The do-not-call storm has passed, leaving a humbled telemarketing industry behind. But optimists say a 'quiet revolution' has begun that could create new opportunities for third-party telemarketers serving the card industry.
Despite a last-minute flurry of protest and lobbying from the teleservices industry, the federal government's "do-not-call" registry of phone numbers consumers don't want called by telemarketers took effect late last year. The registry quickly became one of the most popular government programs of modern times, with consumers placing more than 50 million phone numbers off limits to commercial telemarketers, including firms working for credit card issuers.
Today, third-party telemarketing agencies working for card issuers, phone companies and many other industries are subdued. Instead of do-or-die war talk, they are talking about the different ways they can serve their clients now that change has been forced upon them. And the changes experienced by the surviving teleservices firms are not necessarily bad.
"As the legislative environment began to shift people began to experiment and see it as a potential opportunity," says Ruvan Cohen, senior vice president of MasterCard International's MasterCard Advisors North American unit. "A quiet revolution is going on."
A key tenet of this revolution is a shift away from overt selling to a more "how-can-I help-you?" approach. At the same time, some teleservices firms are merging while others are seeing less business from card-issuing clients, according to CCM's annual telemarketing survey.
The number of respondents dropped in both the outbound and inbound categories. In 2003, 21 telemarketers responded to CCM's outbound survey while only 15 responded this year. Only 11 agencies responded to the inbound survey compared with 17 last year.
Telemarketing firms surveyed say credit card issuers are, as expected, changing their plans and tactics. Issuers are using outbound campaigns to find out what consumers want, not necessarily try to sell them something, while also trying to find out how to sell customers what they need. They also are working to make each customer interaction count.
Thus far more than 58 million consumers have registered their numbers with the Federal Trade Commission, which regulates the telemarketing industry and the do-not-call registry. The agency requires firms to "scrub" their lists every 30 days to make sure they have the latest updates to the registry. The FTC says telemarketers have been vigilant in complying with the law. Issuers and other commercial marketers are still allowed to telemarket their existing customers.
While most observers agree that inbound calls in response to marketing pitches in direct-mail solicitations or monthly statements are on the rise, the raw numbers tell a somewhat different story. Issuers clearly made a last-ditch outbound sales effort to pitch cards before the DNC registry took effect in October. Firms working for issuers logged 20.7 million total hours in 2003, a 17% increase from the 17.7 million hours the same firms logged in 2002.
While hours increased on the outbound side, inbound calls decreased. In 2002 agencies logged 121.4 million inbound calls, but volume reported by survey respondents dropped 4% to 116.2 million calls last year. Some experts say that the outbound increase and simultaneous inbound decrease aren't as contradictory as they might seem. The data reflect the fortunes of the respondents, not necessarily the entire market. Also, some issuers ramped up their outbound calling to existing customers. Meanwhile, more consumers who formerly called on the phone are now using the Internet to contact their issuers.
While saying it's "scary" that the government felt the need to regulate the industry, Gary Cohen, president of Minneapolis-based ACI Telecentrics Inc., says some telemarketers were too aggressive in their calls because of how they were paid. "The incentives have been on the front end and the outcome is that people were aggressive," he says. "People were overcalling lists and overusing the privilege of calling people, and it lead to this legislation."
Tim Searcy, executive director of the American Teleservices Association, says members have been working hard to comply with the DNC law, but the overall effect on their business has not been kind. "As predicted, it has been devastating to many companies," he says. "The only bright spot is that companies are turning to outsourcing to have professionals manage the compliance issues for them" (box, page 14).
One company that is completely dropping out of credit card telemarketing is Earth City, Mo.-based Epsilon, a Relizon Company. In 2001 and 2002, Epsilon recorded 100,000 hours of outbound telemarketing, but has been transitioning away from the business for a couple of years, says Dave Swanson, vice president and general manager at Epsilon. He says card issuers have been focusing more efforts on direct mail for customer acquisition.
According to Synovate's Mail Monitor, issuers mailed nearly 1.3 billion direct credit card offers to consumers in the first quarter, a 21% increase compared with the fourth quarter of 2003, and an 8% increase from the number sent in the first quarter of 2003. In March, issuers sent 473 million card solicitations, the most for a single month since November 2001.
