Posts Tagged ‘Direct Mail’
Credit card direct mail in Canada has not rebounded from the recession in the same way that it has in the United States. In Canada volumes plummeted in 2009 and have remained flat ever since. Any hope of a recovery in 2011 has been severely delayed by industrial action that has crippled the Canadian postal system. Industrial action began on June 3, when almost 50,000 Canada Post employees commenced a series of rotating strikes, after the union and management failed to hammer out a new contract. The National Association of Major Mail Users (NAMMU), which represents the direct mail industry in Canada, is projecting 15,000+ layoffs as a result of Canada Post’s estimated 50% reduction in mail volumes during the strike. Factor in the growth of emerging channels, such as online advertising, and it is understandable that some might predict the demise of credit card direct mail, particularly for acquisition. However, it is my view that there will still be a recovery at some point. Here’s why:
Credit card direct mail in Canada has always been fueled by the presence of the U.S. monolines. Back in 2000 Canadian banks were forced to respond to the threat from MBNA and Capital One and the result was an expanding mailbox that eventually peaked in 2008. In 2011, in the lead up to the strike, Capital One and MBNA, along with American Express have been dominating the mail. I doubt the Canadian banks will sit back and allow their customers to be tempted by these competitive offers in the long term.
The new rule allowing banks to issue both Visa and MasterCard branded credit cards has added a new competitive element to the market. Both CIBC and RBC have been promoting MasterCard branded cards and MasterCard accounts for the majority of card offers in the mail in 2011, up significantly from prior years. Visa will be looking to redress the balance by encouraging card issuers to promote Visa over MasterCard.
Cobrand cards have not traditionally been big Canada. However, recent partnerships suggest that this might change as issuers seek out new strategies to gain an advantage. In the past year we have seen card issuer’s partner with WestJet, Delta, Costco and Sears to name a few of the more notable launches. Capital One acquired the HBC portfolio and recently announced that it would be launching a card in partnership with Intercontinental Hotels. All of these cards need to be promoted and direct mail remains a key channel for bringing them to market.
The personal approach
Direct mail is now competing with emerging channels for the marketing dollar. The great strength of direct mail is its ability to offer a personal message. Comperemedia has been tracking the decline of non-personalized mail as a proportion of total mail volume. It appears that some of the Canadian issuers that still rely on mail are realizing the benefits of the personal approach. It is the ability to offer a personal message that will sustain direct mail in the coming years.
So, despite the strike, there is evidence to suggest that we are not seeing the end of credit card direct mail in Canada. Direct mail will continue to be a valuable part of the credit card marketing mix for some time to come.
On February 22nd, the government’s new Consumer Financial Protection Bureau (CFPB) welcomed leaders from the credit card industry to the Treasury for a conference on the CARD Act. Last week, presentations from the conference were published on the CFPB’s new website (consumerfinance.gov) where you can also watch Elizabeth Warren’s Key Note address. Mintel Comperemedia was honored to kick off the conference with a presentation on “The Supply of Credit in the Card Market.”
The CARD Act conference – called “The CARD Act: One Year Later” – signified an effort by the CFPB to establish a starting point for dialogue that is based on fact, and to set the tone for the CFPB moving forward. Attending the conference were CEOs, CMOs and senior executives from the major card issuers and credit unions as well as credit bureaus, consumer advocates, regulators and academics.
Presentations covered the cost of credit for consumers, the supply of and demand for credit, and industry profitability. The CFPB summarizes the key findings on its site and you can now download the presentations. Here are the key points from my presentation:
- Competition is increasing – credit card acquisition mail volumes are up for the fifth consecutive quarter and we are starting to see subprime offers back in the mail.
- The landscape has shifted – rewards are the norm and plain vanilla cards (with no rewards and no annual fee) represent a niche market. A no-fee rewards card is the new “vanilla” of the credit card market.
- APRs are higher; BT and Cash Advance Fees have increased – revolvers and subprime consumers, in particular, have been impacted by rising fees and the difference between subprime consumers and the rest of the market is more polarized than before the recession.
