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Credit card companies have rarely shied away from mass market mailings. As the credit crunch takes hold, however, they are starting to rethink their strategies with a strong focus on segmentation.

The financial services industry, and credit card firms in particular, have long been berated for their often inappropriate direct marketing techniques. Over the years common practice has seen lenders carpet bomb the entire population with irrelevant offers, encouraging people to run up a vast amount of debt and contributing significantly to the amount of waste that gets sent to landfill.

Yet while no one has yet dared to breathe the word 'recession', the ongoing credit crunch means credit card companies are certainly feeling the pinch and, therefore, having to rethink their direct marketing strategies.

Instead of offering credit to all and sundry they are now being forced to reign in their lending and even decrease credit limits in some cases.

In fact Citibank's decision to ditch over 7 per cent of Egg's credit card customers that it deemed unacceptably 'high risk' earlier this year sent the financial services industry into a frenzy. And with falling house prices and economic uncertainty across the globe it seems the future of credit card marketing could be hanging in the balance.

Credit card providers have traditionally relied heavily on acquisition activity but many are now turning to retention techniques in order to survive. Stephens Francis Whitson planning partner Chris Whitson comments: "Credit card companies need to take their marketing cue from the small band of operators that have quietly been building a core base of loyal customers by thinking hard about who they target, with what product and how they manage those customers beyond the point of acquisition. Less is more."

A more sophisticated approach is certainly needed in the current climate as in the past too many people have been offered far too much credit. Lenders will need to employ cross selling and up selling strategies too in order to make the most of their customer base.

"This will result in a shift of budget from acquisition to customer journey marketing," notes Chris Dickens, head of strategy at Geronimo.

He adds: "Following an increase in more stringent credit checking, turn downs will increase and, consequently, acquisition costs will rise. So more strategic usage of direct marketing techniques such as segmentation and propensity modelling will be deployed to ensure the right type of customer is acquired."

In the past there has been little focus on acquiring long term, high value customers with lenders simply out to close a deal. There is little doubt this will have to change. And because of the over saturation of the market the irony is that, as Whitson highlights, "many potential high value customers view the mailing as junk mail and fail to respond".

However, while there is an increased focus on retention, there is still some acquisition activity taking place in the market. Credit card providers are discovering they need to better segment prospects and focus spend accordingly. Heather Westgate, chief executive of TDA, comments: "Smarter providers will take this one step further to develop specific offerings that are tailored for different types of credit user."

As a result while most people will notice a reduction in the volume of offers of credit they receive, high value customers who are few and far between will increasingly become hot property.

HS&P planning director Dan Thwaites explains: "High-value customers will become even more precious and marketers will look for more opportunities to engage with prospects and customers and keep the dialogue going. Every pound spent will be expected to deliver more."

Andy Beck, commercial director of Attinger Jack Interactive, agrees: "Credit card companies haven't slashed the budget spend but they are stepping up their targeting and increasingly moving campaigns more towards higher age brackets and higher income brackets."

Thwaites believes that as marketers seek to leverage more value from their campaigns "financial services marketers will go further down the 'direct digital' road".
He expands: "They will seek to drive efficiency increases by opting to capitalise on the immediacy, cost advantages and measurability of the digital channels available, with the accuracy and insight gleaned from traditional database marketing."

In essence, tactics are going to have to change which many commentators believe can only be a good thing for the reputation of the industry. Westgate states: "If the shake in market confidence leads to a new breed of better segmented, targeted and precise credit card marketing, it's got to be a good thing."

Director of Real Digital Wanda Goldwag also believes the credit card market has to completely rethink its approach to consumer marketing. She thinks the current climate will lead to mailing volumes shrinking as more emphasis is placed on targeting relevant messaging and tailored propositions.

She argues: "I welcome any move that creates a greater sense of responsibility among marketers and an end to the mass mailing techniques we associate with this market.

"Typical approaches like targeting high risk prospects who already have six, seven or eight credit cards or repeatedly mailing people month after month who never respond aren't smart and have always been at odds with industry best practice."

Goldwag reckons that while analysis and segmentation techniques will no doubt be employed going forward, data will also become an increasingly strategic tool. "The 'one message fits all' approach is no longer fit for purpose," she says. "In turn all the marketing metrics against which this industry measures campaign success will have to be reviewed and factors like customer value, attrition and long-term profitability will have a much bigger role to play."

Data is fast becoming increasingly sophisticated and those credit card marketers who are able to leverage it effectively will certainly reap the rewards.

After all, as they come under increasing pressure from their financial directors to prove return on investment and ensure every penny that goes into every campaign counts, the clever use of data will aid this process.

As Abi Wood, head of financial marketing at Royal Mail, points out: "The use of data will play an increasingly significant role in the current climate as companies aim to make sure they only attract interest from the customers that they want.

"Like mass marketing activities, where return on investment (ROI) is reduced, direct marketing to people who you will actually decide not to offer a product or service to is not cost effective.

"In addition, to market to people and tempt them with an offer only to tell them they do not qualify will have a long term impact on a company's reputation."

In the current climate it is not only vital for marketers to get their targeting spot on in order to maximise ROI, it is also increasingly important as they strive to promote their brand and seek out solid new customers who are now few and far between.

As a result, customer insight is vital. "Making data work harder and smarter is a key part of the customer retention process, as in-depth knowledge of individuals in the credit market can identify trends and help predict behaviour," says Kevin Slatter, director and global client strategist at G2 Data Dynamics.

He adds: "Customer insight in the fluctuating credit arena can make the difference between losing a customer for good or listening to them and giving them what they want."

Going forward, all credit card brands will need to work hard to ensure they meet the ever-changing needs of their most valued customers while also paying attention to those who may have a propensity to switch.

There is no doubt that the current economic climate has certainly led to vast changes in the credit card market. But while direct marketers have been forced to change their approach this is no bad thing for the industry.

As the direct industry as a whole continues to try to prove its worth to the wider community, in part by reducing the amount of waste that gets sent to landfill and only targeting the right people, the fact that the credit card market is taking a more responsible approach to lending will certainly help.

After all, MBNA and Capital One still appear in Precision Marketing's 2008 Top 25 Client Companies Survey as two of the top five brands most in need of a direct makeover (PM June 27). If this industry manages to clean up its act and make the most of the new opportunities the credit crunch can bring, it will go a long way to not only securing the future of the credit card industry but also the direct industry as a whole.

Goldwag concludes: "As a vital and very visible part of this industry, the credit card market has a major influence on how all of us in direct marketing are perceived by the public and by the media.

"If smarter marketing is on the agenda in this market then everyone stands to gain."