Smart move: creating 'intelligent' database.

• Author: Bernstel, Janet Bigham
• Position: Cover Story

Never underestimate the value of good intelligence. In the military, it can mean life or death for troops in combat In bank marketing, it means taking control of profitable relationships. In other words, good relationships spring from good customer intelligence found only in what experts call "true database marketing.' Bad intelligence means risking the loss of market share.

With so many financial institutions now focused on relationship management, few can afford not to integrate the MCIF database information with their overall competitive strategy.

"If the two aren't brought together, then you just have a direct mail machine," says Lance Kessler of Lance Kessler & Associates, a financial services consultant in Mechanicsburg, Pa. "Direct mail marketing is effective, but database marketing is much, much more effective. The real problem is that the marketing person doesn't leverage the power of the MGIF."

To understand the power of database marketing, you need to contrast it with simple direct mail marketing. Kessler offers these comparisons:

* Database marketing is an organizational process. Direct mail marketing is a campaign-based event.

* Database marketing is research-driven using customer segmentation. Direct mail marketing is list-driven.

* Database marketing is a dynamic, evolving information base. Direct mail marketing uses a data file, or limited customer information for a particular event.

* Database marketing is a two-way dialog, with feedback loops for customer interaction. Direct mail marketing is a one-way monologue.

Good relationships are maintained through dialogue. Organizations that are genuinely customer-focused figure Out ways to gather feedback from customers considered important to their future. But, before a bank can do that, it has to understand who these customers are and how to reach them. And that takes database intelligence.

Start with segmentation

True database marketing, using database intelligence, takes several steps and many years. Kessler counsels his clients to begin with basic segmentation.

"No bank has the resources to deliver meaningful relationship management to everyone," says Kessler. The organization has to decide which market segmentation framework to use--such as life cycle, which lends itself well to financial institutions."

The Bank of Lancaster County, Lancaster, Pa., took Kessler's advice and started life-cycle segmentation in 1999 as part of a competitive strategy that went into effect in 2000.

"Everyone within the organization went through training to understand the relationship management model," explains Teri McHale, senior vice president, community banking. "We wanted to really understand the life-cycle needs of customers."

The Bank of Lancaster County is the flagship bank for Sterling Financial Corp., Lancaster, Pa., a holding company for multiple community banks. What started out as a one-bank strategy has now been expanded to the organization's other institutions.

"All the bank affiliates now have the same approach on segmentation," explains Susan Bergen, vice president and director of marketing for Sterling Financial Corp. "We can't be all things to all people, but if we know where the greatest opportunity is, we can target our resources and our marketing efforts to those segments and individuals to be able to bring in those relationships."

General market matrix

Once a bank introduces segmentation, it should identify the segments that have the greatest revenue potential. To do that, Kessler recommends obtaining general marketplace data of the demographic area from third-party raw data feeds. He feels it's crucial for expanding bank opportunities.

"A lot of banks take the approach 'Find your 10 percent...