- Most offers promote 0% teaser rates; teaser rate terms are also becoming more favorable for consumers with an increasing number of introductory balance transfer offers extended for thirteen months or more. In a competitive environment with improving terms – and many offers loaded with features and benefits – we are, arguably, seeing some of the best offers for new credit cards that we have seen at Comperemedia.
Understandably, with the competition in the room, many of the senior executives attending the conference gave little away regarding their post CARD Act strategies. The senior executives I spoke with were quick to praise the CFPB for proactively reaching out to them for their perspective and for promising a balanced approach. Under the Dodd-Frank Act the CFPB receives its full powers on July 21st, 2011. It is gearing up for a flying start.
Q: What do you think will be the impact of the Durbin Amendment on
A: There will be significant pressure to scale back debit rewards programs – Chase has already announced that it will cut debit rewards for new customers in anticipation of the new rules. Also, I think the new rules will accelerate the trend towards relationship banking which was initially fuelled by the regulatory squeeze on overdraft fees. In an interesting twist we are now seeing consumers sign up for overdraft fees which might help the industry weather the potential reduction in debit card revenues.
Q: How is social media shaping loyalty marketing?
A: In my webinar we discussed the changing landscape for loyalty marketing and the fiercely competitive environment. Consumers are ruthless and will use the loyalty program with the highest cash back rate or the most points per dollar. These days consumers have easier access to information than ever before via the internet. The rapid growth of social media sites during the past two years means they also have access to vast array of recommendations and referrals. This represents a huge threat to loyalty marketers but, at the same time, it also presents an opportunity if positive news about your loyalty program goes viral.
Q: How can a card issuer build relationships if it doesn’t have a full
suite of banking products?
A: Focus on other touch points such as customer service, communications and branding. The best examples of this are American Express and Discover. Both have focused on customer service. Both compete aggressively for customer service awards so that they can promote this as a competitive advantage in their marketing materials.
Q: How can you create a loyalty program that is valuable to the consumer and something they will actually engage with and use?
A: Consumers want rewards for items they already purchase and they want instant redemption. The issuer that can crack instant redemption will be on to a winner.
Q: What features of the rewards program drives the decision to enroll and then engage – bonus at time of enrollment, bonus in certain merchant categories, earn rate, redemption options, point expiration, etc.?
A: In our research we found that the most powerful incentive for usage is simply being able to get more rewards for the dollar or the highest cash back rate. This was followed by the ability to redeem instantly which you can with many merchant (non credit card) rewards programs.
Q: Can you touch on firm offers of credit vs ITA?
A: The bulk of rewards offers continue to be pre-screened. ITA’s are used most frequently seen with cobranded rewards cards.
Q: ¬What is the biggest frustration with rewards that you have picked up in your research¬?
A: The missing piece is instant redemption. We discussed a couple of examples of issuers who have recently added instant redemption to their programs including Target and the Marriot Rewards program. Citi just announced that it is testing what it refers to as 2G cards developed by Dynamics, Inc. (see Lisa Hronek’s Blog “Cutting edge credit: push a button to pay with rewards”)
Q: ¬How do these trends apply to non-financial services loyalty cards?¬
A: The most popular rewards programs are those offered via a grocery or drug store chain. The challenge for the card industry is to figure out how to partner with these programs that are already entrenched in the wallet (consumers have 14 loyalty programs according to Colloquy). Non-financial loyalty programs are often more technologically advanced – Starbucks,for example, has a mobile loyalty program in operation – and credit card companies can learn from their experience.
Q: ¬What do you think the top 3 success metrics are for an effective loyalty program?¬
A: An interesting question given that rewards cards are, arguably, the “plain vanilla” cards of the new era. I say that because most people own a rewards card and many are receiving multiple offers for rewards cards in the mail. In other words, you have to have a rewards program if you want to compete for prime consumers. I would therefore say a measure of acquisition, such as new accounts, is measuring the rewards program; share of wallet – because that’s what it’s all about – and some type of redemption measure that factors in ROI.
