November 12, 2003

2003 Consumer Credit Survey

The power of affluent shoppers, the rise of practical consumers and the dynamics of debit cards [great STORES survey]



link: http://www.stores.org/archives/cover.asp


2003Consumer Credit Survey

BySUSAN REDA, EXECUTIVE EDITOR

The power of affluent shoppers, the rise of practical consumers and the dynamics of debit cards



Finding - and Motivating - the Affluent Consumer





Practical Consumers Adopt Pragmatic Spending




Debit Replaces Debt and Moves to a PowerPosition



YoungConsumers Want Less Debt




Lower Interest Rates Move into the Front Seat



MasterCard and Visa are the Choices for Electronics



Cash-Back Bonuses Appeal to Discover Card Users



Men and Women Display Remarkably Similar Card Use Patterns


About This Survey

 


"W
ILLTHAT BE CASH OR CHARGE?"



REMEMBER WHEN IT WAS THAT EASY?



SINCE THAT MORE SIMPLE TIME, THE LIST OF PAYMENT OPTIONS HAS EXPANDED TO INCLUDE DEBIT, NUMEROUS MAJOR CREDIT CARD OPTIONS AND A HOST OF STORECARDS. SHOPPERS ALSO CONSIDER MYRIAD OTHER FACTORS BEFORE CHOOSING HOW TO PAY. WILL THEY RECEIVE 10 PERCENT OFF THE TOTAL PURCHASE IFTHEY USE THE STORE CARD? IS VISA THE GO TO CARD BECAUSE THEY CAN RACK UP REWARDS POINTS?



Understanding how consumers use credit cards, what motivates shoppers to choose one card over another and whether they're inclined to opt forcash, debit or credit for specific purchases is the first step on the path to improved marketing campaigns, more precise targeting of rewardsand, ultimately, the coveted customer lifetime value trophy.



The STORES 2003 Consumer Credit Survey takes that all important first step and shines a spotlight on today's changing payment landscape,illuminating consumers' credit behavior. The survey of 8,399 U.S. consumers was conducted by BIGresearch of Columbus, Ohio.



Against a backdrop of economic uncertainty, climbing gasoline prices, declining 401K retirement plans, soaring health care costs andpaltry savings rates, consumers are apt to make payment choices today that are different from the choices they made just year ago. Think for amoment how widespread "no interest" or "zero percent interest" offers have become. Zero interest deals are being brokered for cars, bigscreen TVs and leather couches, and the concept has undoubtedly seeped into the consumer psyche.



Meanwhile, homeowners are bombarded with refinancing appeals and encouraged to use savings to pay down debt. At the same time, asteady stream of unsolicited credit card offers keep pouring into mailboxes, inviting consumers to transfer high interest balances and addanother card to their ever growing pile of plastic. These factors and others shape consumer behavior.



The survey finds that the average consumer has at least two credit cards in his wallet; affluent consumers have several more. Still,which cards shoppers carry and how they use them varies significantly by age and income. This survey helps retailers sort out some of thespecifics by taking an in depth look at three key trends that emerged: the power of the affluent shopper, the rise of the practicalconsumer and the dynamics of debit cards.



The type of credit consumers use and how they use it varies immensely. But consumer behavior, when it comes to payment choice, doesn't need tobe a wild card for retailers. The STORES Consumer Credit Survey reveals what consumers say when asked that all important question:"Will that be cash or charge?"






Finding -and Motivating - the Affluent Consumer





Affluent consumers are a highly sought after segment. These shoppers, who report an annual household income of $50,000 or more, have morecredit cards than the average shopper and tend to exercise those cards more frequently.



Which cards do affluent shoppers carry? The STORES Consumer Credit Survey, conducted by BIGresearch, finds that a majority (74 percent)have a Visa card, and nearly as many (66 percent) carry MasterCard. A little more than three out of every 10 (31 percent), own aDiscover Card, and 20 percent hold American Express cards.



AMEX Blue, a smart card front runner that debuted during the dot com boom, has quickly found its way into affluent shoppers' wallets,with 9 percent of those polled indicating they have one. Meanwhile, Diners Club, a stalwart status card, is mentioned by 1 percent of surveyrespondents.



The research reveals that the largest share of affluent shoppers are between the ages of 35 and 54, a time that typically coincides with peakincome. Specifically, 39 percent of consumers in this age group have household incomes starting at $50,000 and ranging beyond $150,000. Still,underestimating the wealth of consumers at either end of the age spectrum is a mistake. Twenty three percent of shoppers ages 18 to 34and 23 percent of those 55 and older report household incomes between $50,000 and $99,999.



