Profitability Strategies for the New American Consumer
Consumers first abandoned credit cards during the Great Recession, choosing instead to rely on cash to fund their purchases. But evidence indicates that since the beginning of 2011, consumers are returning to credit usage, but with an important change — without the return to revolving debt that's traditionally a hallmark of consumer credit card usage.
Although credit usage is going up, more consumers are paying off their credit card bills in full at month’s end rather than revolving that debt over a period of months or even years. While financial institutions face new challenges to the profitability metrics of bank-issued card products as a result of this trend, merchants and, in particular, private-label merchant card programs have an advantage moving forward. However, the anemic economic recovery and recent return of consumer fear show that challenges still remain for retailers of all types when it comes to stimulating and sustaining consumer spending.
The Changing Needs of the New American Consumer
This new caution among consumers will restrain the future debt level they're willing to amass, even as a return to credit spending resumes and the slow economic recovery drags on. As spending continues to return, merchants and issuers must align to provide a new experience based on a combination of marketing, support and product offerings that leverage consumers’ new mentality as well as their growing demand for multichannel products that access the immediacy of the internet and mobile channels.
Tactics to Drive Increased Consumer Spending
The evolving usage patterns for credit offer both a challenge and an opportunity. The challenge involves developing a strategy that offsets consumer wariness on bank-issued credit. The opportunity involves doing so via a combination of payment product-specific marketing and private-label incentives to drive deeper brand affinity among customers and prospects. Core mandates for merchants to follow include:
- Rethink payment choices as a strategic differentiator. Retailers must identify payment options that they'd prefer consumers use in-store or online. Offers and promotions should be introduced to help increase frequency and value of spend using these products.
- Boost features, channels and portfolio options that diversify income or reduce cost of service. Beyond targeting promotions tied to one or more payment products, retailers should begin to experiment with mobile delivery of incentives and marketing messages in order to understand the receptiveness of their client base to real-time personalized offers and coupons. What’s more, adding features to a private-label card product such as insurance or VIP sales just for cardholders can assist in driving greater spending while positioning that product as a value-added offering.
- Use analytics to understand who and how to target. Analytics can assist with marketing, targeting incentives, customer insights for future strategic planning and measuring customer satisfaction across key demographic segments based on age, socioeconomic status or other factors.
Ed Kountz is a director with First Data Advisors. Ed can be reached at edward.kountz@firstdata.com.
