By Tony Rizzo
We’ve talked about the compelling case for data-centric marketing. But before any financial institution can begin to properly mine, enhance, analyze, and act on its data, there needs to be an acknowledgment of the strategic goals of the business.
The universal goals of business apply to your bank.
A financial institution has three business development goals:
- Increase volume at the point of sale
- Increase purchase frequency
- Increase new customers
Most financially-driven KPIs are often overlooked and replaced with more complex strategies. These strategies are either forgotten with time, or too complex for front-line employees to understand—and in turn, to execute.
Increasing volume at the point-of-sale relates directly to an institution’s ability to effectively cross-sell to customers when customers are making their original purchases. In 2010, U.S. consumers owned an average of 8.2 financial products. However, no more than three of those products were at any single institution. Given this sales opportunity, it is incumbent upon the bank to implement relationship pricing strategies as well as to communicate the bank’s overall capability (e.g., brand presentation) to effectively serve a wide range of financial needs including retail, commercial, wealth management, and insurance. Once a bank has mastered the cross-sell, the next step is to turn its attention to increasing customers’ frequency of purchases.
In 2009 United Kingdom banks reported that 20% of customers defect annually, and in 2011 U.S.-based institutions suffered a 31% attrition rate. The most commonly cited reason is the nebulous “poor service.” One reason why customers believe they receive poor service could be a lack of meaningful ongoing communication and a demonstrated appreciation for their business. No complicated statistical models are needed to understand that consumers gravitate to a company that demonstrates interest in them. By increasing purchase frequency throughout the customer’s lifetime, a financial institution would certainly reduce attrition rates and increase loyalty. Another benefit of executing this strategy is the increase in profit. According to Fred Reichheld’s book, The Loyalty Effect: The Hidden Force behind Growth, Profits, and Lasting Value, an increase in customer retention that’s as little as 5% can increase profits by as much as 95% percent. Your current customers came to you because they believed in your company’s brand promise. You owe it to them to continually reach out and explain why doing more business with you makes sense for them and for you.
Bring in new customers.
The final universal goal of your business is to increase the number of new customers. For any bank, this is a challenge. By some estimates, acquisition costs of a new household range from $300 to $400 each, making most marketing acquisition efforts unprofitable given a 1-year payback of the marketing investment. If a bank executes goals one and two (increase sales at the point-of-purchase and increase transaction frequency), then its customer base will become more loyal and active. Empirical research has confirmed the link between satisfaction, loyalty, and common business goals (increasing profit and market share). Further, communicating with and educating customers creates a chain reaction propagating loyalty. Loyal and active customers tell their friends. In other words, take care of goals one and two, and goal three will follow. In order to accomplish these goals, one needs a starting point. For many, the starting point of winning the competitive race can be found in data.
Consider the role of data.
Combined with its ability to convey trust, a bank’s ability to gather financial data from both a transactional and behavioral perspective gives it a competitive advantage. The behavioral insights that emerge from this collection of information can lead to improved service, enhanced products, and real-time analytics for marketing execution. Although many small to mid-sized banks, may find it daunting to take on a data collection effort, there are ways to work around the absence of a large analytical staff. An off-the-shelf customer relationship management (CRM) or marketing customer information file (MCIF) tool designed for banking can be useful to facilitate dynamic analysis of relationships at the household level. Either system will give you the capability to analyze household profitability and optimal product and service mix.
Using either the CRM or MCIF system, you can examine the most profitable and active households, as well as those most likely to become profitable and engaged. At this point, the marketer should have a profile and lists identifying the core market. However, at this stage, marketing intelligence is limited to the customer’s life within the bank and does not include demographics, psychographics, or predictive purchase data. The more valuable information will be found by looking outside the bank. Fortunately, one does not have to look far in order to glean a wealth of information in a short amount of time.
Tony Rizzo is General Manager of Creative Services at Marquis, a Plano, Tex. data analytics company specializing in the financial services industry. A 26-year veteran of financial marketing, Tony has been published in every major financial industry publication as well as the Wall Street Journal and USA Today, and is a frequent national speaker on leveraging data to increase retention and profitability from a marketing perspective. Email: firstname.lastname@example.org.