Affluent shoppers are more likely than other customer segments to possess store credit cards. The research finds that 32 percent of shoppersin the $50,000 household income bracket have store cards vs. 27 percent of all consumers. In fact, when viewing the assortment of creditcards these well heeled shoppers have, store cards rank third, trailing the clear front runners: MasterCard and Visa.



RETAILER OPPORTUNITY

There's a bit of a disconnect, however, between the number of store cards consumers have and the frequency of use. While 11 percent of affluentshoppers choose store credit when purchasing clothing and 7 percent pick the store branded plastic when buying big ticket items, such aselectronics and furniture, this type of credit card is the least used payment method in each instance.



Nonetheless, shoppers' proclivity for store cards suggests an opportunity for retailers to drive more frequent usage. Retailers oftenpersuade shoppers to acquire a store card by offering 10 percent to 15 percent off a sale item. Customers win by saving money; retailerswin by amassing customer data. But it appears that all too often the relationship ends there. Shoppers are not re using the cards, a reactionthat may be linked to the high interest rates associated with store cards.



What might prompt shoppers to take store cards out of the night table drawer and put them in their wallets? Lower interest rates coulddefinitely sway usage. The opportunity for cash back types of rewards might also be a powerful motivator. One merchant that has been successfulwith cash back rewards is Old Navy, the division of San Francisco based Gap that specializes in moderately priced family apparel. Old Navyrewards shoppers with a certificate worth $10 off their next credit card purchase every time they charge $100 on their Old Navy account.



Still, retailers are caught in the crossfire. In the interest of building customer relationships, they tend to be liberal when extending loans.Unfortunately, they also make a fair amount of bad loans which, in turn, necessitate higher than average interest rates.










MIGHTY MOTIVATORS

Retailers are not the only ones that can benefit from a greater understanding of what might motivate a consumer to use a credit card morefrequently. In today's competitive marketplace, every major credit card issuer and bank is trying to unearth that special something toswing additional business in their direction.



Some of the perks that seem to resonate with all consumers include lower interest rates, cash back bonuses and discounts. The affluent shoppermay have more disposable income, but they're as motivated - if not more so - by the lure of cash back, rewards/points programs and discountoffers. Among these well heeled shoppers, 54 percent are drawn to cash back bonuses and 46 percent indicate that rewards/points programswould motivate them to use a credit card more often.



While the prospect of piling on airline miles - one of the earliest credit card rewards offers - still holds sway with affluent shoppers, it nowranks at the bottom of the list of potential motivators for shoppers overall. Conversely, American Express and AMEX Blue cardholders aremost likely to be motivated by the chance to stack up airline miles.



The fact that so many different perks aimed at increasing credit card use exist begs the question: do any of these stimuli deliver theloyalty they were intended to produce? Some researchers say that the harder credit companies, banks and retailers work to winshoppers, the more powerful consumers become.



Today, it's plausible that a customer has one card that's used strictly for airline miles, another that they hold on to because of freeshipping and a third that's used primarily for big ticket items because of the annual cash back bonus.



More than six out of 10 respondents (62 percent) report that they would be motivated to use a credit card more frequently if the interestrates were lower. That's particularly true of 35 to 54 year olds and those who have a MasterCard. In each instance, 68 percent cited lowerinterest rates as a key motivator.



The question for credit card issuers is fast becoming "How low can you go?" The zero percent interest offers crammed into consumers'mailboxes suggest that most issuers can sustain these offers from 6 months to 12 months, but what happens to interest rates when that time isup? Already, consumers are falling into the pattern of shifting balances to lower interest or no interest cards. How long before creditcard issuers lose credibility with the consumer and can no longer make money by charging high interest rates?



Some interesting trends emerge when examining which cards affluent shoppers use most often for personal expenditures and which get the nod forbusiness.



Visa and MasterCard are clearly the go to cards when shoppers purchase items for themselves. Specifically, 44 percent of Americans with anannual household income of $50,000 plus pick Visa; 25 percent choose MasterCard. The affluent shopper doesn't behave too differently from thetotal respondent pool. The only notable exception is among American Express card holders. Seven percent of affluent shoppers usetheir AMEX to pay for personal expenditures, compared to 4 percent of all consumers polled.



A somewhat different picture emerges for business expenditures. Among affluent consumers, Visa and American Express are the cards ofchoice. Visa is cited by 15 percent of those polled and American Express is mentioned by 10 percent. Still, further analysis of the datareveals that those with the highest level of formal education have the highest propensity for American Express and AMEX Blue. Sixteen percentof those who completed college and another 20 percent of consumers who completed post college study or degrees have American Express in theirwallets. The card is also favored by those in professional or managerial roles - 17 percent have an American Express card.















