Account Acquisition Strategies: Profitability Drivers and Market Analysis

SUMMARY

Allocation of resources and determining best possible way to get the highest return is a challenging problem in the B2C marketing environment. Credit card marketing is no exception. Issues such as the DNC Registry, decreasing response rates in direct mail, and growing concerns about unsolicited email are eroding effectiveness of these channels making this picture more challenging.

This new research report by Mercator Advisory Group takes a closer look and examines the credit card industry with a focus on the account acquisition strategies. Included in the report is a comparison of domestic media spends for selected top tier firms, which are placing a significant emphasis on brand building.

The amount of credit card mailings has increased significantly over the last decade. However, the effectiveness of this channel has consistently declined with the response rate hitting its lowest level at 0.5% in 2002.

Evren Bayri, Director of Credit Advisory Service and author of the report says ?hannels such as email, Internet, and event marketing will hold a higher percentage in the marketing mix and represent a substantial area of investment for issuers as DNC Registry enforcement takes effect·

Despite industry consolidation led by the top ten firms, the credit card industry remains highly competitive. In an economy coming out of recession, where personal bankruptcies are at record high levels, issuers can sustain growth by incorporating new technologies into their marketing processes. Marketing Optimization solutions such as those from Fair Isaac and Marketswitch address the challenges of B2C marketing environment, and exploit the existing value in marketing campaigns. Using these solutions issuers can achieve 10-30% increase in campaign profitability.

This report is 23 pages long and contains 10 exhibits.

TABLE OF CONTENTS

1. Introduction 3

2. Background 4

• 2.1. Current State of the US Credit Card Market 4
• 2.2. Consolidation in the Market 6
• 2.3. Regulatory Changes Concerning Account Acquisitions 8

3. Overview of Account Acquisition (Solicitation) Process 9

4. Marketing Channels 12

5. Account Acquisition Strategies: How Do Issuers Play The Game? 16

6. Selected Marketing Optimization Solution Vendors 17

7. Conclusion 23

Tables and Exhibits

• Exhibit 1 - U.S. Growth in Receivables 1992 - 2002 4
• Exhibit 2 - U.S. Growth in Charge Volume 1992 - 2002 5
• Exhibit 3 - Annual Filings by Bankruptcy Chapter (for year ending September 30th) 6
• Exhibit 5 - U.S. Credit Card Industry - Market Share by Receivables 12/31/02 7
• Figure 1 - High-level Account Acquisition Process 9
• Figure 2 - High-level Model of Credit Card Marketing Campaign Problem 11
• Exhibit 6 - U.S. Credit Card Solicitation Mailings Trends - Q2 13
• Exhibit 7 - U.S. Credit Card Solicitation Mailing Trends 13
• Table 1 - U.S. Credit Card Brands in 2002 and 2001 Ranked by Domestic MediaSpending in Dollars 15
• Table 2 - Selected Marketing Optimization Solution Vendors 21