entertainment Weekly

Young Families Toys R Us, BLOCKBUSTER, Chuck E. Cheese

Family activity reminders

Family Fun, Parents, Parenting, Cookie

Technophiles CompUSA, Circuit City, BLOCKBUSTER

New gadget guide Wired, Cargo

Avid Homeowners

Home Depot, Bed Bath & Beyond, BLOCKBUSTER

Home warranty folder House & Garden, Domino,

Heavy Travelers United Airlines, Hertz, Starwood Hotels, Busch Entertainment

Travel service Condé Nast Traveler, Golf Digest

Health Oriented Seniors

Rite Aid, GNC, Bally Fitness

Personalized health guide

Self, Prevention

Fashion-Conscious Women

Payless, Ann Taylor, Macy’s, GAP

Special sale announcements, reminder services

Lucky, Allure, Glamour, Vogue, Teen Vogue, Jane

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BLOCKBUSTER: Identifying the Segments With a High Propensity to Shop Incrementally

Target Segments

Home entertainment active

Dining/outsideentertainment active

Young families

Competitive shoppers

New movers

5 Million+ Consumers

500 Million Card Transactions

$20BB Spend

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Entertainment active segment might receive:

1. Higher-value offers from Blockbuster

2. ‘Value add’ content from Entertainment Weekly (reviews, ‘if you like film X, you’ll like film Y’)

3. Spend $15+ on USB card at BB and get free EW magazine subscription

4. Win trip to Oscars – entereach time you shop at BB with USB check card

5. Developing mobile cap-ability to deliver content real-time before/during shopping experience

Next Step – Enhancing ‘Affinity’ Consumer Experience

Financial Services Co-Marketing Overview

BLOCKBUSTER name, design and related marks are trademarks of Blockbuster Inc ©2007 Bockbuster Inc all rights reserved.BLOCKBUSTER name, design and related marks are trademarks of Blockbuster Inc ©2007 Bockbuster Inc all rights reserved.

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Digital Entertainment: The State Of The Industry• HDTV: 12% of U.S. households are current receiving HDTV service• Cable/DBS: 57% of all U.S. households subscribe to cable while 24% subscribe to

satellite.• DVD Player Ownership: The number of households having a console DVD player

increased from 63% in 2005 to 66% in 2006.11% of households have a recordable DVD player, up from 6% last year.

• Movie attendance: 34% of households reported that at least one family member saw a movie at a theater. This was down from 37% in 2005.

• Video Game Consoles: 40% of all U.S. households have a video game console which is equal to last year’s incidence

• PPV: 9% of all U.S. households ordered a movie on PPV during the past 30 days, a similar incidence compared to a year ago.

• VOD: 6% of all households have ordered a movie on VOD in the past 30 days compared to 4% last year.

8% of all households have ordered Free VOD (TV shows, music, concerts, etc) in the past 30 days compared to 5% last year.

• DVRs: 14% of all U.S. households have a DVR, up from 10% last year.• Downloading: 4% of all U.S. households have downloaded a video, up from 3% last

yearBroadband, DSL and cable modem penetration have all increased since last year while dial-up has declined.

Source: Centris Q4 2006 and 2005

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74MM customer visits monthly1

100% brand awareness among active movie renters

65% of US lives within 10 minute drive

Transactional and Monthly Subscription rental terms available

BLOCKBUSTER Distribution Points

1 Based on BLOCKBUSTER transaction data. 2Source: Omniture Web Analytics June 2007

In Store Online

3MM+ subscribers to movies by mail service

Movielink digital download service recently acquired

10MM unique monthly visitors2

Monthly Subscriptions from $5.99 to $24.99

31MM Active Member Database

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BLOCKBUSTER Consumer Snapshot

Key Demographics

Escape From RealityFun Occasion

Visitor Profile• 51% of visitors are Female; 49% are Male2

• US average age is 373 ; Our Average age is 342

• Average household size is 2.82 (higher incidence of children in HH)

