Customer profitability A credit card company has classified its customers into the following types for customer profitability analysis:

1. Applies for credit card in response to a low introductory interest rate; transfers balance to new account, but when the low introductory rate expires, the cus¬ tomer transfers the balance to an account with a different credit card com¬ pany that has offered a low introductory rate.

2. Charges a large dollar volume of purchases; pays balance in full on time each month.

3. Carries a high balance; pays only the minimum required payments, but pays regularly with occasional late payments.

4. Carries a high balance; pays at least the minimum payments but does not pay in full, and always pays on time.

5. Carries a low balance; pays at least the minimum payments but does not pay in full, and always pays on time.

6. Does not use the charge account but does not close the account.

Given the following facts, which of the customer types above would you expect to be the most desirable or profitable, the next most profitable, etc., for the credit card company on a long-term basis? Explain your ranking.

■ Merchants pay the credit card company a percentage of the dollar sales on each credit card transaction.

■ Customers pay no interest on charges for purchases if the balance is paid in full on time each month.

■ The credit card company charges a late fee if the customer's payment is late.

■ The credit card company incurs costs to send statements to inactive customers.

194 Chapter 5