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The “New” Normal – haven’t I heard that before?
I saw a headline for a report that was just released by the NPD Group and thought it was quite interesting…
Director of product development at NPD and author of the report Dori Hickey: “Most consumers have unquestionably felt the sting of tough economic times and have cut back on spending and adopted thriftier behaviors; behaviors that may become entrenched the longer the recession continues. Our findings suggest we may be looking at a new ‘normal’.” Read the story.
There is, of course, a chance that they started covering the New Normal before June 2010, but I couldn’t find a reference to anything they’ve produced about it.
Meanwhile, the first reference I made to the New Normal was in 2008. Since then, Mintel has covered the concept in news pieces, observations, expert blogs, trends, reports, a white paper and a webinar.
Here’s that first piece I wrote, from Mintel Inspire. I hope you enjoy it.
The End of Easy Credit
Every once in a while a major event occurs that can potentially lead to a major societal shift in lifestyles, values or perspectives.
Assessing risk
9/11 was one such occurrence in the U.S. The recent economic “meltdown” is likely another such event. These recent economic events are less tragic of course, but much broader in scope, and more global in their sweep.
In other words, once the current “freeze” of available credit thaws, credit will be available again, but in much more limited quantities and to a much more select group of people. This will likely cause a societal shift of major proportions.
The current state of the economy exists for a number of reasons, but one stands out – that the amount of risk in the system was not assessed and priced accurately.
• Much of the current chaos exists because of the uncertainty about how risk should be priced going forward.
• Financial services companies have historically justified their existence to their shareholders and customers by their willingness to either assume, or provide protections against, much of the risk in the economic system.
• When that level is miscalculated those same financial services companies are the first to feel the impact.
• The impact on the consumer is felt later, but can be even more dramatic and substantial.
Personal risk
At the current time, while financial companies are busy trying to determine the amount of systemic risk and how best to deal with it, the consumer is busy trying to determine their own individual risk. They have pulled in spending and investment until such time as they feel reassured about these institutions and the system overall.
However, unlike much of the rest of the world, ever-optimistic Americans have indicated in recent surveys that they feel that things will return to “normal” in 6 months to a year, and that the economic situation will actually improve from its previous levels over the next five years. And they are conducting themselves accordingly.
However, without the availability of easily available credit, it is likely that what is “normal” has shifted and that consumers in the U.S. and globally will be looking at a new “normal”.
In other words, the upwardly spiraling expectations set up by the prolific use of credit in the last few years will need to be reversed—an occurrence that has no precedence for most living Americans.
For the first time in recent history we will need to make do with less.
Amplification of two trends
What this means is that eventually some form of capitulation must take place. Americans will need to develop a new unique state of mind, new ways of viewing themselves and their place in society, and these economically induced trends will likely intensify major trends already in place. For instance, two trends likely to be accelerated include simplification and the “greening of society”.
Simplification
• In a mobile society it is easy see why conspicuous consumption may gain acceptance, since individuals like to provide instant “cues” as to their place in the social hierarchy.
• This lies in contrast to the less-mobile, small town societies of several generations ago in which everyone knew their place.
• It is likely that recent trends identified as part of the simplicity movement (for instance, work/life balance), will accelerate social pressures against more obvious displays of conspicuous consumption.
• Flaunting designer labels may again be viewed as gauche.
• In other words, there is likely to be a significant shift in what is perceived as acceptable outward symbols of social status.
• The new “status” could be outward displays of frugality.
Green movement
• Green marketing has fallen by the wayside in the last few months as people have dealt with more immediate issues, but will likely return with a vengeance when consumers feel more secure with their personal circumstances.
• Concurrent with the simplicity movement discussed above, people are likely to turn their attention from consumption to other issues.
• Being environmentally conscious could very well define the new “cool”.
The new normal
So then, how will this “new normal” impact the financial services industry?
As we all know, opportunity comes from chaos, and the current situation is no exception. Financial services companies need to step back and monitor how society is reacting to these fast-paced developments, while reassuring their customers that they are doing everything they can to insure their future financial security.
One way to show they care is to reflect the values of simplicity, as they will likely be enhanced by a return to diminished expectations for consumption, and a more conservative view of how money is to be managed.
There may ultimately be new product opportunities created as people begin to save more and spend less, but companies need to anticipate how best to speak to these changes in cultural values.
Q&A from “One Year Later: The Impact of the CARD Act”
Thanks to all who listened in on my webinar with Nielsen’s Brian Schlessinger last Thursday (June 10). We experienced audio issues during Brian’s portion of the webinar, so I apologize for any inconvenience.
To make the recording better quality, we’ve re-recorded the webinar (minus the Q&A session). You can access the new recording and the slides here: http://tinyurl.com/2duguqf.
We did have many great questions asked during the webinar and I’ve responded to all of them below. Please contact me at ADavidson@Mintel.com or visit www.comperemedia.com if you have any questions.
Q. I’m curious as to how “Revolvers” were defined by Mintel.
A. Revolvers were defined as those who typically carry a balance from month to month on their primary credit card.
Q. What triggered consumer suspicion about a decrease in teaser rate offers and balance transfer offers? What was different in actual CARD Act that negated those concerns?
A. The new payment allocation rule in which payments, above the minimum due, are allocated to the highest APR balances first caused many to suggest that the industry would not be able to make money from teaser rates and we would see a reduction of teaser rate offers in the mail. This didn’t materialize and, in fact, most offers tracked by Comperemedia promote either a teaser rate for purchases or balance transfers. Issuers have navigated the payment allocation rule by increasing fees for balance transfers with many now charging 4% or 5% of the check amount. They have also increased APRs for purchases despite the low prime rate.