Practical Consumers Adopt Pragmatic Spending

Plenty of research indicates that Americans are over extended when it comes to credit card debt. The average U.S. household reportedly carriesmore than $8,000 in outstanding card balances. The number of U.S. consumers filing for personal bankruptcy has reached an all time high. Acredit ratings firm predicts that bankruptcies will increase to 1.65 million by the end of 2003, an 8 percent increase over bankruptcyfilings during 2002.



In spite of such data, the STORES Consumer Credit Survey, conducted by BIGresearch, finds that consumers are becoming more practicalinsofar as how they think about debt and future spending. The survey asked respondents to read a series of statements describing changes they mayhave made in their lives during the last six months. The findings suggest that consumers see themselves as adopting a more pragmatic approachto spending.



For example, a little more than half of all survey respondents (51 percent) say they are more practical and realistic in their purchases.An even greater portion (60 percent) report they focus more on what they need rather than what they want. During the last two years,BIGresearch has seen a steady climb in the percentage of consumers describing themselves as more practical in their purchasing decisions.



Of course, what consumers strive for and whether they have the resolve to see that goal to fruition is unknown. Consumers generally havethe same state of mind about changing their financial position as they have about their perpetual New Year's resolution to lose weight -the motivation is there, but the follow through can be rocky.



Another glimpse into the consumers' financial mindset is derived by looking at the financial steps they plan to take in the next threemonths. More than four out of every 10 respondents (45 percent) indicate a desire to pay down debt, 39 percent intend to decreaseoverall spending and 33 percent say they plan to pay with cash more often.



Interestingly, MasterCard and Visa card holders have the strongest desire to pay down debt. Among MasterCard users, 53 percent note theirintention to pay down debt, while 51 percent of Visa card aficionados aim to reduce their balances.



While that finding might not appear to bode well for retailers, it does actually give merchants a marketing hook. Retailers will be challenged todevise offers that showcase their products in a practical context. Buying a new appliance, for example, may be a practical alternative toholding on to an older, less energy efficient model. Buying warmer clothing, such as turtlenecks and cardigans, is a practical alternative to turning up the heat.




HOME AND FAMILY The study also finds that 13percent of respondents intend to spend more timeand money on decorating their homes and 31percent are spending more time with family. Theformer will definitely make retail registerssing, while the latter is also likely to have apositive economic impact. Whether families spendtime together at the movies, the miniature golfcourse or the shopping mall, the potential tofeed the economy still exists.



Also noteworthy are variations in the attitudesthat exist across different age groups.Consumers in the 35 to 54 year old segment aremore inclined than the overall respondent groupto express a desire to pay more frequently withcash. In addition, their desire to pay down debtin the near term is greater than that of anyother age group. Meanwhile, consumers in the 55plus age group appear to be less concerned aboutpaying down debt and less apt to increasesavings.



COZYING UP TO CASH

At a time when the mainstream media leads thepublic to believe that Americans buy what theywant, when they want and usually use credit, thesurvey results suggest that cash - whether inthe form of money, check or debit - remains theleading method of payment for consumables, suchas groceries, health and beauty aids, gasolineand utility bills.



When purchasing clothing, 66 percent ofconsumers use either cash, check or debit. Thepercentage is even higher for groceries where 87percent pay with some form of cash.Interestingly, the propensity for selecting cashor a cash equivalent over credit is strongestamong 18 to 34 year olds and 35 to 54 year olds.Among the younger group, 73 percent make apparelpurchases using cash, check or debit. Among the35 to 54 year old crowd, 90 percent pay fortheir groceries using some form of cash.



While paying by cash or debit is now perceivedby many consumers to be one and the same, thereremains a steadfast loyalty to writing checkswhen paying bills. An overwhelming majority ofrespondents (72 percent) pay their utility billsby check.







Debit Replaces Debt and Moves to a PowerPosition




It takes time for consumers to accept a newprocess, particularly when it's linked tobanking or payment options. Widespreadacceptance of ATMs took nearly 20 years. Whileon line banking is moving further along theacceptance curve, industry watchers predict itwill take several more years before it reachessaturation.



The results of the STORES Consumer CreditSurvey, conducted by BIGresearch, reveal thatthe debit card - a relatively new payment option- has already made the transition. Debit cardsnow epitomize the fusion of innovation andadoption. Consumers with debit cards use them asa substitute for cash, especially whenpurchasing consumables, such as food andgasoline.



