Over the past two and a half decades, bank marketers have fallen victim to the same myths over and over again. It is obvious when tracking and reporting campaign results that these beliefs cause more harm than good in making smart marketing decisions. Before working on a direct marketing campaign, it is good to consider these three myths.
Myth #1: Response Rate is the Most Important Metric
Reality: A high response rate does not necessarily indicate that a campaign was successful. In contrast, a low response rate does not necessarily mean the campaign did not produce an acceptable ROI.
As they say, “you can’t eat a percentage.” A high percentage of a low number is still a low number. A high response rate on a small campaign may not produce enough total revenue to cover fixed costs associated with executing the campaign. Even if it does, there may not be enough dollars left over to buy lunch with the profit. This is often an issue with email campaigns that can look great on paper based on high click rates, but because email coverage in target segments is low, there is not enough response volume to be meaningful.
Quality is also more important than quantity. The reality is that most banking income today is driven by Net Interest Margin (NIM), with fee income representing a declining percentage of contribution. As such, a campaign may produce a high number of accounts resulting in a great response rate, but if balances are low, NIM is (by definition) limited resulting in low or even negative ROI. Conversely, a campaign may have a low response rate, but still produce a very high ROI if average balances are high, producing high levels of NIM.
Myth #2: Direct Mail is Dead
Reality: Direct mail is still the only channel that allows you to touch 100% of the target audience for a particular offer.
Much ink has been spilled proclaiming the death of “snail mail,” and the reality is that traditional mail volumes have plummeted in our electronic age. However, just because the cost savings of electronic billing has made traditional mail a dead channel for sending invoices, does not necessarily mean it is a dead channel for marketing.
Email coverage is limited, and often the customers (for which an email address is available) already may have the services you are promoting. We also know that it is harder to get a customer on the phone, because Do Not Call lists have grown and most customers screen calls on their cell phones. This bring us back to direct mail marketing, which can actually stand out more in the mailbox as overall mail volume has declined. Direct mail is far from a dead channel.
In many cases, direct mail is a great supplemental channel to use in addition to email marketing or digital channels. The average cost of acquisition and value of a program can actually rise when multiple channels (including direct mail) are used in conjunction with each other. As with all direct marketing programs, it is best to test and learn, adjusting marketing mix to get the best results.
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Myth #3: Targeting High Deposit Households with New Deposit Offers Results in Cannibalization
Reality: While a new (higher) rate offer to current deposit customers does represent a repricing risk, especially if the timing is in conjunction with a maturity date, there is more to the equation than a simple rate hike. This is especially true since most households do not consolidate all of their banking business with just one financial institution.
One of the most consistent truths in financial marketing campaigns is that the more deposits a customer has with you, the more they most likely have somewhere else. In fact, there are many cases where the customer with deposits at your organization have two to five times as much somewhere else.
In tracking campaigns for hundreds of institutions over the years, we have consistently found that when High Deposit Households respond to savings or CD cross-sell offers, they bring significant chunks of new money, and the spread you generate from additional deposits far offsets your repricing cost on the portion of preexisting balances that are repriced.
Another factor to consider is that when a current deposit customer accepts your offer, their behavior indicates that they were already an ‘at risk’ customer, willing to move money out of your bank in response to a competing offer. There is also the benefit of an increased share of wallet and higher loyalty evident when a customer consolidates their relationship with you.
Finally, a household that brings additional deposits to your organization still may not have consolidated all they have across all financial organizations. Maximize the value of this engagement by placing this household in a group of ‘hot’ leads for future offers. They have already indicated they are open to shifting their deposits. Keep asking.
Bottom line, it is absurd to think that ignoring key segments of customers due to repricing risks correlates with maintaining stable, growing deposit portfolios over time. Quite the opposite. And if the customer leaves, you’ll probably end up paying even more to acquire replacement deposits.
Although there are many myths out there to be debunked, these three are important because they can have a major impact on strategic marketing decisions. Marketing campaigns have the capability to be a driving force in a financial institution’s growth when strategically planned, executed and tracked. But, if marketers continue to fall victim to these common myths, they will miss out on taking full advantage of their marketing budget and bringing marketing to the forefront of the institution’s strategic growth plan.