Tracking the Evolution of Credit Card Relationship Management

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After a decade teasing attractive revolvers with short-lived introductory rates and chasing after every balance transfer in town, could the credit card industry really be ready to settle down? I mean, actually commit to a long-term customer relationship?


It used to be that a card marketer's favorite "R" words included response, revolvers and revenue, but never relationship or retention. The closest thing to that was the customer marketing department, the three people who sat on the far side of the floor who sent out the draft checks and the occasional insurance offer and whatever else they did.


Then all of a sudden it was 1996, and guess what? Response rates began to deteriorate. Balance transfers weren't such a novel idea anymore as the consumer quickly became savvy to the rules of the game. The cardholding fish in the barrel were escaping through a huge hole in the bottom called attrition. While the acquisition managers scratched their heads and looked for a panacea offer to get through the "slump," the folks on the other side of the floor -- the customer marketing team -- found themselves with an instant celebrity status. It was their chance to put a proverbial marketing finger in the leaking cardholder dike.


Unfortunately, by this time the leak was large enough where a finger wasn't going to do it. Most credit card marketing organizations realized this and have spent the last few years beefing up their customer marketing teams to include specialists in use, activation, balance transfers, cash, fee services, value-added programs and retention. The old customer marketing groups of three and four people have evolved into relationship management divisions of more than a dozen marketers whose simple goals are to get customers to use their cards at least twice a day, revolve a big balance every month and stay with the bank for a long, long time.


Will this recent emphasis on forming customer relationships actually help stem the tide of cardholders seeking warmer waters? Perhaps, but only if credit card marketers can take a lesson from their own short and stormy history.


A telling fact of just a few years back: Card issuers spent on average $100 to acquire a new account and roughly $6 a year to keep it. Banks were willing to spend more effort sourcing new accounts at a hundred bucks a pop than putting a few more dollars into relationship management programs to keep the ones they already had. In many ways, this turnstile portfolio syndrome is a problem of the issuers own-making.


For example, take a look at the common marketing tactic of using an introductory rate. Often the entire value proposition is based on the short-term benefit of a lower rate that disappears after a few months. What message does that send the customer about a bank's commitment for the long term? Certainly, relationship management marketers are immediately put at a disadvantage trying to convince customers that there are plenty of good reasons to stick around as their rates climb 1,000 basis points.


Another interesting phenomenon is that of the BT -- balance transfer. Offer the customer the ability to move balances over from other credit cards at a great low rate. Sometimes that rate expires and goes to a higher rate -- sometimes it's good for the life of the balance. Admittedly, issuers make huge amounts of money from balance transfer programs. The problem is that every other issuer is doing the same thing with more and more aggressive pricing giving the customer lots of choice and no incentive to be loyal. Banks have created this quicksand that they now struggle within. The more effort they put into it, the more they get stuck.


Customers are neither blind nor stupid. Accepting this fact is a big step toward a successful relationship. They are keenly aware of exactly when their introductory rates or BT offers are about to reprice to a higher APR. And they know that if they wait three or four days, they are going to receive a slew of other offers to move their balances to other issuers at incredibly low rates. What is happening less is that issuers are generating additional balances and happening more is that they are trading the same balances with other banks every six months or so. What started with the intent of being a relationship tool has now conditioned cardholders to play the BT game -- the exact opposite effect.


So should issuers abandon introductory rates and balance transfer programs? No, that war would take thousands of lives and cost millions of dollars. What the savvy card marketer needs to do is incorporate value beyond price into the offer. Sure, you still can offer a good rate, but the motivating factor for the consumer decision has to be more than APR. Front and back end marketers need to work together to develop value propositions that are geared for the long haul and understand what may initially result in a somewhat lower response will have a much higher retention rate overall. You can't use the term value proposition without the word value and that value needs to be real in the mind of the customer. A perfect segue into the Platinum Age of credit cards.


The concept of a platinum card was actually a very promising one. Here was a perfect platform for creating a value-added, relationship management-based card product that could be a way to form that elusive long-term bond with the customer. Unfortunately, what started out with best intentions got bastardized into another gimmick for acquiring accounts.


For many issuers, the "added" benefits of having a platinum card are hollow and uninteresting if not nonexistent. In most cases it is the same card with a different color and has become so commonplace it has undermined those few issuers who are actual trying to do more with it. And as we see the fervor of platinum quickly fade, those lessons of history are challenged again with the offering of a titanium card.


The platinum example illustrates the need to create card propositions that have real tangible value to the consumer, value beyond price and appearance. What form that proposition takes is the most critical task at hand. To create products that promote customer longevity, it is essential that acquisition and relationship management marketers work together with product development with that specific objective in mind. Getting that equation right creates a platform for a coordinated, long-term strategy for maximizing the customer relationship.


Ultimately, to be successful issuers will need to show a customer they are serious about committing to a relationship. It may not be easy considering experiences most customers have had in the past with a fickle market. Yet the willingness to take this step will demonstrate a marketplace that is maturing, settling down, willing to compromise quick hits for a more stable lifecycle.


Geff Rapp is a senior managing partner at Group G Direct Inc., Warminster, PA, a firm specializing in credit card acquisition and retention marketing.
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