How your bank acquires customers has an impact on retention.

• Author: Triplett, Ted

A LOT HAS BEEN WRITTEN ABOUT INCREASING RETENTION by growing new and existing customers. But very little has been said about the impact of customer acquisition on retention.

It's been long recognized that checking accounts are the workhorse of retail banking and create the best opportunities for other relationships to develop between the bank and its customers--check cards, bill pay and the like. At any given time, 16 to 26 percent of the population is seeking a new checking account. However, your bank's goal should seek to do more than simply acquire anyone in this transitional market.

Targeted customer acquisition

Banks can significantly increase retention and lower attrition rates (new customer attrition rates can be as high as 30 percent) by simply placing more emphasis on what I call "preboarding" customers. Simply put, this means being more cognizant of the type of customer your bank acquires. It's the process of targeted customer acquisition, or finding and converting prospects that look like your bank's best customers.

Typically banks use direct marketing campaigns to acquire customers. Direct mail is considered one of the best ways to target offers to a recipient--instead of hoping a prospect hears it on the radio, billboard or in the daily newspaper.

Most checking account acquisition programs consist of full saturation mailings of ZIP codes in a small radius of your bank branches (based on the idea that convenience usually is the number-one reason a prospect chooses a bank). Other saturation programs go a step further and rank carrier routes within each ZIP code--a tactic that costs less and tends to get higher responses than ZIP code saturation mailings.

However, these methods still use prospect lists based on market penetration analysis and other factors such as recent activity and distance from the bank. The rationale behind this methodology: "You'll like these new customers because they are neighbors of your current customers." It's a somewhat shaky premise when you consider that nearly 80 percent of your current customers already are unprofitable.

Look-alike modeling

I recommend that banks use...