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The mountains of credit-card offers in Americans' mailboxes won't disappear any time soon. As competition for consumers' attention has grown, credit-card marketing has become more complex and expensive. But the returns are still well worth the effort.

When her pre-approced Visa Card offer arrived in the mail, Molly McDermott of Great Falls, Virginia, betrayed little emotion. In her whole life she'd never owned a credit card. Then again, the shaggy, 140-pound Newfoundland had never needed one.

Molly's owner, Susan Fish, didn't want any more credit cards. Try telling that to the direct mailers who bombarded her with offers. In a gesture of annoyance, Fish subscribed to a magazine in MOlly's name, figuring that at least she would learn who sold her name and address to whom. The Visa offer appeared soon after. "I think everybody should sign up their dogs, cats, whatever," says Fish. "We're all inundated with junk mail."

She's right. Nearly three in four U.S. households receive at least oe credit-card offer every month. Some receive many more. Card issuers fired off a total of 2.7 billion offers in 1995, more than in 1992 and 1993 combined, according to Behavioral Analysis Inc., a marketing consulting and research firm in Tarrytown, New York.

In 1992, 2.8 percent of the 960 million offers sent out hit their mark, meaning the recipients actually applied for cards. By 1995, the response rate had halved. Just 1.4 percent of jaded, card-saturated targets took the bait. Fortunately for issuers, this lower rate still represented more potential customers than ever because of the enormity of the mailings themselves. Profitable accounts, ones that will charge up balances revolve them, are still there; it's just a matter of uncovering them.

In the "old days," banks issuing credit cards merely sought customers who would pay their bills. Now, they are looking for customers who not only pay up, but do so profitably. They are also facing a staggering amount of competition from other card issuers. To succeed in the classic marketing task of locating, enticing, and retaining customers entails an intimate knowledge of credit-using Americans--where they live, what they do, and how they use credit cards.

IN SEARCH OF THE IDEAL CUSTOMER

By the end of 1995, the wild-and-woolly credit-card industry oversaw about 400 million bank credit cards in the U.S., or 1.6 cards in force for every man, woman, and child, according to CardTrak, a bank-card tracking publication of RAM Research Group of Frederick, MAryland. The business has come a long way from 1980 when just 120 million Americans owned any major bank card.

The staid bankers of yesteryear would have fallen from their swivel chairs if they could have seen where their ideas would lead. "Today, people who run credit-card products with a bank-credit mentality are getting lunch eaten," says Bruce Brittain, president of Brittain Associates, Inc., an Atlanta-based marketing research firm that specializes in financial services. "Credit is still part of the deal, but just part of it."

Those early bankers eyeballed their customer lists for people with stainless credit histories and sent them cards. By today's high-tech database standards, that's akin to a surgeon who wields a dull-edged mastodon bone. It's also nolonger legal. Now we must ask before we receive.

As the concept of credit gained acceptance, methods of assessing credit risk improved. The pioneer in the field of credit scoring--that is, using mathematics to predict who'll pay the money back--is Fair, Isaac and Co., Inc., of San Rafael, California. The company remains a leader, and its expertise extends far beyond the original parameters. "Risk prediction became revenue prediction, and that evolved into response prediction," says Michael Rapaport, senior project manager.

Barely ten years ago, credit-card issuers still targeted customers based mostly on credit-bureau information about whether they'd fallen delinquent in the past. The databases had increased, but the precision hadn't. Fair, Isaac developed a model that featured five major predictors instead of one. Prior credit performance was there, of course, but so was current indebtedness, length of time of established credit, extent of pursuit of new credit, and current available credit. It dramatically improved issuers' abilities to determine who merited which type of offer. For example, those who scored more than 700 points through the model's rating system got pre-approved offers, while some of those with lower scores got offers with less-generous terms.

Issuers soon realized it wasn't good enough simply to have non-delinquent customers. They neede to find the most profitable customers. In credit-card terms, this means people who pay their balances eventually,but not right away, incurring finance charges. To a lesser extent, it also means those who use their cards frequently, generating lots of small "interchange" fees. Using most of the same credit data, Fair, Isaac studied a pool of 12 million cardholders to derive the best revenue-generating predictors. It learned that certain predictors were more crucial to this endeavor than to the task of finding credit-worthy customers. For example, current credit status revealed more, and past performance revealed less.

It wasn't long before card issuers were looking for ways to understand which potential customers were the best bet for particular kinds of offers. At this point, demographic and attitudinal information came into the picture. "Marketers started out with a few credit predictors" Rapaport says. "Now they incorporate hundreds of variables into the models."

"There is nothing permanent except change, writes Visa International leader Edmund Jensen in the firm's 1996 annual report. Visa's president and chief executive officer is quoting the Greek philosopher Heraclitus to describe his industry's metamorphoses. The move toward micromarketing means that card issuers want to know you personally. As long as consumers are honest about the information they provide, the credit-card offers they receive should fit better-than the ones they used to get.

Just as targeting tactics have evolved, so have the hooks used to land customers. Most cards originally came with an annual fee of $20 or more. Then fee-free cards became the trend. Today, most card offers are without fees, according to Lisa Itzkowitz, marketing director at Behavioral Analysis. In contrast, pre-approved offers have tapered off slightly, because, as Itzkowitz says, "They can offer practically anything if it's not pre-approved."

Gold cards, featuring $5,000 minimum credit lines and other benefits, were widely peddled to wealthier people as a status product. That worked for a while, but the concept became so over-promoted that it lost its premium cachet, Itzkowitz says. Teaser rates, those initial low interest rates that jump several points after a few months, remain popular.

One successful tactic that accounts for one-fifth of offers today is the co-brand concept linking credit cards with other businesses. When users charge purchases, they obtain benefits such as frequent flyer miles, discounts on long-distance phone calls, and points toward rebates on cars. Afffinity cards are a related concept that identifies the user with an organization, place, hobby, or even family surname.

Targeting a mailing to people who might want a Frank Sinatra affinity card requires top-notch expertise in precision marketing. Upstart MBNA Corporation, based in Wilmington, Delaware, has seemingly mastered the method. The company offers thousands of different cards. It nabbed 6 million accounts in 1995 and another 4 million in the first half of 1996. With $25 billion in Visa and MasterCard loans outstanding, MBNA ranked second only to Citicorp in bank-card lending at the end of 1995. Among its more than 4,300 endorsements, parceled out by a sales and marketing force divided into ten business sectors, are the National Football League, the Association of Trial Lawyers of America, and the Sierra Club.

Estimates vary of how much credit-card companies pay to acquire new business. The industry publication CardTrak cites figures of $35 to $125 per account. Gary Gordon, a credit-card company analyst at PaineWebber Inc. in New York City, says some companies mention costs of $70 to $80 per account, although he doubts that this includes the impacts of loss-leading teaser interest rates.

Still, it's been a great business so far. The independent issuers Gordon tracks, which are newer firms not affiliated with traditional banks, rake in return-on-equity fihures of 25 percent to 30 percent. That's nearly twice that of a traditional bank's overall business, but probably much less than such banks' credit-card sector, Gordon says.

WHAT'S THE LIMIT?