• Skews slightly affluent

• Average number of persons shopping in groups is 2.1

2 Nielsen Media Research, March/August 2005 BLOCKBUSTER TV Intercept Study, off a base of Persons 12+.3 Total U.S. based off the U.S. Census Bureau’s - July 2005 Middle Series Projections off a base of Persons 12+.4 Based on BLOCKBUSTER transaction data. International rates available upon request.MRI 2006

Entertainment Emotion Connection Participation

EngagedInteractive

Family Or FriendsIn the Know

StimulationRelaxation

Psychographics: (Medium-Heavy Index)• Media Usage – Internet, Pop Culture/Travel Magazines, Sports

Events, Academy Awards, MTV

• Lifestyle – Electronics, Video Games, Travel, Entertain Friends & Family, Social Occasions, Music, Exercise

Active Member Households4 31MMAvg # BB store visits past 4 wks 2.7Avg # DVD rented among renters (1+) 1.9Avg # games rented among renters (1+) 1.1

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Numerous New Entrants to Digital Movie Delivery Space

Source: Centris Q4 2006 and 2005

BLOCKBUSTER Customer Relationship is Key to Differentiation

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Financial Services Co-Marketing StrategyObjectives:

Increase debit, prepaid and credit payment vs. cash; in-store and onlineLeverage partner bank customer relationships and data to drive behavior change

among current and non-customersStrategy:

Partner with select high quality financial services brands to leverage customer data, communication and offers to drive increased spend and loyalty to Blockbuster via debit or credit card paymentUtilize bank customer transaction data to quantify incremental revenue and return on marketing investment

US Bank/Affinity Solutions Program:Unique attributes of program include:

Online offer featuring special monthly rebate to drive loyalty in addition to customer acquisitionIn-store rebates based on threshold spendTargeted offers based on pre customer behavior by segmentPost campaign results tracking based on US Bank and Blockbuster customer data

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Financial Services Co-Marketing Ideas

Potential Future Blockbuster/Bank Card Programs:Integrated in-store offer linking bank product to Blockbuster incentive and customer experience – spike promotionVariable offers from BLOCKBUSTER to track consumer through brand lifecycleSpecial online and in-store entertainment-based incentives for card usage and increased spendWebsite integration between bank loyalty program via RSS feeds/widgets

Add mobile components

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Blockbuster Entertainment Television End Cap

Take-One’s DVD inserts

E-newsletter DVD envelopesOnline Banner Ads

Blockbuster Customer Marketing Touchpoints to Drive Card Usage

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Cash Bonus Rewards was Rolled-out to U.S. Bank customers in October, 2006

Since January 2007:Customer engagement grew by over 90%Qualified spending increased for those in the program an average of 43%Monthly cash rewards to customers increased 62%The number of qualified transactions increased over 105%

Promotion of retail partners is an integral part of overall marketing strategy

Customer segments were targeted specifically to engage specific customers with relevant Cash Bonus Partners

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Positioning & Segmentation ModelThe U.S. Bank Cash Bonus Rewards Program is positioned as an integral benefit of the debit card program.

In and of itself, the cash rewards are positioned as “HUGE” and relevant with the most popular (valuable to the customer) everyday retailers.

Affinity Solutions applied their predictive algorithm to identify individual U.S. Bank card users and align them with relevant retailers and offers.

Segmented cardholder experiences that lead to increased card spend and usage includes:

Promoting Double Cash Back for online purchases to promote online shopping to those who shop online but not through the program website

Creating special offers to acquire those customers who own products with the financial institution’s other lines of business such as Mortgages, and Home Equity for example... Get Cash Back when you use a U.S. Bank Check Card at a home improvement retailer

Creating a reciprocal marketing strategy with Blockbuster that allows both institutions to encourage spend of targeted card users

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Partnership Opportunities

Targeted Customers Targeted Offers Precision Partnership Marketing+ =

Targeting customers to effectively increase card

spend, usage and customer retention

Targeting offers effectively identifies those who shop:

• Exclusively at Competitors

• Exclusive at Retailer

• Dual Shoppers where there is growth opportunity

Apply predictive models that identifies those

customers who have a high likelihood of responding

positively to a precise communication strategy for

the optimal offer

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Panel Discussion

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Questions