A breakdown of debit card users shows that womenare more likely to choose debit than men. Still,both sexes appear to use debit on a regularbasis. Once consumers become comfortablemanaging debit purchases, they tend to relishthe idea of paying for items on the spot, ratherthan passing up something they want to buybecause they don't have the cash or don't wantto deal with possible finance charges. Withconsumers carrying less cash than in the past,the debit card has moved into a position ofpower in shoppers' wallets.



FEELING THE PINCH

Debit's popularity may have something to do withthe view that it helps steer consumers clear ofadditional credit card debt. While the STORES/BIGresearchdata doesn't address shoppers' credit cardbalances, other research has found that a small,yet significant number of consumers aredangerously close to their credit limits on oneor more cards. Using debit, which instantlydeducts the payment from the user's account,prevents them from increasing their debt.



The results do clearly indicate a strong desireamong consumers to pay down debt and behave in amore practical fashion when making purchasingdecisions. Debit card acceptance is strongestamong the 18 to 34 year old consumers and withshoppers ages 35 to 54. Both segments express aninterest in becoming more practical andrealistic in their purchasing, and each plans topay with cash more often in the next threemonths.







Specifically, 56 percent of shoppers ages 18 to34 express the desire to become more practicalin terms of their spending, compared to 51percent of all consumer respondents. Meanwhile,37 percent of shoppers ages 35 to 54 hope to paywith cash more often in the next three months,compared to 33 percent of the overall respondentpool. Each situation is likely to advance debitcard use.



Not surprisingly, older consumers (55 plus) aremore reluctant to use debit cards. Only 17percent of consumers in that age group use debitcards to pay for clothing, for example, comparedto 25 percent of overall respondents. Whenpurchasing gasoline, 34 percent of 18 to 34 yearolds use debit and 28 percent of shoppers in the35 to 54 year old bracket use debit cards. Butonly 15 percent of the 55 plus segment buy theirgasoline using debit, less than half the portionof younger consumers.



If consumers continue to expand their debit use,the possibility exists for a major shift fromcredit cards to debit cards in the near future.





 

Young Consumers Want Less Debt



Before stereotyping young consumers asfoolhardy and impetuous spenders, take a look attheir attitudes toward debt. While they'vequickly amassed some credit card debt, they'realso committed to chipping away at theirbalances.



The STORES Consumer Credit Survey, conducted byBIGresearch, reveals that 18 to 34 year oldconsumers are most likely to have a MasterCardor Visa tucked in their wallets, a likely byproduct of the aggressive marketing campaignsthose companies stage on college campusesnationwide.



A recent American Demographics study reportsthat 93 percent of 21 year olds have a creditcard today, and 60 percent have had a card since1999. The report also finds that the average 21year old has $3,000 in credit card debt - formost, that's in addition to a hefty studentloan.



It appears that reality sets in shortly afterthe graduation march ends and the twentysomething crowd begins paying more attention toerasing debt and saving for the future. Thesurvey finds that 48 percent of 18 to 34 yearolds are interested in paying down debt, apercentage slightly above that of the totalrespondent pool.



The intentions of young consumers also exceedthose outlined by the overall survey pool whenit comes to increasing savings. Thirty sixpercent of all consumers say they want toincrease their savings in the next three months.Meanwhile, close to half (47 percent) of the 18to 34 year old crowd reveal their intention toboost savings. And, since saving is moreimportant than spending to this group, 44percent of younger respondents hope to decreaseoverall spending between now and early nextyear.







 



Lower Interest Rates Move into the Front Seat



It's difficult to assess how cognizantconsumers are of the credit card interest ratesthey pay. Experts speculate that shoppers have aballpark idea, but if pressed for specifics,most don't know if they pay 15 percent or 19percent.



Still, there appears to be an overwhelming senseamong consumers that the rates have climbed toohigh, and the prospect of lower rates isgrabbing their attention. Maybe it's a spilloverfrom the media circus surrounding the FederalReserve's every move, or maybe it's theonslaught of ads dangling zero interest or lowinterest purchases in front of shoppers.Whatever the root of the trend, the STORESConsumer Credit Survey, conducted by BIGresearch,suggests that consumer loyalty may take a backseat to the promise of lower interest.



For major credit card issuers and banks, theoffer of lower interest rates will be a toughone to rescind. Much like the high levels ofpromotional activity at department stores, oncethe door is opened to "savings" and consumersbecome conditioned to expect lower prices - orlower interest rates - closing that spigot maybecome nearly impossible.





