WordCom, Inc.

After selecting the best business prospects in their market area, the financial marketer has the tools to fine tune the target audience to meet the needs and expectations of all the internal stakeholders.  

As building loan demand is becoming a priority, it makes sense to include products such as SBA loans, lines of credit, commercial mortgages, etc. in the messaging strategy to the small business audience.  

But it’s always desirable to avoid proposing credit products to prospects that are unlikely to qualify for reasons related to their credit history.  It is not worth the effort to put the prospect and the bank staff through an extensive approval process where a favorable outcome would be in doubt.

With many institutions striving to build their portfolios of small business relationships, it is more important than ever to leverage every available segmentation tool.  Using selections and risk evaluation tools is an inexpensive way to help marketers deliver appropriate messages to the most qualified prospects.  

Currently, most institutions look at four criteria:

Proximity to Branches – This selection permits the marketer to focus on prospective firms that are within a reasonable distance to each office (usually 3 miles, but less in urban areas).

Annual Sales – This varies among financial institutions.  Some will include companies with sales of $5 million or less.  Others may have limits greater or smaller.  

Number of Employees – This measure gives marketers another indication of company size, and is especially valuable if annual sales figures are vague or unavailable.

SIC/NAICS Codes – This selection allows marketers to include or eliminate specific categories of businesses.  It’s not unusual for institutions to specialize in certain types of products that lend themselves to specific businesses.  Sometimes, a business category (restaurants, for example) may not be attractive due to a higher than normal failure rate.  

“Banking has undergone tremendous change,” according to Walt Albro, Editor, ABA Bank Marketing Magazine.  “Shockingly new things are now accepted as mainstream.  Mobile phones and tablets will create more change, but that doesn’t mean actual branches will go away - they will become more targeted.”

“Most bank marketers are now using social media to become more interactive, but less face-to-face.  Meanwhile, the public is still looking for actual personal contacts.  There is a lot of change coming and marketers are looking for us to show them the direction the world is going.”

To test and actually measure how much fee income a Skip-A-Payment program could possibly generate, some institutions have first done a segmentation mailing.

For example, they mail to one group of customers offering a $35 deferral fee, mail to another group offering a $45 deferral fee, and then to a third group offering a $55 deferral fee.

After the offer’s expiration date has passed, the data could be analyzed to discover which offer received the most responses and how much fee income was generated by each segment.  If one segment proved to be more successful, then future Skip-A-Payment programs could then be based on that result.  The institution can also feel confident that the program is well worth the investment and that it should result in a positive ROI.

There is a marketing program that can make both customers and CFOs happy.  It is the proven Skip-A-Payment program, where customers are offered an opportunity to “skip” a loan payment in exchange for a small service fee.

Not only is it a good way to increase profitability, but it also offers some relief to customers’ wallets when they need it the most.  This program is especially attractive to customers during the holiday season, but it has also proven successful during the summer vacation season as well.

It’s a simple concept.  For a small fee, a customer can defer their next consumer loan payment for a month.  The best candidates for Skip-A-Payment are loans with several months remaining in the term and a monthly payment large enough that they are not put off by the deferral fee.  A positive payment history is also important.

Institutions that routinely offer this program enjoy a dependable stream of fee income and more accrued interest, while also developing goodwill with their customers.

The goals of a successful onboarding program are to both retain the customer and to sell them as many additional products as is practical.  Therefore, the purchase rate (purchasing any product) should be used as a measure of program success - as opposed to response rate (purchasing only the product offered).  The Return on Investment of the program (ROI) should be calculated using the value of all additional accounts opened.
 
The response rate on the specific product being offered should be used to measure creative/offer effectiveness.  But because a customer will likely receive multiple offers in the program, all the account openings in the 4-6 months following the start of the program should be used to track response as opposed to a specific "tracking window" following each individual mailing.

To maintain the professional relationship, the sales message in this first communication should be minimal.  A popular mailing package is a one-page letter in a window envelope, with a 3” lift note included.  The lift note is an ideal location for a brief highlight of services to supplement their recent account opening or a brief product sale.

Future messages can be more product focused, but the question is normally, “What to offer?”  Unless an institution has 1,000 or more new customers a month in the onboarding program, modeling is usually cost prohibitive.  So the decision is normally to offer the next-most-likely product based on “business rules.”  

“Sticky services” such as direct deposit, online banking and bill pay can be targeted to customers that haven't yet added them to complement a checking account or to those that may not have additional product potential.  Higher balance deposit products such as money markets, or products like credit cards and personal loans are harder sells but contribute more to the institution’s bottom line.  
 

The financial industry “standard” is to conduct an Onboarding program within the initial 90-day window after the initial account opening.  But is has been proven there is significant value in making contacts within the first six months as well as a first-year check-in.

The frequency of customer contact is usually determined by when the data is available.  Institutions with enough volume can contact their new customers in weekly or bi-weekly increments if the data is available, otherwise doing it monthly is the best option.

