Finding the Emerging Affluent: Follow the TechnologyGeoff Quintiere |
It is common knowledge that banks are faced with a challenge to generate, or should I say regenerate revenue on a consistent basis. As a result of a combination of forces that include regulatory and economic pressures as well as technological and consumer trends, banks are taking action to identify debit cardholders whose POS spend can be migrated to higher-revenue generating credit card products.
To this end, banks have directed resources to revamp their own credit card offerings; these features include rewards, pricing, line assignment, servicing and so forth to ensure that value propositions are not just compelling, but more compelling than the competing credit card the customer may be already using.
Banks are aggressively targeting the affluent population given their higher propensity to spend. In fact, the share of mailings as tracked by Compermedia for this population (i.e., annual incomes >$75K) compared to consumers making <$50K is higher and has been on an upward trend since 3Q2012.
But, the affluent population is relatively expensive to acquire, retain and service primarily because the bar for rewards bonuses has been set high and annual fees still require justification with compelling benefits, not to mention the cardholder demand for premium attention; a more cost-effective strategy might be to pursue the emerging affluent population. This emerging affluent population, if treated properly, could become loyal, multi-product customers with higher lifetime values. That said, the fundamental challenge lies in trying to identify this population and their defining characteristics.
Lo and behold, a consumer research study recently fielded by MasterCard focused not on the emerging affluent, but rather on understanding the experiences that guide online financial product search and acquisition across single and multiple device users, an interesting learning emerged.
Those consumers that used multiple devices, which we called the Tech Savvy segment, had similar average levels of household income and investable assets as compared with those consumers that used one device, known as the Traditional PC User segment. Not surprisingly, the Tech Savvy segment tended to skew younger, which implies that while they may be emerging affluent today, they have more potential for upward mobility and higher earning power in the future. They are more actively involved in online searches for financial products and particularly credit cards, meaning banks can target them through lower cost channels as they look to reduce their reliance on direct mail.
While banks will certainly need to do more work better to understand the defining characteristics of the Tech Savvy segment, early adopters could gain a competitive advantage by locking in a segment that should only stand to grow in numbers over time. As a result, banks might want to start rethinking their acquisition targeting and communication strategies now to “hook” this segment before they transition to affluent. And, while they are at it, this could be a good reason for more quickly pushing mobile adoption, not because it has an immediate return, but because that is where the affluent will be.