More than two billion credit card solicitations flooded consumers' mail boxes in 1994, but most ended up in the circular file.

That in itself is par for the course in a business where response rates of a few percentage points are huge, and tenths of percentage points can make the difference between success and failure.

But for all the direct-mail activity last year, which industry analysts said reached an all-time high, the aggregate response rate was a disappointing 1.6%. That is well below historical averages of 2.5%, according to BAI Mail Monitor, a survey that continuously tracks credit card direct mail performance.

Reacting to the trends in mass mailing, bankers have adopted the mantra of market segmentation, using ever more sophisticated data base techniques to target the people most likely to respond to a given offer.

Many such offers may be drowned out by the noise.

"No matter how sophisticated you are with direct mail, consumers have seen everything - teaser rates, low rates, rebates, grace periods, fees wiped out for life," said Robert B. McKinley, president of RAM Research Corp. in Frederick, Md., which tracks credit card pricing and marketing trends.

"They've become callous," Mr. McKinley said of the cardholding public. "They're not impressed anymore."

He said issuers that perfect nontraditional marketing methods will be most likely to succeed in finding new customers. He suggested offbeat strategies like setting up booths in shopping malls and using television and radio advertising.

Spagna Dunn Research Inc., which conducts a daily consumer survey, Payment Method Monitor, said the country is exposed to eight million product solicitations daily, and with advertising and telemarketing, that number jumps to 20 million.

Greg Spagna, president of the New York company, recommended that bankers find niches where the competition isn't as fierce, solicit more selectively, and concentrate on stimulating card usage among existing accounts.

As long as the number of mail solicitations rises and the response rates decline, the cost of acquiring a new account goes up. Robert Skolnick, executive vice president at the BAI research firm in Tarrytown, N.Y., said the industry will need to move still further away from mass marketing, identifying likely targets more precisely.

Mr. McKinley added that the trend for this year will be to develop deeper relationships with current customers to stem attrition.

While the biggest credit card issuers enjoyed phenomenal growth last year, much of it can be attributed to customers' transferring balances and taking advantage of teaser rates and waived annual fees.

"It's been a party for the last two years, but that train is slowing down," said Mr. McKinley.

Although analysts talk of market saturation and the need to pay attention to existing customers, most bankers have no intention of reducing direct-mail pitches aimed at luring away their competitors' clients.

"I can't make a connection between withdrawing from the solicitation phase and growing our share of the pie," said Thomas N. Hammelman, executive vice president of the consumer finance group at Richmond, Va.- based Crestar Bank.

Mr. Hammelman predicted more than three billion card solicitations would go out to consumers this year.

"We are going to create more turnover in account ownership, so we have to make sure our product is as competitive as can be on communication, service, and price, to make sure the target customer gets the best offer possible," he said.

But he added, "You have to be ever more cost-effective and think about existing customers and retention-based marketing" by offering new benefits to current cardholders.

Crestar is considered a second-tier credit card bank, with 900,000 accounts and $1.5 billion in outstandings.

Scott Marks, chairman of FCC National Bank, First Chicago Corp.'s credit card bank, one of the biggest at $12.5 billion in outstandings and 12 million accounts, said the competitive environment is "very Darwinian" and only the strongest will survive.

"With 6,000 issuers participating, some will conclude it's too expensive to seek new customers this way and will ultimately stop growing."

Mr. Marks echoed the market segmentation imperative.

"The cost of first-class postage has taken a jump, putting an even bigger premium on being able to target an offer well," he said. "You can't waste money on segments that won't be responsive."

Although industry observers have suggested increasing the search for new users and untapped markets, the majority of issuers are fishing in the same stream. "We're focusing on becoming more sophisticated to combat increasing competition," said George Pisacano, vice president of acquisitions for AT&T Universal Card Services Inc., Jacksonville, Fla.

"We're testing multiple price strategies and different offers to different segments of the market, building and developing internal segmentation schemes to measure and track results against, focusing on understanding from a marginal economic standpoint where best to spend marketing dollars," he said.

He said AT&T's main emphasis is not necessarily on first-time cardholders, but the telecommunications giant is soliciting college students and has been producing bilingual materials geared toward the Hispanic population.

Mr. Pisacano said AT&T is booking more business than ever through direct mail. His company concentrates on efficiency to drive down the costs of those offers. In less than five years, AT&T Universal has become one of the top 10 issuers in the nation, boasting $12.3 billion in receivables and 15.2 million accounts.

GE Capital Consumer Card Co.'s marketing manager, Daniel R. DeMeo, said, "Different customers respond to different products - you have to study that and manage it very carefully using a scalpel instead of a knife."

First USA Inc. of Dallas, which has become one of the top low-rate issuers, had tremendous growth last year, doubling its outstandings to $11 billion.

Even so, Richard Vague, president, said, "We, along with everyone else, are experiencing continued declines in response rates."

Mr. Vague added that lower response rates produce higher delinquencies and losses, as the most creditworthy customers are not taking new offers. "You have to be proactively anticipating that in credit decisions - it's clearly part of the equation," he said.

First USA targets the upper end of the credit market and neither intends to lower its acceptable credit scores nor explore new markets to any great extent to increase response rates.

Mr. Vague said he thinks more consolidation will occur as the marginal players find it harder to make a profit. "Folks that are very focused and have advanced technology, sophisticated modeling processes, and excellent cost structures will do well, while others may choose to deemphasize their programs because of competition."

First of America Bank Corp. in Kalamazoo, Mich., with $1.4 billion of outstandings and 1.9 million accounts, has seen a one-third decline in response rates. Marc Altman, senior vice president of marketing and sales, said the company is developing more niche-oriented customer reward programs such as the PrimeCard in Boston, a discount dining cobranded card, and the FirstAir card, a frequent-flier program.

"The key, as everyone's been saying for at least 18 months, is to provide value if you want to succeed," Mr. Altman said. He called it the "ticket to higher response rates." While a value strategy can raise a program's cost, it is still highly profitable if well structured.

Like many banks that recognize untapped opportunities among the youth, elderly, and minority market segments, First of America is not focusing its energies in those directions.

"We're looking at new markets," Mr. Altman said, "but we're concentrating on improved segmentation in niche marketing and traditional markets."

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