Deerfield, Ill.-based APAC Customer Services Inc. is a publicly traded company that has seen the DNC registry affect its bottom line, even though the firm had the most outbound hours of any agency responding to this year's survey. APAC reported a loss of $1.65 million for the first fiscal quarter ended March 28, compared with net income of $2.12 million in the year-earlier period. Net revenues fell 17% to $71.4 million from $86.2 million in 2003's first quarter.
In its earnings release, APAC blamed the revenue decline on a large communications-industry client's decision to take some programs in-house and a "cutback in consumer marketing by several financial-services clients, partly in response to the rollout of the national do-not-call registry last October."
The numbers belie the changes caused by do-not-call registry in how APAC works with card issuers, according to Rebecca Watkins, vice president of account management. "Our clients are adamantly trying to get a better idea as to what their (consumer) clients are looking for, and we are now providing them with the tools to better understand the client experience," she says.
Issuers are asking APAC to do conversion campaigns that ask consumers what it would take for them to use a specific card more often, Watkins says. The process started with issuers having APAC survey their cardholders.
"We launched calls to existing cardholders and asked what it would take to use the card," Watkins says. "Instead of making a pitch it was a pure information call."
Card issuers are spending money to give cardholders what they want, according to Watkins. "We're listening to cardholders and tailoring offers," she says. "(And) representatives have the information at their fingertips to tell cardholders which card suits them best."
To do tailored offers effectively, customer-service representatives indeed must have cardholders' demographic and transaction data in front of them. Such data are not always available to telemarketers, but they should be, says MasterCard's Cohen.
MasterCard has been working with member financial institutions and telemarketing firms on how the medium can remain a valuable marketing channel. Issuers typically get higher response rates to card offers from telemarketing than from direct mail, which averages 1%.
"After do-not-call people began to see that the ease and freedom of contacting customers can't be taken for granted," Cohen says. "You had an awakening that contact with the customer is gold."
In fact, many issuers over the years tried to limit phone contact with customers in order to control expenses. "You saw (issuers) taking the 800 numbers off of cards," Cohen says.
But that has changed and now inbound telemarketing is as important as ever. "There is a whole set of retooling how things are and integrating inbound telemarketing, which had almost never been approved as a contact channel," Cohen says.
Products such as credit insurance had been sold via outbound campaigns for years. More recently, issuers started to cross-sell these products on inbound calls, though there were still problems.
"It was not sophisticated," Cohen says. "'This month we're offering credit protection, next month fraud protection,'" a process that sometimes led to cardholders being offered the same product twice.
MasterCard is advising its members that whenever legally permissible and strategically advantageous, they should give telemarketers more information to work with, including transaction data on where and how frequently the cardholder buys and which channels customers use to make purchases.
Key to this effort is a cardholder's profitability to the institution, Cohen says. For example, cardholders often call in because their cards are lost or stolen, or because of charges on their statements they say they didn't make. During such a call, the customer-service representative may look at the account data and notice that the cardholder earned the issuer $200 in the preceding year and made a number of purchases online. Instead of trying to sell the cardholder identity-theft protection, one tactic could be to have the representative simply give it to the cardholder because it will reinforce the issuer-customer relationship, according to Cohen.
This is just one example of how telemarketers armed with more information can better serve their clients' cardholders, Cohen says. "The next time they call in you could try to sell them discount Internet access or a discount at an Internet shopping club," he says.
Inbound cross selling is now the rule, telemarketers say.
"I see a lot more of these inbound conversion programs," says Shane A Jackson, vice president of call-center operations for Dania, Fla.-based Results Company LLC. "Outbound isn't necessarily dead but there will be more state regulations."
State telemarketing regulations preceded the federal DNC registry by years and recently led Portland, Ore.-based Live Bridge Inc. to accelerate its switch to inbound services, says Chris DeLambo, director of marketing.
"We saw the writing on the wall three or four years ago when we were 20% inbound and 80% outbound," he says. "We wanted to flip the company on its head and today we are 10% outbound and 90% inbound."
Along with the usual cross-selling promotions, Live Bridge has what it believes is a unique program. "If a customer calls in to receive a satellite TV product, while we have them on the phone we can offer them a preapproved credit card so the customer can purchase the product," DeLambo says.
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