A Brief History of Credit Card Marketing Tactics
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I got my very first credit card in 1999, when I was a college sophomore. This was back in the bad old unregulated days when credit card issuers were allowed to set up shop on college campuses and offer T-shirts, pizza, and Frisbees in exchange for signing up for a card. Despite the fact that many of my friends fell for these pitches during our first year of college, I was easily able to avoid every single credit card temptation for over a year and a half. I knew I didn't need a credit card, and no pitch was good enough to shake my belief in that unassailable fact.
Then, one day I opened an envelope from Capital One that carried my own personal Kryptonite. This particular marketing pitch would allow me to choose my preferred card image — and the pitch came with stickers that I could use to indicate my image preference on my application. Considering the fact that I would later in my life start working with children and ultimately become a teacher so that I could have a legitimate excuse for buying stickers, Capital One could not have chosen a better marketing scheme to appeal to me.
Banks and credit card issuers collectively spend billions of dollars each year on both advertising and direct mail marketing in order to ensnare new customers. But even though we're accustomed to the monthly influx of credit card solicitations — the average American household fields six offers in the mail per month — it's important to remember that credit card marketing is a relatively new field.
This helps to explain why credit card debt is such a rampant problem in 2013 America — right now, we collectively owe credit cards over $850 billion. Prior generations had neither the temptation of easy credit nor the overwhelming marketing tactics we face on a daily basis. (See also: How Much Does Your Credit Card Debt Cost You?)
Over the past 60 years, credit card companies have honed their skills at wooing customers, getting them to overspend, and keeping them either loyal or in debt (which amounts to the same thing for the issuers). Reading over the history of their marketing tactics can help you to be better prepared for turning down the next offer.
Early Years: The Shotgun Approach
While credit cards have existed since the 1920s, the early days of credit were very different. Originally, individual department stores, service stations, and hotel chains offered revolving credit cards to their customers, which were often used by travelers who did not want to have to carry a huge amount of cash.
It was during the post-war boom time of the 1950s that the idea of credit cards as universal payment really took off. Diner's Club issued its first card (made of cardboard, believe it or not) in 1950, and at the time it was accepted in 27 restaurants in New York City. Within a year, nearly 20,000 Americans had signed up for the card.
By the end of the 1950s, both American Express and Bank of America had launched their own credit cards. The Bank of America card, which would eventually become Visa, was sent unsolicited to 60,000 Fresno, California residents in 1958. While we can certainly still recognize the tactic of unsolicited credit card mail, you can bet the idea of simply sending cards at random is something we'll never see again — particularly considering the fact that Bank of America's stunt resulted in an $8.8 million loss. (And remember, that's in 1950s dollars!)
Better Information, Better Marketing
It may be hard to imagine, but back in the day, an applicant for a credit card (or recipient of one, if you happened to live in Fresno, CA) would receive the exact same APR as every other cardholder. That's because early on in credit card history, it was much more difficult to gauge the risk of individual applicants. There were no national databases of credit information, and individual bank branches were required to handle those decisions.
Things changed as information technology grew. According to Andrew Becker of PBS,
When risk-based pricing came into play — the practice of charging different interest rates to different people based on their credit risk — the monolines [credit card issuers without brick-and-mortar banking offices] seized the opportunity to offer lower annual percentage rates (APRs) through direct marketing, thus offering their cards to a far larger population.
What propelled this wider marketing was the use of 'attributes' to identify and target consumers. Identifying particular attributes of a potential customer had started in the late '70s and early '80s — the days before national credit bureaus — with direct mailings from banks to their existent customer base. Back then, in order to target potential customers outside of their base, banks and credit card companies turned to public records like marriage licenses, new home mortgages and data from gas card usage to identify people who might be predisposed to obtain credit.
Even though our parents (and grandparents) in the 70s and 80s were fielding more direct marketing that was specifically targeted to them, it was still relatively easy for responsible spenders to ignore the solicitations. Cards were mostly uniform in their offerings, and issuers had not yet started using data with laser-like precision. That would not come until the 1990s — in many ways, the heyday of credit card marketing.
Finding the Low-Risk Individuals in High-Risk Groups
As the banks would see it, the problem with using general information, including data from the national credit bureaus, is that it will guarantee statistical success. That's an excellent way to make money and grow — but it's no way to become a goliath. In order to do that, you need to do well both statistically and in individual cases.
I've talked before about how companies can data mine our information in order to better market to us — and Capital One (of the enticing sticker fame) was a pioneer in this use of data for marketing.
For instance, prior to the 1990s, college students were considered subprime consumers, considering the fact that they generally had no credit history and no income. However, since the marketing techniques of the 70s and 80s had reached all of those with optimal credit, it was time for new methods of reaching out to new consumers. Enter Providian and Capital One.
These two companies both used computer models and targeted marketing to determine who could become a reliable customer, even though they were in a subprime demographic. For instance, Providian would test to see which of two customers with the same credit history and the same revolving balance would continue to stay on top of their payments, and who would get behind. This information helped them to better market to specific individuals and to avoid those who shared characteristics of defaulters.
Capital One, on the other hand, started predicting customer response through computer models of target markets, and would then test their predictions with tens of thousands of direct mail product offers. In 2001 alone, Capital One tested more than 60,000 product offers to figure out what would work for the widest demographic. (I personally can't help but wonder if their sticker promotion that suckered me in was a big seller, or if I was the only weirdo who fell for it.)
According to Christopher Meyer, co-author of the book "It's Alive," which looks at how companies are becoming adaptive in the same way that biological organisms are, credits these policies with Capital One's rapid growth — it became the sixth largest credit card issuer in a six short years. Meyer describes it this way: "When others were attacking the market with blunt instruments, Capital One used a scalpel."
Enticements in the 21st Century
Now that we've reached the new millennium, information is unbelievably easy to obtain, and marketing tactics can become even more specific and targeted. This is why we see everything from perks cards (that entice wealthy and/or non-credit using customers who wouldn't necessarily need a credit card to make big purchases), to prepaid cards endorsed by teeny-bopper celebrities (that tap the teenage market), to upload-your-own-image cards (that offer the ultimate in personalized marketing).
Ultimately, while credit card issuers work to seduce us into owning and overusing a card, it's important to remember that we're the ones with the power. They are reaching out to us — and we can say no, shred their solicitations, and ignore their commercials (even if they're kind of funny).
Marketing is all about convincing people they need something that they've previously lived without. Just because credit card companies are masters of this skill doesn't change the fact that we can be perfectly happy continuing to live without their product.
Even if it comes with awesome stickers.