Q: Given some of the downward trend you showed earlier, is there a market/consumer for a richer rewards card with a fee?
A: Yes, there is a market but it is very competitive and any new rewards program will need a clear advantage in order to stand-out. For example, Citi just launched a suite of new ThankYou Rewards cards which offer a 15% discount on travel booked through a partner and no foreign transaction fees. These additional features are necessary to differentiate this card from the competition.
Q: Are you seeing similar trends in the rewards small business space?
A: There are fewer players in the small business space, particularly when it comes to direct mail, so the dynamic is different. However, some trends stand-out such as the promotion of cash-back products from Chase and American Express. The result is a head-to-head between the two issuers that is playing out in this space. You’ll recall, one example from the webinar was a business card from American Express that demonstrated the use of aggressive marketing tactics.
Q: What data is available about the percent of rewards card owners who actually redeem their points?
A: Redeemers tend to be more satisfied and use their cards more often. This means that making it easy to redeem/removing barriers to redemption will have a positive impact.
While I follow the insurance direct marketing industry, I can’t help but feel a little envious of what I’m seeing on television. At least in the Chicago area, where I sit between the two largest auto insurers Allstate and State Farm, I seem to be seeing more auto insurance commercials.
Earlier this year, Advertising Age reported that in 2009, GEICO out-spent the next highest auto insurance advertiser, Progressive, by more than 60 percent. Both State Farm and Allstate, who spend on parity with each other, spent less than half that of GEICO.
Progressive’s concept of an insurance company as a consumer package goods superstore is continuing with Pickles, the dog, teaming up with Flo to provide a comparative quote. You can’t go wrong featuring a cute animal. Flo is now playing second banana and providing a voiceover as the commercials end with a shot of Pickles in charge.
The Gecko has a long history with GEICO and his new commercials take advantage of his steady development as a spokesperson. No longer is he casually talking about pie and chips to a real gecko, as he did in one of his first commercials. Now he is talking in front of conference audiences with all the giveaways branded in his likeness. Like Progressive’s Flo, GEICO is capitalizing on a developed brand image.
Still working to develop an image, Esurance seems to have placed secret agent Erin into deep cover as they now use a small group of dedicated employees who talk about their interactions with Esurance customers. Whether it’s The Saver or the Coverage Counselor, this cast of spokespersons grabs attention by playing out short stories on the experiences of being an Esurance customer.
Both of today’s leading auto insurers stick with the real life spokesperson format. Together, State Farm and Allstate challenge Progressive and GEICO’s messages of saving money and fast quotes.
State Farm has developed its spokesman into the customer’s friend who reminds them to check whether their friends and family are one of 40 million State Farm customers. Then he one-ups the competition by telling the audience that State Farm is larger than Progressive and GEICO combined.
Similarly, Allstate continues to rely on Denis Haysbert as the spokesperson for most of their commercials. In a new campaign he supports Dean Winters, portraying Mayhem, in a series depicting causes of accidents. Allstate, like State Farm, challenges GEICO’s message by asking if a fifteen minute call could provide the service you get from your personal agent.
It’s clear that these five companies are spending a lot on the development of new brand images. Apparently the money is coming from their print advertising since Adweek recently reported that the auto insurance industry reduced its print spending by 26 percent in 2009. Some of that decrease may include direct mail, which Comperemedia reports as having decreased five percent last year from 2008.
These five companies can be split into two groups when it comes to direct mail strategy. Both Progressive and Esurance have nearly stopped mailing. Of the others, GEICO is still the largest mailer, not segmenting who receives a solicitation, while Allstate and State Farm maintain strong mail levels and utilize their agents to guide the segments on address labels.
When I look at auto insurance direct mail, I’m surprised how different the pieces are from the companies’ commercials. There’s a dysfunctional integrated marketing strategy, a direct marketing channel disconnect. The images these companies are investing in and creating on television are not being leveraged in their direct mail solicitations.
I would think it would be an advantage to incorporate the TV brand images into mail campaigns as a reminder of the company’s brand values. After all, the advantage of advertising is it builds the brand through repetition of a message.