 



MasterCard and Visa are the Choices forElectronics



When purchasing electronics and furniture,slightly more than four out of every 10respondents (41 percent) use a major creditcard. Six percent use a store card. Focusing thespotlight exclusively on consumers who purchaseelectronics yields insight into which storesthey shop most often and which card they're mostlikely to use for payment. Not surprisingly,different patterns emerge when the data issliced by the various store or bank cards.



Specifically, 50 percent of American Express andAMEX Blue card holders head to specialty storesto purchase electronics. Similarly, 48 percentof Discover Card holders beat a path tospecialty stores. Twenty two percent ofrespondents shop for electronics at discountstores, such as Wal Mart and Target, and mostwho choose to pay by credit make Visa orMasterCard their first choice.



Best Buy is cited by consumers as the place theyshop most often for electronics. Among Best Buyshoppers, all the major credit cards are used inrelatively the same proportion - only slightlymore pick Discover. The Discover Card also winsfavor with those who shop most often at CircuitCity and Sears.









Cash Back Bonuses Appeal to Discover CardUsers



Discover Card users are a little differentfrom the rest of the credit card carrying crowd.For starters, the percentage of women toting aDiscover Card is slightly higher than the numberof females carrying MasterCard or Visa. And,compared with other major credit cards, Discoveris the No. 2 card among consumers with ahousehold income of $50,000 plus. Among affluentconsumers, 42 percent have a Discover Card,while 56 percent carry American Express or AMEXBlue.



Dig a little deeper and a sharper image of theDiscover Card shopper emerges. For example, 80percent of Discover Card shoppers also have aMasterCard in their wallets, and 85 percent havea Visa.



Teasing out the spending patterns, one findsthat Discover Card shoppers are more inclined topay by major credit card than by cash or debitin every instance, including clothing, groceriesand gasoline. Specifically, 47 percent ofDiscover Card holders use a major credit cardwhen purchasing apparel, 27 percent choose acredit card when shopping for groceries and 68percent reach for a major credit card whenpurchasing electronics and furniture.



Interestingly, the Discover Card holder behavessimilarly to American Express and AMEX Blueusers. The main difference is the level ofhousehold income. On average, the Discover Cardholder has an annual income of $52,979, whileAmerican Express and AMEX Blue card holders postan annual income of $64,295.



Fitting the pieces together, it appears that theprospect of getting something back for using aparticular credit card resonates with today'sconsumer, and by exercising their credit cardsfor different types of purchases, they movecloser to a reward goal.







 



Men and Women Display Remarkably Similar CardUse Patterns



If men and women were engaged in a battle ofthe sexes over credit cards, chances are itwould be a very close match. The STORES ConsumerCredit Survey, conducted by BIGresearch, findsthat their attitudes toward credit vs. cash arenot dissimilar.



When purchasing clothing for themselves, womentend to favor some form of cash payment, be itcash, check or debit. Among women who shop atdiscount stores most often, a large majority (82percent) pay for their purchases using some formof cash. Among men who shop at discount storesmost often, 77 percent say they use cash, debitor check most frequently.



A closer look at the men and women who pay bycredit reveals that MasterCard and Visa are theleading choices, especially among those who shopmost often at department stores.



Some differences do exist in terms ofmale/female attitudes toward store cards. Womenare more inclined to use store cards than men.For example, 22 percent of women who shop mostoften at department stores say they use a storecard, while 14 percent of those who frequentspecialty stores pick the store's branded card.Men are more likely to opt for a major creditcard. In fact, among men who report shoppingmost often in specialty stores, 23 percent useAmerican Express.






About ThisSurvey



The STORES 2003 Consumer Credit Survey wasconducted by BIGresearch, a Columbus, Ohio basedfirm. BIGresearch utilizes the world's largest on line community of more than 60 million people to uncover the attitudes and opinions of themany subgroups that make up a marketplace.



The survey was conducted Sept. 4 11, 2003, and 8,399 consumers responded. A computer controlled system tied to market realities ensured morethan adequate representation of all consumer groups, defined by age, sex, income and geographic distribution.



BIGresearch takes 14 samples simultaneously, seven age groups for males and seven age groups for females. These 14 large samples are woventogether for a large market sample, usually between 5,000 and 10,000 individuals. The sample size allows for detailed cross tabulation and amore accurate measurement of the market. Each cross tabulation is dynamically balanced through computer intensive statistical procedures toknown market realities.



BIGresearch surveys are anonymous, self administered and free of interviewer bias. Questionnaires are designed to be completed quickly, usually in less than five minutes. Theshort, unannounced time period during which the data is collected precludes merchants, advertisers and the media from modifying behavior to influence results.


Posted by Craig at November 12, 2003 09:04 PM