| The Company's principal competitor is CUC which offers credit reporting
membership programs with certain features similar to those provided by the
Company's programs. CUC is a direct marketing company primarily engaged in
providing shopping, travel, discount and related types of benefits to its
customers. Based on industry data, credit programs accounted for approximately 3.0% of CUC's membership base. Additionally, CUC competes with many potential co-marketers in its various business lines, such as travel-related services. In addition to this direct competition, the Company also encounters competition for co-marketer endorsements from other direct marketing businesses. Because agreements between co-marketers and program providers are often exclusive with respect to a particular service, potential co-marketers may be prohibited from entering into agreements with the Company to promote a program if the features provided by the Company's program are similar to, or overlap with, the features offered by an existing program of a competitor. There can be no assurance that the Company's competitors will not increase their emphasis on programs similar to those offered by the Company and more directly compete with the Company, that new competitors will not enter the market, that competitors will not increase the compensation they provide to co-marketers to induce such co-marketers to enter into agreements, or that other businesses will not themselves introduce competing programs. Such potential competitors include
major credit card issuers, including the Company's co-marketers. Potential
competitors also include major credit bureau reporting services, including
Experian, which would have significant competitive advantages such as access to credit data at minimal cost. There can be no assurance that the Company's current or potential competitors will not provide programs comparable or superior to those provided by the Company at lower membership prices or adapt more quickly than the Company to evolving industry trends or changing market requirements. In addition, alliances among competitors may emerge and rapidly acquire significant market share. Many of the Company's current and prospective competitors, including CUC, have substantially larger customer bases and greater financial and other resources than those available to the Company. Increased competition may result in price reductions, increased fees payable to co-marketers, reduced profitability and loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to compete effectively against future and current competitors. Experian provides substantially all of the credit information which the Company furnishes to its members. Although neither Experian nor the other credit reporting bureaus provide the credit monitoring services currently offered by the Company, Experian and the other credit bureaus currently provide a credit report directly to any consumer at the consumer's request at the rate of approximately $8.00 per report (except in states where local legislation provides the consumers are entitled to a free credit report upon their written request). There can be no assurance that Experian or the other credit bureaus will not begin to more aggressively market their services to consumers by initiating price reductions or advertising campaigns targeted to consumers and that such actions will not adversely affect the Company's business, financial condition and results of operations or require the Company to reduce prices for certain of its programs in order to remain competitive. On August 13, 1997, Experian launched a program to offer consumers the opportunity to receive their credit reports directly over the Internet. Although two days later Experian announced that it was suspending this program due to certain operational and security problems, there can be no assurance that this, or similar programs, will not be implemented by Experian or other credit reporting bureaus or that competition from such programs will not adversely affect the Company's business, financial condition and result of operations. Experian and the other credit reporting bureaus would have significant competitive advantages over the Company in providing such reports or services, such as access to credit data at minimal cost. Currently, management believes that the Company enjoys several competitive advantages, including (i) the high entry costs associated with starting a competing business; (ii) the fact that none of the Company's competitors offers daily monitoring of a member's credit file; and (iii) the Company's unique contractual relationship with Experian. The Company believes that the principal competitive factors in the membership service industry include the ability to identify, develop and offer innovative service programs, the quality of service programs offered, price and marketing expertise. The Company believes that its ability to compete also depends in part on a number of competitive factors outside its control, including the ability to hire and retain employees, the development by others of service programs that are competitive with the Company's service programs, the price at which such competitors offer comparable service programs and the extent
to which such competitors are responsive to customer needs. In addition, the
introduction or announcement by competitors of the Company of new programs similar to those offered by the Company could render the Company's existing programs uncompetitive or obsolete, or result in a delay or decrease in orders for the Company's existing programs as co-marketers or customers evaluate new programs or select new programs as an alternative to the Company's existing programs. Therefore, the announcement or introduction of new programs by competitors of the Company could have a material adverse affect on the Company's business, financial condition and results of operations. |