Credit-Card Offer Responses at 10-Year Low

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Although credit-card issuers flooded mailboxes with a record 3 billion solicitations last year, response rates slid to their lowest point in the past decade, according to market research firm BAIGlobal Inc., Tarrytown, NY.


But news that response inched down to 1.3 percent from the already low 1.4 percent on 2.4 billion mailings in 1996 didn't come as a shock to industry watchers.


"The industry has matured and the card products aren't very differentiated, so you have saturation in the marketplace," said Mike Geppert, senior vice president of marketing at First Data Solutions, Naperville, IL. "The average American has 9.2 pieces of plastic. More than four are bank cards, and the others are travel and entertainment, phone and gas cards. What you are seeing is one more piece of mail in your mailbox that is trying to replace something you already have."


In the early 1990s, the industry -- facing less direct mail competition than now and tapping into an array of co-branded offers -- recorded response rates ranging from 2.1 percent to 2.8 percent. Those rates have been falling steadily, however, as consumer debt soars and card offers proliferate.


"The sheer volume of mailings has become a standing joke," said David Gagie, marketing director at Auriemma Consulting Group, a card consultancy in Westbury, NY. "You hear jokes on the radio and see jokes in the press about them. It's emblematic of what going on."


Card issuers have been attempting to pique consumer interest by shifting card composition toward "precious metal" cards. In 1995, upscale, gold cards edged out standard cards and made up the majority of card solicitations. In 1996, platinum cards, touted as more upper-crust than gold, surfaced and accounted for 6 percent of card offers vs. 44 percent for gold. In 1997, platinum overtook gold and weighed in at 40 percent of all solicitations.


But consumers still didn't bite.


"Issuers are positioning platinum cards as upscale premium products, but I think they have been as mass-marketed as gold cards," said Lisa Itzkowitz, BAI's director of marketing.


In fact, platinum cards elicited the lowest response rate -- 1 percent. Gold pulled in a response of 1.3 percent, and standard snagged 1.7 percent, according to the study.


"Platinum was low because it didn't offer anything different from the gold," Itzkowitz said. She added that many issuers offered platinum cards without an annual fee and may have deterred prospects who equated higher price with greater value. "Gold stayed where gold has been for some time. Some standard cards were co-branded with retail stores and were competitively priced, which helped them break through the clutter."


Despite the lackluster performance of the precious metals, First USA reportedly is testing a titanium card, the color and features of which are being kept under wraps.


American Eagle Outfitters Inc., a retailer of men's and women's clothes and accessories, on the other hand, is bucking the metal trend and debuting a clear credit card.


But experts say that players will have to rethink more than the card's color. Many issuers, for instance, will begin to deliver card solicitations based on customers' preferred channels -- telephone, Web or mail -- and their life stage, according to Geppert.


"There are windows around each of us as a consumer as we move throughout life. As we add children to our household or get a higher income, our life stage and lifestyle changes, so our [credit card] has to change," said Geppert.


Opportunities also lie in markets at the bottom of the income bracket. Issuers, who traditionally avoid low-income households, are taking another look at the undertapped group.


"Low income doesn't necessarily equal bad credit," Itzkowitz said. "The problem is that there are a lot of households where there is no known credit history, so it's just hard to understand that market."


Unable to drum up sufficient new customers, many issuers have been purchasing the credit-card portfolios of smaller players or acquiring the issuers outright, but that is not a viable long-term strategy, according to Geppert.


"This poor response rate is really putting a lot of pressure on the card issuers," he said. "They have got to have balances to be profitable. If they can't acquire them through normal marketing, what I call organic growth, then they are resorting to portfolio acquisition. But you have to mix the acquisition of portfolios with the organic growth in order to remain healthy."
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