Why Credit Card Response Rates Are Declining

A Wall Street Journal from a few months ago suggested that the “pesky piles of credit card offers that clog mailboxes may taper off a bit.” (Hasn’t happened in my mailbox, that’s for sure). Citing statistics from market research firm Synovate, the article stated that:

  • Direct mail repsonse rates has declined. Since 1992, the number of credit card offers increased six-fold, while response rates declined from 2.8% in 1992 to .3% in 2005.
  • Issuers are relying more on branches and the Web. According to the article, top issuers are “rethinking their strategies”, hoping to sell more cards at bank branches, online, and through ATMs.

My take: Direct mail is getting the short end of the stick.

Before giving up on direct mail, card issuers should understand why response rates have declined and the implications of shifting their channel emphasis. My theories on why response rates are [or appear to be] declining:

  • Poor targeting. Between 2002 and 2004, the percentage of card applicants coming from the ranks of baby boomers and senior citizens declined from 54% to 47%. Why does this matter? Because these are the consumers with the best credit scores, and therefore, most likely to receive pre-approved offers. Conclusion: Response rates have declined, in part, because offers are predominantly targeted at a shrinking percentage of the market.
  • Faulty measurement. It’s no surprise that many card applications have shifted to the Web: It’s more convenient, especially when personal information is pre-filled. But according to Forrester Research, nearly 40% of online applicants went online as a result of a direct mail offer (versus 28% who went to a Web site as a result of an email offer). Conclusion: Although card applicants don’t fulfill through direct mail as often as in the past, direct mail is still a major influence — an influence that isn’t measured.

Firms who are “rethinking their strategies” may want to think again — simply shifting channel focus has its pitfalls.

As banks continue to drive customers online to manage accounts, branch traffic will decline. The result: Few opportunities to make card offers face-to-face. And relying on the Web ignores the challenges firms face trying to integrate their CRM apps with their online banking platform.

My recommendation: Don’t reduce mail volume for the sake of reducing mail volume. Card issuers can improve marketing effectiveness while reducing mail volume by:

  • Forecasting credit score changes. The majority of apps come from younger consumers (i.e., under 40) whose credit scores are lower and more volatile. But volatility is an opportunity. Marketers should use historical data to forecast changes in credit scores and target prospects whose scores fall below their targeted range today, but will rise in the one or two years.
  • Bundling offers. Many consumers who apply for credit products like mortgages, home equity loans, or car loans are more likely than other consumers to apply for a credit card in the same year. Card issuers should partner with sister LOBs to bundle offers to consumers on the the target list of both units.

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