China’s new consumer-goods-hungry middle class has taken to credit cards in a big way: 3-5 cards each is the norm. However, only some10% of the million upon million issued are ever activated. Tony Cheung, Vice President, China of Epsilon, explains the background and offers.

According to the recent “China Credit Card Market Outlook to 2013” report, China, with its huge population base and new-found economic superpower status, offers massive potential to the credit card industry. The total number of cards in circulation is forecast to grow a robust 25% in 2010–2011, and the gross value of domestic credit card use value grew by 69.9% in 2009 thanks to nearly 2,000,000,000 individual transactions. 27.9% of all 2009 domestic consumer goods sales were conducted using credit cards.

Despite a continuing stranglehold on the market by state-owned banks such as Industrial and Commercial Bank of China, China Merchants Bank and China Construction Bank, private and foreign banks are also expanding their credit card base rapidly, investing heavily and intensifying their presence and activities. The market’s potential is huge. Yet progress so far has been stalled by one simple and fundamental barrier: all of the effort has gone into acquiring the card-holders and sending them cards; virtually none has gone into building relationships with those clients to stimulate them to actually use the cards and use more of them.

One statistic not hitting the ‘China Credit Boom’ headlines is that card activation currently stands at around 10% only. That is an absolute nightmare to credit card issuers for whom success and failure are calculated largely as a function of cost-per-activation.

Despite the bullish statistics, the banks have been unable to break away from the mindset of earlier years, when volume and growth was accorded more value than profitability. After years of brutal and mostly unsophisticated bombardment campaigns to acquire names and issue cards to them, they have proven unable to refocus on the underlying core objective of all their labours: to optimise profitable spending by their members and create a long-term premium-value revenue stream.

At the root of this apparently unbreakable conviction that marketing database volume and claimable market share are the only valid metric of success is the legacy of an economy where for a very long time profit was largely unattainable and proof of growth was the most obvious means of maintaining both the optimism of investors and the support of political masters.

Yet the Chinese domestic economy and higher–income consumer class have grown well beyond the critical tipping point that makes consumer spending-based profit models entirely viable. This would be the time to increase banks’ service and interest revenues by growing the spend per cardholder, leveraging the proven connection between building customer relationships and reaping financial benefits.

To switch from scattershot acquisition marketing to customer experience-centric marketing requires far more than technology, however. It is only possible if there is a radically different approach to the marketing operation. In short, the names and numbers have to be recognised and treated as individual human beings, not statistics. And that will never be achieved by perpetual bombardment with untargeted messages.

The first and most important challenge is to get the customer to activate and use the card. This may sound like - indeed it is - a statement of the blindingly obvious, but in China the ‘Activate Me’ issue is of far greater importance than elsewhere. With five or more cards all waiting pristine in their envelopes to be activated, and probably only one at most likely to end up as a regular companion in the customer’s wallet, gaining that early advantage is likely to be all-important. A simple reward redemption coupon will do as a start, since a cardholder who has yet to activate the card is most likely to respond to the catalyst of a simple, immediate and undemanding reward.

Other relatively simple stratagems include reward redemptions and seasonal spends related to various step-up awards, promotions with instant, tangible rewards that can stimulate the use of one credit card before all the others jostling in the pack for activation. This also helps to build familiarity with using the card and make the user comfortable with it. Beyond that lies trust, the goal of any self-respecting finance organisation.

Further initiatives already common elsewhere, such as promotions through one–time exclusive discount offers, have also yet to make their mark.

Yet undoubtedly the most important step for the credit card marketers is the most basic building block of all in contemporary marketing: segmentation of the marketing base leading to tailor-made programmes by customer profile.

The most valuable and profitable customers, those who use the card regularly and spend most, are almost without exception fully aware of their value to the card issuer, and expect tangible recognition of their Elite status. If they simply receive the same scattershot promotions as everyone else, they will react badly, with a significantly increased risk of defection to another card.

Similarly, if there is no segmentation, it is far more difficult to isolate the second–most important group in the pyramid: the least–valuable and loss-making (potential bad debt) customers. Continuing to serve this ‘black hole’ group can only mean distracting resources from profitable segments, which creates a classic vicious circle. ROI plummets, the customer servicing and marketing teams are demoralised, and meanwhile non-customers receive service they neither want nor need and do nothing to change that, and high-value customers are treated as mediocrities and react negatively.

Marketers continue to face challenges in China that are hard for the rest of the world to understand, particularly the long legacy of judging success by size and volume alone. The rapid growth of credit card users proves that there is a profitable consumer market out there eager to take part in a qualitative customer experience with its chosen vendor. The challenge for the credit card companies is to address the evidence of the huge numbers of unactivated and discarded credit cards and to add customer value back into the experience of using them.