Using Profitability Data--Profitably!(bank marketing strategy) (Column)

• Author: Sutherland, Kim

Oh, the woes of a marketer! All those misspent marketing dollars! All those direct mail pieces misdirected to the wrong prospects!

Wouldn't it be great if you could reallocate wasted marketing money, putting it in places where it could work more effectively? Now you can through the simple technique of using "account and customer profitability" information. This data helps a marketer make better decisions. Also, it leverages the effectiveness of day-to-day product, sales and pricing strategies.

This article will illustrate how to integrate account and customer profitability easily and quickly into three common banking initiatives:

1. Improving a direct mail campaign.

2. Setting sales goals for branches or trade areas.

3. Evaluating the impact of a potential pricing decision.

   Before you can take advantage of the information in this article, however, you need to have done four things in advance: calculated account and customer profitability; chosen an appropriate profitability level; selected a scoring scheme; and scored your customers. (For more information on how to do these things, see: "Making Customer Profitability Work," ABA Bank Marketing, July/August 2001.)

   Improving a Direct Mail Campaign

   When mailing to a group of prospects, marketers always try to organize their campaign for maximum effectiveness. In the past, most bank marketers had to evaluate three factors to achieve this--the number of possible targets to mail to, the expected response rates and the resultant cost of acquisition. Now you have an added dimension: profitability. Profitability information is helpful in targeting new customers. Here's how to use it:

1. Define customer segments. The method you choose isn't as important as making sure you understand the distinctions--and believe in them. These segment codes need to be on your database. Your aim is to roll up account-level profitability by product within each segment.

2. Review what you know. You now know the average profitability of each segment by product. And, you know how much better or worse these customer segments are compared to the average relationship value for your organization.

3. Figure out for the product you wish to promote, which customer segments make you the most money. The composition of desired customer segments will differ by product. That means your mailing strategy and your prospect lists should also vary by product.

4. Add a segment code to your mailing list of prospects for your product mailing. This...