Regardless of the focus of your portfolio management activities, the objective is clearly to maximize the contribution to profit from current cardholders.

If your priorities include balance maximization, usage stimulation, account retention, fee services, or customer communication, there are several key techniques that can boost your effectiveness.

Issuers know the range of profitability on a cardholder can span from losing $50 per year to making $300. The role of portfolio management is to gauge the profitability of each individual cardholder-and cardholder segment-to increase revenue and reduce and control losses.

Acknowledging that a card issuer's customer base is usually much larger than the number of new accounts each year, current credit customers can contribute up to 10 times the amount of revenue and profit as new cardholders. Clearly, retaining accounts is far more cost-effective than acquiring new ones.

This is especially true since the competition for new accounts continues to intensify. There were more than 300 billion solicitations for new cards in 1997 alone!

Compounding the difficulties of securing new profitable accounts is the fact that consumers have turned "rate-surfing" into a high art. They juggle card offerings, transferring balances to a new card when the introductory rate of the one they have expires. Hardly a day goes by without a new article about how consumers can play "beat the bank."

On the up-side, however, large, powerful, and cost-effective data bases now make mass customization-managing millions of customers on an individual basis-immediately possible. The card issuer is able to create customized programs that appeal to specific cardholders based on their patterns of use.

Portfolio management is much more dependent than other payment systems disciplines on the predictive modeling and market segmentation made possible by meticulous data base analysis. Data base analysis lets a portfolio manager determine how much to raise or lower a customer's credit line, how to set interest rates and risk-based pricing, and what proactive marketing programs to offer each customer. It also encompasses all those communications with cardholders that include positioning, image, direct response telephone, and on-line communications.

Portfolio management executives need to establish valid statistical relationships between various types of cardholder behavior and how the cardholder will respond to a particular type of program. Armed with this type of knowledge, card issuers can simply focus portfolio management activities on those cardholders who, the data shows, are most likely to respond offer by offer, price point by price point-an advantage that cuts marketing expense and goes right to the issuer's bottom line.

The basic tools being marketed for effective portfolio management are check mailings, which may produce between 5% and 20% response for checks that average between $800 and $1,200, and balance-transfer mailings using introductory rates to encourage customers to hop to another card. A key issue is to effectively predict the balance runoff of these programs by risk and profit segments.

Sweepstakes are also gaining popularity as a way to influence cardholders to use their cards more often, or to breathe life into a dormant cardholder. Other portfolio management tools include risk management and pricing, which, when used in combination, are greater than the sum of their parts.

Transaction-level pricing also lets issuers offer innovative programs in which a cardholder receives a low interest rate based on when and where the card is used. A low interest rate may be paid to a cardholder, for example, on all travel-related spending for a specific time frame, based on SIC codes. Similarly, they may receive a low interest rate for all spending over a specific time period such as back-to-school purchases during the first week in September.

Beyond this universe of portfolio management tools and techniques, many issuers offer a broad spectrum of fee services to their cardholders, including credit card protection, restaurant discounts, and access to low- cost legal, dental, and insurance services. These fee services are additional tools for building revenue and account profitability. By strengthening the relationship between the cardholder and the issuer, fee services also help reduce the rate of voluntary attrition.

Objectives and strategies are all well and good, but the key is how to make it happen. We all know that the answer is plain hard work. But beyond the obvious, here are a few pointers to help guide your portfolio management activities:

Focus on profit. Do not be sidetracked by any individual element such as risk or revenue. Stay focused on the bottom-line contribution over time.

Use the data base. The customer information file is the nerve center of portfolio management efforts. Use it to understand current performance, segment customers, model pro formas, and track the impact of your programs.

Watch the competition. Set up a mechanism to track what the competition is doing. If they do it twice, it is probably working, so test it yourself!

Test, test, test. Statistically valid and projectable testing of new pricing, features, channels, and offers is the critical input to controlled and profitable growth.

Use multiple channels and offers. People respond differently to different offers using different channels. Do not worry about overlap or overkill.

Move quickly. A fast turnaround of testing cycles-from concept through design to implementation and analysis of results-is most important. This will let you benefit from early testing results before the market may change again.

Analyze and adjust. As soon as results are available, they must be analyzed and immediately either discarded or rolled out to the entire account base.

Work together. Portfolio management requires a high degree of functional collaboration. Solid teamwork is essential. Make sure you have input and involvement from all areas, including marketing, risk, operations, finance, and compliance.

While there is no mystique to any single aspect of portfolio management, attention to detail in each of the elements involved will result in increased efficiencies and profitability.

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