Discover Financial Services knew that it had to do something new last year to survive in a teeming credit card market.
It already had a unique selling point—the cash-back bonuses that were ridiculed when the card came out in 1986. But this time it did something even more radical.
It changed the shape of its credit cards.
It launched the Discover 2Go program, featuring odd-shaped key chain credit cards that come inside a plastic bubble.
And despite ridicule by pundits, consumers love them. "We received a million requests for the card in the first year without solicitation," said Discover's Ashoke Dutt, during a keynote address at Chicago DM Days & Expo.
The big question is: What's next? If Discover was ahead of the pack with keychains, it was behind it when it came to ancillary products.
The firm, which had only a single product only a few years ago, introduced "platinum first, then gold and affinity cards and now we have 100 different card designs," Dutt said. The problem, he added, is that "other people have 900 designs."
And Discover faces the same declining market as other credit card mailers.
At one time, banks could target anyone with decent credit scores. Then a couple of firms were slammed by regulators, and "suddenly the whole universe shrank to a small microcosm of what it was," Dutt continued.
The result is that "the number of mailing pieces is going up, but targeting a smaller number of people," he added.
These problems have been aggravated by the recession, and by the increasing commoditization of credit cards. And retention has gotten tougher.
"The old 80/20 rule applies, but it's more extreme in our business, Dutt said. "If you lose a little niche—your sweet spot—your profits are gone."
Then there's the problem of mailbox glut. Comperemedia reported that 15 billion pieces of direct mail were sent in 2002, compared with 13 billion in 2001 and 9 billion in 2000. "The card industry alone is 5 or 6 billion pieces," he added.
So what can a company do to escape this "stifling environment?" Discover has tried to stand out with its creative.
Dutt showed a Capital One envelope with a personalized address and imitation handwriting. There was no copy on the envelope.
In contrast, a recent Discover envelope featured the headline: "Caution: Sharp Financial Instrument Enclosed. Incidents of rate cuts reported."
"That doesn't mean it works automatically," he said. "But segment of people ready for something different and fun."
Then there are the envelopes with offering a 0% APR against an American flag backdrop. Widely used over the past year or so, the flag theme offended some people who found it exploitive. But "those who did it in an elegant and graceful way came out of it net positive," he said.
Another Discover envelope had a picture of a dolphin, and the headline: "Respect your higher intelligence." Dutt said, "It's bringing huge lifts to our controls."
Discover has also retained its high brand recognition. But brand-building takes work, as Dutt learned during his years with Citibank.
Citibank is now the No. 1 global financial services brand, but the firm found to its dismay several years ago that many Asian and Latin American countries lacked credit bureaus and a postal infrastructure, he said.
"We went to the post office in one country, and said we wanted to drop four million pieces of mail," Dutt said. "They told us, 'We do that many in a year.’"
So Citibank recruited retired postmasters general to create a mail sorting service. But even then, "response rates were pathetic," Dutt said. The solution: House-to-house selling. But that, too, created problems.
To make up for the lack of credit bureaus, they had to send verifiers out into the field to talk to neighbors and do other forms of checking. But then they discovered there was collusion between the agents and the verifiers, and so another level of checking was required.
But it paid off, Dutt said. In some countries, Citibank's market share was near 60%, he said.
