Credit Issuers Aren't Keeping Up With Consumers, Study Says

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Credit issuers are committing a series of missteps in the way they market their goods as the industry has failed to adjust to fundamental shifts in consumers' credit habits over the last year, according to a report released last week by modeling and marketing strategy firm Focus: Productivity Inc.

Consumer credit experienced tremendous growth during the 1980s and early 1990s, but list-based marketing strategies no longer work as well as they used to, according to Pam Tournier, partner and co-founder of Focus, Ridgefield, CT. Typical direct mail response rates for credit card offers have slipped below one percent, down from about 1.2 percent two years ago. Meanwhile, the number of new credit card accounts opened has slipped 1.6 percent in the last year, even as the volume of credit card mailings such as pre-approved offers has risen 7 percent.

"If you feel like you've been getting more solicitations, throwing away more stuff, it's because you have," Tournier said.

Others, however, insist that the credit card industry is robust.

"There's more outstanding consumer credit than ever before. I don't see that there's a slowdown," said Mark Gruen, vice president of direct marketing firm Gruen + Sells Ltd., Chicago. Card activation rates are a more accurate gauge of marketing effectiveness than response rates, he said, adding that other factors like average balance size have to be considered to fully assess the industry's health.

"You go to the bank with dollars, not with percentages," he said.

But Focus listed nine trends that it said helped to explain why credit issuers recently have been mailing more and getting less. The firm based its conclusions on merged credit reports and consumer data it gathered from lifestyle and media usage surveys carried out by Mediamark Research Inc., New York.

In the report, Focus said upscale consumer segments have been overmarketed in 1998, accelerating promotion waste. Less risky prospects saw especially high increases in new card offers and now say they are more turned off by all forms of advertising than they were last year. While the least credit worthy -- 25 percent of the population -- have seen 13 percent less solicitations, the remaining 75 percent have received 9.7 percent more solicitations.

The report said that the small but growing number of people who apply for credit over the Internet are more highly leveraged than average and have worse repayment histories. These people open more credit accounts than the average American and are more likely to use credit instead of waiting to buy things they want badly. But despite this, credit solicitations sent to this group rose 8 percent in 1998, compared with a 7.1 percent overall rise in the United States.

Retailer-issued cards could have problems on the horizon, the report said, and Focus blames a "best practice" database marketing approach among credit issuers that assigns higher prospect values to riskier customers because they charge more often and in greater amounts. The 20 percent of the U.S. population with the worst credit record now carry balances on store cards that are 70 percent higher than the average American's balance.

Perhaps one of the more interesting findings -- and one contrary to many marketers' perceptions -- is that Generation X is leading the way in consumer credit erosion. Though GenXers and baby boomers both closed credit lines faster than they opened them in 1998, Generation X is the only age group that is significantly cutting into its outstanding balances.

"You're getting people in their late 20s and early 30s, especially men in this group, who are de-leveraging. They're not as into credit as past cohorts of that age have been," Tournier said.

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