Transaction segments drive VisaÕs customer value
WITHIN THE CREDIT CARD industry, the prospects for prospecting aren’t good. Issuers sent out 3 billion solicitations last year, and response rates have fallen to just over half a percent.
To maximize the value of existing customers, spending on promotions to consumers already holding cards has risen from $3 per account in 1991 to $6.36 in 1997, the last year Foster City, CA-based Visa USA did its triennial industry review. That level should jump to around $8 after the current study is completed.
Visa’s research focuses around segments based on card use. “People bucket their transactions discretely,” says Wayne Best, Visa’s senior vice president of business research and reporting. The classifications came out of tests Visa started in 1992. Throughout the 1990s, the company analyzed a total of 600,000 card accounts from three separate financial institutions, looking initially at purchase patterns and then at derogatory measures such as charge-offs.
Visa was able to bucket 72% of the cards studied into a dozen primary use clusters. Those that exceeded the average return for each institution’s credit card products included ones used largely for airline travel, specialty stores and mail/telephone orders, while those used mostly at service stations, grocery stores and ATM cash machines had the lowest returns.
According to Best, while credit cards that have point programs affiliated with them account for 40% of all purchases, only around 10% to 15% of those issued (a group that includes Visa and MasterCard, but not Diner’s Club or American Express) are tied in with such promotions. These cards were exempted from the study.
Best feels marketers can use several strategies to benefit from these findings. If a cardholder uses his card primarily for groceries and would not be receptive to direct response solicitations, the marketer can save the cost of mailing. On the other hand, a cardholder who uses a card primarily for groceries but who otherwise looks like a mail order buyer may be using a competitor’s card for those purchases. This customer can be targeted with offers designed to move mail order purchases onto the Visa card.
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