The first communication is usually a message welcoming the new customer and reiterating the benefits of the account they have.  The main reason for attrition within the first six months is not understanding the benefits of their account and believing they opened the wrong type of account. 

While non-checking customers are less attached to the institution and a much harder sell, the incremental cost of adding these customers to an onboarding program is nominal, so it is worth the additional expense. 

The primary goal in this segment is to sell them an additional product.  While most institutions focus on checking, other “lower commitment” products such as savings products or credit cards are an easier sell to this audience.


 

“Onboarding” is an integrated communications program designed to both enhance the customer experience and build their loyalty.  The reasons to institute an onboarding program are to help retain customers and make the customer relationships more profitable for the bank.  

Since the majority of new customers come from checking, new checking customers are the best targets for a successful Onboarding program.  Selections should include both brand new customers and existing customers opening their first checking account with the institution.

The primary goals of the communication are to thank them for opening the account and reinforce the prime features of the account.  A customer that is engaged with the account is less likely to leave and more likely to buy additional products.

The secondary goal is to sell additional products.  Not only does this add profitability, but it also stems attrition and increases the lifetime value of the customer

A checking acquisition effort should be planned as a repetitive program with mailing cycles at 6-8 week intervals, using cost-effective oversized postcards and self-mailers. Gifts can still be successful, and high end items such as the Kindle ‘Fire’ or cash offers of $100 or more are being used in many markets. Reward points that can be used for immediate gift redemption have also proven effective.

Mailings with no incentives have also produced profitable results. A good product message delivered to the right prospect at the appropriate time dramatically increases the probability of a response.

Sales tracking reports, produced for each mailing cycle, are important for an ongoing evaluation of a program. Carrier route response rates can be assessed and the information can be used to improve future selections.  

The key to maximizing profitability and lifetime value of a new household is to effectively cross-sell checking customers other products and services. A structured “onboarding” mailing series can begin to build the relationship within the 90-day window after account opening.

Using proven segmentation strategies, the checking selection tool CheckingIQ identifies carrier routes likely to yield high response rates to a checking account offer. An analysis of existing checking account customer locations provides the foundation for a targeted selection strategy.

The CheckingIQ analysis incorporates three distinct variable criteria. It starts with plotting existing checking account household addresses according to distance from the branch. These distance radii are grouped and serve as the initial filter for the targeting.  

Next, recent checking account openings within postal carrier routes (CRRTs) are pinpointed. This data allows for selection of CRRTs in areas likely to experience additional growth.

Lastly, the historical checking account penetration ratios of the CRRTs are detailed. Taken together, distance from the branch, recent account openings and historical penetration data combine to produce a powerful selection tool. This allows for the carrier routes to be ranked according to mailing priority and only the best ones with highest expected response rates are selected for the mailing.

In the midst of the changing focus from deposits to loans, one core account remains the basis for household acquisition – the checking account.

Acquiring new checking households is done through many advertising mediums. Print, T.V., radio, billboard and even ‘tell-a-friend’ campaigns are all used with varying degrees of success. However for many institutions, direct mail programs remain a consistent and measureable deliverer of new checking accounts.

The outmoded thinking of saturation mailing – sending all households around the branch a piece of mail – has given way to a more cost effective approach. A tool called CheckingIQ allows for the efficient direct mail targeting of households within an institution’s footprint.

Instead of pre-approved mailing lists, WordCom offers a marketing tool called RiskIQ that uses summarized credit data at the zip+4 level (essentially, neighborhood data) to identify households likely to qualify for a loan. It provides a risk proxy score that correlates highly with a FICO score.  This process comes without all the pre-approval red tape, yet helps target customers more likely to qualify for a loan, which typical ITA (Invitation to Apply) mailings do not.

The data can then be enhanced with individual household mortgage data (where available) such as home value, loan-to-value and mortgage origination dates. Demographic data can also be used to provide more insight into the credit profile of a household.

The total data package is then analyzed and “FICO-like” ranges are recommended to the bank to use in the selection process, depending on the type of loan product (auto, equity, mortgage), market characteristics and appetite for risk.

The Fair Credit Reporting Act guidelines require a financial institution to give a “firm offer” of credit to any consumer selected by the prescreening process.  The law also requires that this credit is extended in a fair and consistent manner.

The process and the consumer’s ability to “opt out” of the pre-screening process and not receive future mailings also needs to be spelled out and highlighted on every mail piece.

Recently, many banks have chosen to use a simpler and less costly “invitation to apply” (ITA) process, which takes a selected mailing list and, as the name implies, invites the consumer to apply for credit (with no promises or obligations).

Many credit mailing solicitations for equity lines, mortgages, autos, or other loans frequently use “pre-approved” mailing lists.  But, are they worth the time, money, and effort?

Pre-approved lists take a bank’s customer or prospect list and run them through one of the major credit bureau’s databases to append their FICO score; and provide the institution with a list of “credit worthy” loan prospects that meet their risk criteria.

