Most credit card companies fall into one of two groups: Aggressive Acquirers or Relationship Managers. Compete Inc., shows how they can move towards capturing ground from the other group.
According to Compete, Inc., an advisory services firm that provides customer and competitive intelligence to businesses, the way in which credit card companies acquire and service their customers significantly affects their future growth prospects.
Acquisition or retention?
Compete Inc. looks at the market in two sections: Aggressive Acquirers and Relationship Managers. The Aggressive Acquirers (examples being GetSmart and NextCard) use the internet to attract and sign up new customers. The Relationship Managers (like American Express, Discover, MBNA and First USA) emphasise value-added services for their customers. Compete’s research shows that even though the internet-based acquisition campaigns of the Aggressive Acquirers are successfully siphoning market share from their competitors, the companies aren’t building relationships with their customers and so are facing a more volatile future.
Compete analysed the online behaviour of consumers who visited a credit card internet site and, by examining how they were using different sites (the number of new customer applications, the average visit duration, customer frequency etc.) identified the two segments and the implications of the two strategies.
According to Compete’s VP of Advisory Services, Derick Sutton, Aggressive Acquirers need to radically shift their thinking, particularly as the economic situation deteriorates. They will need to enhance their quality of service in order to generate additional fee income and maintain their customer bases. Some companies, Capital One for example, have shown that customer acquisition and retention are not mutually exclusive strategies.
Compete estimates that some thirty percent of US internet users visited a credit card site between June and August in 2001. Almost one in three of those visited at least two sites, suggesting that comparisons were being made. Using aggressive online advertising the Aggressive Acquirers attracted a monthly average of some 7 to 8 million unique visitors to their sites, of which 3% to 4% applied for accounts. Relationship Managers receive a monthly average of some 1.5 million visitors, of which fewer than 1% apply.
However, when it comes to actually engaging these customers after the card is issued, fewer than 1% of the Aggressive Acquirers’ unique visitors use the site to access and manage their accounts, but approximately 94% of MBNA’s and Discover’s did. This is bad news for the Aggressive Acquirers, because the most profitable customers are those who access add-on services or run monthly interest-bearing balances over the long term. The loss of active contact not only leads to fewer opportunities to cross or up-sell, but also makes default more likely.
The one to emulate
For Aggressive Acquirers, Compete cites Capital One as a model to emulate. Capital One attracts an average monthly four million visitors to its site. More than 35% of its visitors access their accounts and more than 11% complete an application.
Strategies that Compete recommends include:
· Devote more resources to communicating with and servicing customers, particularly the best customers.
· Partner with complementary commerce sites, mortgage providers and other suppliers of affinity products, in order to cross-sell and increase share of wallet.
· Streamline customer acquisition methods: Relationship Managers could increase their use of the internet and, by examining the online browsing behaviour of their best customers, use this information to attract customers away from the Aggressive Acquirers.