Credit-card mania

American Demographics, Dec, 1996 by Tibbett L. Speer, Marcia Mogelonsky

It wasn't long before card issuers were looking for ways to understand which potential customers were the best bet for particular kinds of offers. At this point, demographic and attitudinal information came into the picture. "Marketers started out with a few credit predictors" Rapaport says. "Now they incorporate hundreds of variables into the models."

"There is nothing permanent except change, writes Visa International leader Edmund Jensen in the firm's 1996 annual report. Visa's president and chief executive officer is quoting the Greek philosopher Heraclitus to describe his industry's metamorphoses. The move toward micromarketing means that card issuers want to know you personally. As long as consumers are honest about the information they provide, the credit-card offers they receive should fit better-than the ones they used to get.

Just as targeting tactics have evolved, so have the hooks used to land customers. Most cards originally came with an annual fee of $20 or more. Then fee-free cards became the trend. Today, most card offers are without fees, according to Lisa Itzkowitz, marketing director at Behavioral Analysis. In contrast, pre-approved offers have tapered off slightly, because, as Itzkowitz says, "They can offer practically anything if it's not pre-approved."

Gold cards, featuring $5,000 minimum credit lines and other benefits, were widely peddled to wealthier people as a status product. That worked for a while, but the concept became so over-promoted that it lost its premium cachet, Itzkowitz says. Teaser rates, those initial low interest rates that jump several points after a few months, remain popular.

One successful tactic that accounts for one-fifth of offers today is the co-brand concept linking credit cards with other businesses. When users charge purchases, they obtain benefits such as frequent flyer miles, discounts on long-distance phone calls, and points toward rebates on cars. Afffinity cards are a related concept that identifies the user with an organization, place, hobby, or even family surname.

Targeting a mailing to people who might want a Frank Sinatra affinity card requires top-notch expertise in precision marketing. Upstart MBNA Corporation, based in Wilmington, Delaware, has seemingly mastered the method. The company offers thousands of different cards. It nabbed 6 million accounts in 1995 and another 4 million in the first half of 1996. With $25 billion in Visa and MasterCard loans outstanding, MBNA ranked second only to Citicorp in bank-card lending at the end of 1995. Among its more than 4,300 endorsements, parceled out by a sales and marketing force divided into ten business sectors, are the National Football League, the Association of Trial Lawyers of America, and the Sierra Club.

Estimates vary of how much credit-card companies pay to acquire new business. The industry publication CardTrak cites figures of $35 to $125 per account. Gary Gordon, a credit-card company analyst at PaineWebber Inc. in New York City, says some companies mention costs of $70 to $80 per account, although he doubts that this includes the impacts of loss-leading teaser interest rates.