Johnson Business Machines, Inc.
Less Paper in Push for Plastic
You may not see as many credit-card offers weighing down your mailbox these days.
Less Paper in Push for Plastic Article
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Less Paper in Push for Plastic

By ANURADHA RAGHUNATHAN / The Dallas Morning News

You may not see as many credit-card offers weighing down your mailbox these days.

After peaking in 2001, direct-mail solicitations from card companies are slowing, while consumer-response rates are down significantly from a few years ago.

In an industry that tends to move in concert, companies have begun to realize that blanketing consumers with mass mailings may no longer be the key to building market share.

The race now is to satisfy existing customers and build loyalty.

As a result, card companies are expanding their rewards and partner programs, and more credit-card applications are popping up at places like Starbucks and the Disney Store.

But buyer beware: Rewards programs don't necessarily save you money, if you wind up paying a higher interest rate or annual fee.

Americans possess an average of 13.5 credit cards per household, about 1.5 billion nationwide. Card debt levels are at a record, with an average of $9,205 per household for 2003, up from $8,940 in 2002 and $8,234 in 2001, according to cardweb.com.

And the direct-mail solicitations don't cut it. In 2000, companies had to send out 167 solicitations to elicit one response. By 2002, companies mailed 200 solicitations to get one response.

For the first three quarters of 2003, total credit-card mailings fell by 13 percent, to 3.2 billion from 3.7 billion in the first three quarters of 2002, according to Synovate, a market research company.

"A lot of the usual suspects have slowed down," said David Robertson, publisher of The Nilson Report, a consumer payments newsletter. The question is: "Do they want to continue to solicit by direct mail for a diminishing rate of returns, or is the money better spent on customer retention?"

Companies spend at least $120 to attract each new customer and are loath to lose them.

Companies are beefing up their rewards and loyalty programs, offering co-branded cards and doling out bonus points for loyalty.

"This is a more cost-effective solution to drive more volume and spend from existing customers," said Doug Leighton, a department head for co-branded programs at Visa USA Inc.

How low can you go?

When interest rates fell during the 2001 recession, companies started offering teaser rates like never before. Mailboxes were flooded with offers like zero percent for a balance transfer, and so on.

But companies can't offer low rates for eternity. When interest rates rise, the sweetheart deals will go away.

"You can't play this strategy forever," said Stan Myers, managing director at California-based Card Analytics Consulting Inc. "At some point, you have to move them off the teaser rate to a fixed rate."

In January 2002, nearly 80 percent of direct mail offers had zero percent introductory rates, but by the end of 2003, less than 50 percent did, according to Mintel Comperemedia, a market research company. And many companies started off 2002 by offering balance transfer periods of 12 months or more. By the end of 2003, most were for 11 months or less.

"The problem with the pricing strategy is that in every industry there is only one price leader," Maritz's Moloney said. "Companies that are pulling customers by price and rate only are realizing that their customers are not loyal. They are cherry pickers, and they move on."
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