This process can not only be cumbersome at times, but is costly and time consuming.  Many institutions are starting to seek alternatives that still provide cost-effective results.

Using a Branch Traffic Builder promotion to bring people into a branch that is new, recently moved, remodeled, or just needs a boost in traffic frequently can be very successful… but the prizes need to be attractive.

For any of these promotions, there should be at least three prize levels:  

•    1st place or Grand Prize level that would have a significant value ($1,000 cash, vacation, flat screen HDTV, etc.)
•    2nd place prize level that would have at least two prizes that are also valuable, but on a smaller scale (laptop, tablet, e-reader, MP3 player, etc.)
•    3rd place prize level that has multiple prizes that are easily replenished (gift cards or certificates for local merchants, gas cards, etc.)

To help boost product sales during the promotion, there should be several special offers included as an insert in the mail package and as handouts at the branch.  This allows branch staff to then open the cross-sell conversation as people visit the location.

Banks that have a branch that is new, recently moved, remodeled, or just needs a boost in traffic frequently use a Branch Traffic Builder promotion.  There are several options that are easy to manage and fun for visitors and staff alike.

Treasure Chest & Key:  A letter with a key affixed to it is mailed to households in the branch area and they are invited to come in to see if their key opens one of three treasure chests located in the lobby.  Wooden chests are provided with a brass padlock.

Treasure Chest & Combo Lock:  A letter (or postcard) is mailed that includes a variable numbered combination and prospects are invited to come in to see if their combination opens one of three chests located in the lobby.  Wooden chests are provided with a combination lock.

Winning Number:  A letter (or postcard) is mailed and it includes a variable number prospects can bring in to see if their number matches one of the winning numbers listed on a poster located in the lobby. 

Most HELOC Activation direct mail efforts produce significant results in terms of customers who respond to the offer and incremental loan balances associated with the promotion.  It is not unusual to have 20% - 25% of customers mailed respond by increasing their line of credit. A recent effort generated nearly $10mm in increased lines.  

Responses like these lead to good net revenue and ROI statistics from the mailing.  Additionally, it keeps customers happy because their financial needs were met.

Reminding customers of the cash they have available through their existing Home Equity Lines of Credit can be a very cost effective way of increasing loan dollars.

Most effective promotions send a letter to existing HELOC customers, reminding them of the many possible uses for additional cash.  Ideally, it tells them how much money is available to them in the form of their unused line balance. This variable data field can be effectively presented in the white space to the right of the name/address box.

The letter message should emphasize that accessing the line of credit is dependable, affordable and as easy as writing a check.

Most banks have a lending product already in place to help move out their abundance of deposit dollars.  A Home Equity Line of Credit is the prime product to promote when looking to increase loan balances, and it simply needs to be ‘tapped’.

Increasing loans through promotion of an existing HELOC can be simple and effective.  Since the line of credit is already established, there is no need for the customer to worry about an application and approval process.  Those who already have a line simply need to be reminded that money is available and easy to obtain.

And, there are many needs for the available cash that can spur customer action. Higher interest debt can be consolidated or home improvements can be financed. As the next semester approaches, college funding is also an important use of a home equity line.

Because Newtown Savings Bank has an ongoing onboarding program, their generational cross-sell messages are produced at the same time, thereby minimizing mailing costs.  Once selected for the program, customers receive a series of messages over several months.  Each message highlights a different product or service.

The product selection is not the only part of a generational cross-sell program that can be tailored to each age group.  From a creative perspective, the tone and look of the mailing can and should be fine-tuned as well.  

These adjustments can include more than variations in wording.  For example, seniors might appreciate the use of larger fonts to facilitate reading.  Using today’s technology, even age-appropriate photographs can be added to the creative mix to make sure that each message resonates well with recipients across the entire generational spectrum.  

Taking a generational approach is especially pertinent in customer cross-sell programs.  The obvious first step is to segment customers by age groupings.  While definitive dates for defining all the generations do not exist, the following date ranges are generally recognized:

Gen Y – 1982 and after
Gen X – 1965 – 1981
Baby Boomer – 1946 – 1964
Younger Seniors – 1937 – 1946
Older Seniors – before 1937

Each segment can then be targeted for products that are the best fit for their age, lifestyle and probable financial needs.  For example, Baby Boomers can be cross-sold transaction services, long term care insurance and investment services.  

The younger Generation X consumers would be more apt to focus on mobile banking, mortgages and other loan products.

Much has been written about the preferences and behavior patterns of Baby Boomers and the younger generations, X and Y.  These critical population segments have their own unique sets of needs and aspirations.  

Newtown Savings Bank decided it made sense to break away from a “one size fits all” mailing messaging strategy.  Instead, they tried to strengthen current customer relationships by using generationally-appropriate messages for their products and services.

Newtown Savings Bank ($950 million) in Newtown, Connecticut is targeting selected customers using this generational strategy.  Says Dan Long, Senior Vice President, “Our approach has been to look at customers who appear to have potential for additional products, and then go out to them with offers that best fit their age.”