Q. Once these new regulations are fully digested, what do you see as new potential loopholes issuers may take advantage of?
A. In its relatively short history, the card industry has adapted to change successfully. We have already discussed the increase in go-to purchase APRs and BT fees. During the past two years, the industry as a whole scaled back to focus on only the most profitable customers. As competition increases, card issuers will need to continue to be creative to find new ways to promote their products while increasing revenues. Comperemedia will be assessing how they do this in direct mail, email, online and print advertising during the coming months. (Learn more: www.comperemedia.com.)
Q. What do consumers need to watch out for?
A. Consumers will start seeing more offers in the mail as the competition heats up. Terms are more transparent and it is easier to compare one offer with another due to the new Schumer Box format. If they are looking to transfer a balance, they should pay close attention to BT fees and not just the duration of the intro period. In a post-CARD Act world, the better the offer, the higher the BT fee.
Q. What has been the impact of the CARD Act on Small Business cardholders, considering those cards are exempt?
A. Small business cards are exempt and there was some speculation last year that issuers would redirect their efforts towards the small business market. This didn’t happen on a significant scale and volume levels remained comparatively low. Activity did start to pick up towards the end of the year although the pattern in business cards lags behind what we see in consumer. Capital One has been a key driver in recent months along with Chase and American Express. At some point we may expect legislation regarding small business cards.
Q. What forms of media would be best to get the positive PR about the CARD Act out to consumers?
A. Education needs to be on-going and some media are better at communicating on-going messages than others. More recently, financial institutions have turned to blogs to develop an on-going dialogue with consumers. Citi established a new blog (http://new.citi.com) to help rebuild its image in the wake of the financial crisis. Wells Fargo has been cautiously navigating the Wachovia integration through various tools including a dedicated blog (http://blog.wellsfargo.com/wachovia). A more traditional format is newsletters. Statement inserts should also play a key role. As a result of the CARD Act, more consumers are paying attention to their statements and this presents an opportunity for dialogue.
Q. What is the estimated financial loss to the credit card industry as a result of the CARD Act?
A. This will be difficult to calculate. The new regulations came at a time when the industry was already at a low point due to the recession. Signs indicate a return to profits for many industry players.
Q. Will mail volume continue to grow related to the CARD Act?
A. Yes. The recent increase in mail volume is being driven primarily by Chase. Some issuers, such as Bank of America and Discover, are still mailing at relatively low levels which means there is plenty of slack to be taken up. We anticipate acquisition mail volume reaching 3-4 billion this year, up from around 2 billion last year, but still much lower than the 7-8 billion seen during the boom years.
Please join me for a webinar on the CARD Act’s Impact tomorrow
Hi everyone. Tomorrow, with the help of Brian Schlessinger, Vice President of Industry Solutions at Nielsen, Mintel Comperemedia will host a webinar:
“One Year Later: The Impact of the CARD Act”
Thursday, June 9, 2010
2:00-3:00pm CT
It’s been one year since Congress signed the CARD Act into law, forever changing the face of credit card lending in the US. Though many of the new regulations didn’t take effect until 2010, card issuers began communicating rate, fee and plan changes to customers as early as Summer 2009. Despite this communication, many consumers still worry about credit card rates and fees, and many feel underwhelmed by the benefits of the CARD Act.
This presentation will examine:
- How card issuers communicated CARD Act changes to their customers, including which issuers were most successful in getting their messages across
- New trends in credit card acquisition direct mail and email campaigns as a result of CARD Act regulations
- The influence of online buzz and its ability to drive opinions related to the CARD Act
- Consumer awareness and their latest opinions regarding the new rules
I hope you can join us! I’ll be posting the recording and slides here after the webinar, as well as answers to the Q&A. Register for the webinar with this link: http://bit.ly/bKV30m
U.S. Bank takes the lead with over limit fee opt in
The CARD Act mandates that consumers must be given the right to opt in for over limit fees. Until now we have not seen how the card industry will address the new rule within acquisition direct marketing. However in March, U.S. Bank made the first move by including an over limit opt in check box on application forms so that prospective cardholders can authorize future over limit transactions.
The U.S. Bank check box is shown on the application form under the heading “Overlimit transaction opt in right.” U.S. Bank (and Elan Financial Services) application forms are attached to the letter or, in some cases, included as a separate acceptance certificate. The fine print for the opt in states that “you will pay one fee per billing cycle even if you go over your credit limit multiple times.” It goes on to disclose that the bank “may still decline transactions that go over your Credit Limit, such as if you are past due or significantly over your Credit Limit.” The bank charges $39 for an over limit transaction.
U.S. Bank also communicated with customers during February and March regarding the opt in, presenting an option to sign up for “overlimit coverage.” Customers can sign up online or by calling Cardmember Service.
HSBC has been the only other issuer mentioning the opt in in its acquisition direct marketing efforts. In March, it outlined the requirement in its “Solicitation Disclosures” insert. Like the U.S. Bank communication, HSBC’s insert describes over limit “coverage,” but unlike U.S. Bank it does not provide applicants with the ability to physically opt in at the point of application. HSBC charges $19 on balances over limit but less than $250 and $30 for balances over $250.
U.S. Bank has taken the lead by adding a check box to its acquisition mail and we are now seeing the new language of “over limit coverage” from both U.S. Bank and HSBC. It is likely that others in the industry will follow as we continue to navigate the ongoing impact of the CARD Act.