If anyone doesn't have credit, it's probably because they don't have a mailbox.

Lenders had another record year in 1997 for stuffing the nation's collective mailbag with direct mail for easy-to-get credit ranging from pre-approved car loans and high-LTV home equity lines to a fresh wave of gold, platinum and titanium credit cards. The U.S. Postal Service says that financial service companies mailed an incredible 23 billion pieces of mail, accounting for one-in-four pieces delivered.

Running the numbers

Credit card issuers, the self-styled pioneers of direct marketing, mailed an incredible 3 billion pieces alone. Tarrytown, NY-based BAIGlobal's Mail Monitoring service says that was up 26 percent from the previous year. The good news: Card issuers generated 39 million responses, up six million from last year. The bad news: average response rates dropped to a miserable 1.3 percent, the worst ever.

The disappointing math experienced by card issuers -mail more, get less- speaks volumes about the abysmal state of direct mail where even the most progressive marketers fail miserably to get most customers to even open their mail. "There is a definite relationship between sending more mail and seeing less come back," says a spokesman for Mail Monitor.

The forecast for 1998: mail volumes will peak as response rates dip again. Experts say that lenders will have to get smarter about data mining so that they make better offers to fewer people. And a new study from the Postal Service gives little reason for optimism and seems to confirm that the stuff-the-mailbox approach has seriously damaged consumer receptivity. "When a financial institution sends any communication, it has a negative connotation. It's not generally something that helps establish a relationship. It's impersonal and sounds very institutional," says U.S. Postal Service's Armando Dominguez, manager of financial services market development. "Customers want to feel warm and fuzzy with their institutions."

In the Postal Service's annual Household Diary study, a multi-year undertaking that last year included a survey of 5,300 households and the mail they receive, bankers fall at the bottom when measured for direct mail effectiveness (see chart). The survey shows that personalized first-class mail from banks is more effective than more common, cheaper third-class mail. Still, banks trailed other financial services sectors, including credit card issuers, in both categories and saw anemic responsiveness compared to merchants and fund-raisers.

The most recent study shows that 45.5 percent of all recipients of third-class mail from banks read it immediately, only marginally behind survey-leading merchants, which registered 52.9 percent. But the disparity grows sharply from there. Asked if they found the mail useful, 24 percent of recipients said 'Yes' for banks, while 43.4 percent approved of the merchants' mail. A meager 4.9 percent of bank customers said 'Yes' when asked if they would respond, while 16.1 percent of merchants' customers said 'Yes', a near four-to-one difference.

While the gap between banks and other financial services companies closed slightly on first-class mail, it was still markedly sharp compared to other industries. On response rates, 11.5 percent who received communications from the bank said they would respond, edging out other financial services providers and credit card issuers. But survey-leading fund-raisers registered an effectiveness nearly three times greater. "Mass direct marketing doesn't work anymore," says Postal Service spokesperson Carol Hurwitch. "You can spend a lot of money chasing a lot of customers you'll never really reach. Mass mailing is a blind way of doing things."

Even so, lenders continue a collective saturation bombing approach in pursuit of their individual goals. The card business has been particularly hard hit by explosive growth in the home equity lending business. Pushed by the economics of consolidating higher cost card balances into a tax deductible payment, tens of millions of households have been made offers.

Beyond getting customers to open the envelope, a larger problem is that few lenders have figured out how to really make consumers an offer they cannot refuse-and it's not about credit. "Credit is the commodity part of the product. You've really got to be bad to not get credit today," says Mike Geppert, senior vice president of First Data Solutions. "It is features that attract and keep customers."

Historically, features have fallen into two classes: interests and conveniences. "Issuers have got to get more creative in making the value proposition," Geppert says. "The credit card is still the best platform to create a mass customization of services for small groups of people."

rethinking strategy

As such, many issuers are splitting up marketing responsibilities. At PNC Bank, a senior executive now oversees acquisitions, while another exclusively handles retention efforts. Card executives contacted for this story refused to speak on the record, but admitted that the declining effectiveness of direct mail is their main concern. "We have great models for controlling our charge-offs," says a marketing chief for a top-10 issuer. "We are only half way to where we need to be to understand how to keep customers. We don't know how to forecast when someone is going to offer them a better deal, or to get them to open my envelope first."

-J. Racine

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