Credit Card Wars: Despite Success in Gaining New Customers, Aggressive Acquirers Risk Long-term Growth.

Business/Technology Editors

BOSTON--(BUSINESS WIRE)--Nov. 6, 2001

Compete, Inc., Recommends Shifting Resources To Customer Service To

Retain Existing Customers

Compete, Inc., an advisory services firm that provides customer and competitive intelligence to leading businesses, asserts that the way credit card companies acquire and service customers can significantly impact their future growth prospects. "Aggressive Acquirers," firms such as GetSmart and NextCard, use the Internet to successfully attract and sign-up new customers; Relationship Managers, such as American Express, Discover, MBNA, and First USA, place more emphasis on providing value-added services to their customers. Compete research shows that while Aggressive Acquirers are using Internet-based acquisition campaigns to successfully siphon market share from their counterparts, they have failed to build relationships with their customers and are therefore facing a volatile future.

Compete segmented the credit card market by analyzing the online behavior of consumers who visited a credit card Internet site during the third quarter of this year. By examining how consumers were using the different sites, including the number of new customer applications, the average visit duration, and customer frequency, Compete identified the two segments and illustrated the implications of pursuing an acquisition- versus relationship-based customer strategy.

"Aggressive Acquirers need to radically shift their thinking now," said Derick Sutton, Vice President of Advisory Services for Compete. "As the economic outlook becomes more pessimistic, Internet brands like NextCard and GetSmart must enhance the service they provide customers as a means to generate additional fee income and maintain the quality of their customer base, or face dwindling revenues. By following the lead of Capital One, who has demonstrated that customer acquisition and customer retention are not mutually exclusive strategies, they could threaten Relationship Managers over the long-term."

Consumers are up for grabs

Compete estimates that thirty percent of the U.S. Internet population of approximately 24.5 million unique users visited a credit card site between June and August 2001. Thirty percent of this group viewed at least two sites, suggesting that customers are using the Internet to compare offerings across multiple issuers, searching for the best deal, and possibly consolidation.

According to Compete's data, Aggressive Acquirers attract significantly more visitors to their Internet sites than Relationship Managers. Employing aggressive online advertising tactics, NextCard and GetSmart garnered a monthly average of 8.0 million and 6.9 million unique visitors to their sites, respectively, while Relationship Managers achieved a fraction of that amount, attracting an average of just under 1.5 million visitors monthly. Moreover, Aggressive Acquirers are able to leverage their high traffic volumes into new customers. NextCard and GetSmart each receive a monthly average of 260,000 applications, representing 3% and 4% of their unique visitor volume. In contrast, less than 1% of visitors to Relationship Managers submit an online application.

However, neither NextCard nor GetSmart have translated this success at acquiring customers into engaging these same customers after the point of issuing a credit card. Approximately 94% of MBNA and Discover's unique visitors use the sites to access and manage their accounts. In contrast, less than 1% of NextCard and GetSmart's unique visitors use the sites to access their accounts, indicating that NextCard and GetSmart are not actively marketing additional offerings or account management functionality. This finding bodes poorly for their future growth since credit card companies' most profitable customers are the ones that access add-on services or run monthly interest-bearing balances over the long term.

"By not encouraging customers to return to their sites, Aggressive Acquirers are losing out on additional selling opportunities," said Sutton. "Worse yet, by not touching their customers frequently, companies like NextCard and GetSmart are in jeopardy of getting stuck with customers prone to default as credit quality deteriorates. If these companies can combine their current advantage at attracting new customers with high touch customer relationship model, we predict that Aggressive Acquirers could become a credible threat to Relationship Managers, effectively capturing premium customers."

For Aggressive Acquirers, Capital One serves as the model to emulate as a credit card site that successfully combines aggressive customer acquisition via the Internet with service programs for regular customer contact. Compete has found that Capital One attracts a monthly average of 4.0 million unique visitors to its site. Most significantly, Capital One turns visitors into engaged customers. More than 35% of Capital One's visitors access their accounts, while more than 11% completed an application. The mix of activity on Capital One's site portends well for Aggressive Acquirers and indicates that Relationship Managers must stay alert and responsive or risk losing valuable customers.

Shift Resources and Attention to Retain Best Customers

Based on its research, Compete recommends that credit card companies employ the following strategies to more effectively attract their target customer base and retain high quality customers:

Improve Service Offerings: To reduce churn, Aggressive Acquirers should devote more resources to communicating with and servicing their customers. With an increased focus on customer intelligence, Aggressive Acquirers can identify their most profitable customers and tailor services to best match their needs.

Partner with Related Services: With increased return traffic, Aggressive Acquirers should take advantage of cross-sell opportunities by partnering with complimentary commerce sites, mortgage providers and other suppliers of affinity products. To increase share of wallet, Aggressive Acquirers must carefully evaluate and select potential partners based on effectiveness in retaining customers.

Streamline Customer Acquisition Methods: For their part, Relationship Managers, rather than relying heavily on direct mail solicitations, should increasingly use the Internet to attract and communicate with customers. By applying insights on the browsing behavior of their best customers to online advertising strategies, and through the judicious use of online affinity programs, Relationship Managers will be able to attract customers more effectively away from Aggressive Acquirers.

About Compete

Compete, Inc. advises leading companies on their customer strategies and competitive performance to drive online and offline sales and profits. The company delivers tangible recommendations tailored to client's specific business issues through advisory and Web-based services. Based on a data pool representing 9 million active Internet users, the largest in the industry, Compete analyzes customer activity across the Internet to provide actionable insights to help clients refine their customer attraction and retention initiatives in order to maximize loyalty and profitability. Compete is based in Boston, MA and has offices in San Francisco, CA.

Compete licenses detailed clickstream data representing the online behavior of active Internet users, yet strongly supports individual privacy and does not license personally identifiable information.