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Effectiveness of Credit Card Solicitations
A recent survey by Vertis has found that direct mail continues to be the most effective source of new cardholders. When asked how they became aware of the last credit card that they applied for, almost half of respondents said that they had received the solicitation via direct mail. Less than a tenth cited other sources, such as friends or relatives (7 percent) or an in-person solicitation (4 percent). Each of the following sources accounted for about three percent of the respondents' most recent credit card acquisitions: Internet, telephone marketing and TV.
What features of credit cards do consumers find most appealing besides the levels of annual fees and interest rates? As shown in the table below, the most appealing features are receiving points for merchandise, airline travel, and hotel stays.
| Most Appealing Credit Card Features (Besides annual fees and interest rates) |
|
|---|---|
| Money back on purchases | 22% |
| Receive points for merchandise, airline tickets, hotel stays | 19% |
| Membership level (gold/platinum) | 8% |
| Initial sign-up bonus (rebate, coupon) | 7% |
| Specially endorsed card (university, non-profit, etc.) | 4% |
| None of the above | 37% |
Source: "Customer Focus 2002: Direct Marketing for Financial Services, Vertis, 250 W. Pratt Street, Baltimore, MD 21201.
Some commentators have expressed concerns about how consumers may be "trapped" into never getting out of debt on their credit cards. The survey reveals some interesting insights on how cardholders with various levels of monthly expenditures pay their credit card bills. Several points are worth noting. First, cardholders with low monthly expenditures were significantly less likely to pay their monthly bills in full than cardholders with monthly charges of more than $500. In most instances, cardholders making partial payments reduced their outstanding balances. Cardholders with the largest monthly expenditures were the most likely to make payments that reduced their outstanding balances.
| How Credit Card Bills Are Paid, by Monthly Expenditures | |||
|---|---|---|---|
| Monthly expenditures ($) | Pay off balance in full | Partial payment; balance reduced | Partial payment; balance grows |
| 1-100 | 39.2 | 46.6 | 10.4 |
| 101-250 | 47.0 | 37.5 | 11.7 |
| 251-500 | 57.8 | 30.5 | 9.4 |
| 501-1,000 | 81.9 | 12.0 | 6.0 |
| 1,000-2,500 | 88.0 | 8.0 | 0.0 |
| 2,501-5,000 | 71.4 | 28.6 | 0.0 |
| 5,000 plus | 50.6 | 37.1 | 0.2 |
Source: "Customer Focus 2002: Direct Marketing for Financial Services, Vertis, 250 W. Pratt Street, Baltimore, MD 21201
It may be worth noting that DMNews reports that last year's credit card mail volume reached a new all-time high of 5 billion mailings, up from 3.5 billion in the previous year. In spite of the sharp increase in mailings, BAIGlobal reported that response rates remained at 0.6 percent. The stability in the response rate is credited to the slow economy. That is to say, consumers' need for credit may have increased as a result of unemployment and loss of overtime. This may not bode well for portfolio performance over the next 12-24 months, the time it takes new accounts to season.
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