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Getting new customers was the easy part. Now the challenge for Thailand's credit card companies is making sure they get the right customers and hold onto them.

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Getting new customers was the easy part. Now the challenge for Thailand's credit card companies is making sure they get the right customers and hold onto them.

The dramatic growth that the credit card business has seen in the past three years will not go on forever. In its place will come ruthless competition. Thai credit card issuers should take heed of what's happening in Singapore, where the major banks are outdoing one another by offering cut-price rates to customers who defect from competitors. Standard Chartered charges an APR of just 1.99 percent on transfers that last at least 12 months, while ABN Amro offers an APR of 3.33 percent for transfers of at least six months.

It can—and probably will—get a lot worse. In the US, 0 percent balance transfer offers have become the norm, accounting for some 60 percent of all offers in mid-2002, up from fewer than 20 percent just a year earlier. Meanwhile standard APRs in the US fell, dropping from an average of more than 14 percent in 2001 to less than 10 percent in 2002.

So how should Thai credit card issuers respond? The best way to win in the increasingly cutthroat environment is to develop a loyal customer base. But achieving that can be complicated. It helps to follow a few simple rules.

—Know the breakdown of your customer base. Not all customers are created equal. Typically, just 30 percent to 40 percent of customers generate nearly 100 percent of profits. Issuers need to identify their most profitable customers—particularly those who make large transactions, creditworthy revolvers and overseas spenders—and take good care of them.

Once a customer comes on board, it is critical to get that customer to use the card early and often. Our research shows that those who use the card immediately tend to become the best customers over the long term. Generally, 5 percent to 20 percent of active customers cancel their cards in the first 12 months. When you compare that with inactive customers, whose cancellation rates can be as high as 80 percent, you can see that activating customer spending is paramount.

—Rethink your marketing budget. Given the importance of finding and keeping active customers, it's worth committing more of your marketing resources to that goal, even if it means cutbacks elsewhere.

Many credit card companies operate as if they were living in the industry's infancy. They focus 80 percent or more of their spending on acquiring and activating customers. This is the case even in mature markets, where acquisition campaigns are becoming increasingly sophisticated and expensive.

Such spending can be misguided. For one thing, it usually takes two to three years to recoup the cost of acquiring a customer. For many Thai issuers, typically up to half of these new customers will not stick around long enough to justify the cost of their acquisition. Conversely, turning a new customer into an active one is worth two to three times as much in profits as simply acquiring the average customer. The numbers are even more dramatic when it comes to deepening an existing customer relationship, which can be worth five to 10 times as much as acquiring a new customer.

—Track customer loyalty. To run a successful operation, it's critical to know which sales teams and which marketing efforts are bringing in the right kind of customers and persuading them to use the card regularly. Customer relationship management tools can help identify the most effective efforts by measuring how each customer stacks up in terms of receivables, revenues and profits.

In the United States, the card issuer MBNA is well aware of the importance of loyalty and generously rewards efforts that inspire it.

The company posts customer-oriented performance metrics publicly and funds employee bonuses on days when the company as a whole hits more than 90 percent of its targets.

Like MBNA, leading issuers adapt quickly to the new competitive landscape, shifting their focus purely from growth to loyalty. In this way, they've been able to enhance their strategic and financial performance.

In short, if you play the loyalty card, you'll likely enjoy rich rewards.

Edmund Lin is a partner in the consultancy Bain & Company, and leads the firm's financial services practice in Southeast Asia.

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