Retail banking is inherently relational. Bank customers have a variety of financial needs which change and evolve over time, in terms of both the scope of needs a customer may have and the relative importance that customer puts on each individual need. Of course, banks offer different product lines designed to meet these various needs.
This dynamic results in a constant exercise in which the bank attempts to attract, retain and expand customer relationships, while also making a profit in each product portfolio. This can be a very difficult equation to manage, even in the best of circumstances, and the challenge becomes even greater when dynamic rate cycles and an ever-changing regulatory environment are factored in.
Notwithstanding the industry’s history of empty talk about “relationship banking,” it is possible for banks to effectively manage both customer relationships and product portfolios at the same time. The key is not a super-secret strategy or magical modeling code, but rather the discipline to consistently execute proven strategies and tactics.
Maintaining Marketing Discipline
Most organizations struggle to maintain the discipline to consistently execute, often due to either a lack of resources or a lack of focus. Staffing in many retail bank marketing departments has not returned to pre-crisis levels, which results in a high percentage of resources devoted to dealing with the crisis of the day instead of the discipline of strategic marketing.
Targeted, relevant and timely customer marketing communication is one of the most fundamental, yet often neglected marketing disciplines. Direct, data driven marketing is more effective when it is more targeted, frequent and creates a cadence. It is less effective when initiatives are less targeted and less frequent, underscoring how fundamental the concept of discipline is to the effective use of this tactic.
Unfortunately, in understaffed or unfocused organizations, data driven marketing often ends up being used far less strategically. The initiation of a campaign frequently looks something like this:
“We are behind on goal for deposit generation. Let’s put together a large-scale campaign and get it out as quickly as possible!”
Campaigns created in this type of environment are very likely to end up utilizing loose targeting criteria, with messaging that has little connection with prior and future marketing communications. By definition, untargeted, disconnected marketing communication leads to diminished relevance to the customer, since the priority has defaulted to managing the portfolio over the customer relationship. All too often, the (correct) perception of the customer is that their bank is ‘pushing product.’
The Importance of Marketing Frequency and Cadence
Loan product marketing offers a great illustration of both the challenge and opportunity of targeted, relevant and timely customer marketing initiatives. There are two related principles fundamental to effective loan marketing:
1.) Customers do not determine their loan needs based on when financial institutions decide to do marketing. This sounds so simple and obvious, but many marketing departments and organizations fail to acknowledge this basic fact. It is as if marketers assume that the timing of the bank’s balance sheet needs somehow magically coincide with the timing of their customers’ need for credit. How many organizations still do large loan marketing programs in the Spring and/or Fall as opposed to running smaller programs every week or month throughout the year?
2.) No matter how beautiful and well executed the creative is, it is beyond the scope of marketing to convince a customer they need a loan when they do not need a loan.
When put together, these two principles underscore the reality that frequency and cadence of contact is essential to effective loan marketing. Promoting loan offers with the proper frequency to the right audience builds awareness over time, informing prospective customers that the bank has quality products and rates available while making it clear that it wants the customer’s loan business.
Building a regular cadence of contact increases the likelihood that the bank will be in front of individual customer at the point in time that they are in the market for credit, allowing the bank to be part of the consideration set to meet that financial need. If you apply the frequency and cadence principle in reverse, the obvious conclusion is that infrequent or inconsistently timed loan marketing will result in missed opportunities to grow the loan portfolio. You are not in front of the prospect enough or at the right time to address the prospect’s needs in a timely manner.
The Targeting Imperative
Yet, we must acknowledge that frequency and cadence are only two parts of the problem.
Optimal frequency and cadence of contact that is directed to the wrong audience will not only result in an expense incurred without achieving the desired result, but also runs the risk of irritating customers and prospects who receive communication that is irrelevant to their financial life.
Relevance demands effective targeting. The building blocks for successful targeting of any product offer are capacity and propensity. The good news is that it is easier than ever to determine both of these key building blocks
Evaluating capacity and propensity starts with answering these basic questions:
- Does the customer have the basic means, or capacity, to buy the product in a way that is profitable to the institution?
- What is the relative inclination, or propensity, of the customer to buy the product at this particular point in time?
A customer may have a tremendous capacity to borrow, but no need for credit. Conversely, many customers need credit badly but have no capacity to borrow. Targeting either of these customers with a loan offer is wasting money on irrelevant marketing, which risks irritating the customer, especially if they end up being turned down for a loan. Thankfully, there are list sources available that can provide names of people who are looking for loans NOW. Selecting these names weekly or monthly will yield much better results that simply ‘car owners’, ‘homeowners’ or ‘high credit card users’.
In summary, targeted, relevant and timely customer marketing requires discipline and focus. When done properly, data driven marketing can be an invaluable tool to address the longstanding challenge of retail banking: successfully managing both customer relationships and product portfolios at the same time.