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Turn Market Information into Marketing Insights

Over the past decade, increased competition and regulatory change have had a profound impact on the way financial products and services are sold. The challenge has been to progress from product-driven marketing to customer-needs-driven strategies that focus on individual relationships.

A concept as old as marketing itself states, “Don’t find customers that are right for your products—find products that are right for your customers.” While marketing literature abounds with the directive to “Understand your customer,” there is a significant gap between theory and successful practice. A firm can become truly market-driven only by listening carefully to customers and becoming thoroughly attuned to their needs.

The Power of Information

Information has played a crucial role in the shift to more focused, customer-needs-oriented marketing strategies. Financial services providers, by the very nature of their business, collect and store a tremendous amount of information about their customers. The longer the relationship, the greater the probability that the customer’s transaction history will provide valuable insights—about product preferences and about the motivation that triggers financial decisions.

Putting Technology to Work

In an effort to achieve industry leadership, forward-thinking financial services providers have employed powerful database technology to incorporate more focused marketing strategies into their marketing mix. We have been impressed by the rate at which database marketing has progressed over the past few years—and somewhat puzzled by the limited evidence of its strategic application in the marketplace.

Today’s database technology is capable of providing answers to questions that could scarcely be contemplated even a few years ago. It offers the potential to gain both important micro-insights into crucial customer decision-making factors and a macro-perspective on the current competitive landscape.

The following addresses how database applications can help meet a variety of representative marketing challenges:

80% of Your Business Comes from 20% of Your Customers. Database techniques can help financial services firms target marketing resources where they can generate the best returns. Database analysis can identify significant patterns and characteristics that are common among a company’s first-tier customers. Using this information, the company can then effectively “clone” those best customers by focusing its marketing expenditures on target markets that exhibit similar behaviors.

You Only Have One Opportunity to Make a First Impression. Database techniques can help financial services firms optimize the asset gathering potential of a new product and achieve sufficient initial sales momentum to quickly recover start-up costs. Database analysis enables a company to identify the most receptive market segments for a given product or service. The firm can then create a marketing campaign focused on the needs, wants and preferences of those individuals.

Meet Needs Rather Than Push Product. When market acceptance is disappointing, it is important to determine if the cause is the product itself, or merely the company’s failure to effectively communicate the product’s most appealing benefits to its most receptive market segments. Database techniques enable a firm to uncover the underlying reasons for the market’s response to a slow-selling product. Management can then determine whether a revamped product or realigned marketing strategy would adequately improve sales.

Cross-Selling Forges Multiple Links to Reinforce Client Relationships. Research shows that client retention rates correlate directly to the number of products the client uses. The average retention rate is: 14% for clients who use just one of a firm’s products or services; 56% for those who use two products; and 83% for those using three products from the same firm. Therefore, a firm can cement client relationships and enhance account profitability by developing focused cross-sell programs targeting vulnerable single-product households.

It Costs Five Times More To Sell A Prospect Than To Sell A Customer. One of the most fundamental business maxims is a cardinal rule in financial services: Nobody does business with strangers. Converting a stranger to a valued customer requires a significant investment of marketing resources. Database marketing can facilitate the development and launch of effective client retention programs that build stronger customer ties and protect a firm’s marketing investment. In addition, since increasing customer retention by 2% has the same impact as cutting costs by 10%, such a program can significantly increase profitability.

The Bottom Line

Database marketing can answer important questions and provide a clearer understanding of the competitive forces that drive the financial services marketplace. Database capabilities cannot, however, replace the qualitative elements that are essential to the development and execution of effective marketing strategies. Expert decision-making requires a well-developed strategic framework that enables management to

  • apply intuitive and creative know-how to the insights provided by database analysis
  • develop marketing initiatives that cost effectively produce increased market penetration and profitability
  • achieve a meaningful payback for your database investment.