Financial service marketers are traditionally very sophisticated direct marketers, being among the first to embrace life-stage and trigger-based marketing. But as channel restrictions curtail the types of programs available, they are more likely to increase their use of one-off efforts, which will proliferate, rather than replace each other.
This will lead to an over-saturation of the target base. As a result, by 2007, response rates on financial service marketing efforts will fall by 50%, predicts Kimberly Collins, a research director at Garner.
If the industry were to enhance its segmentation and targeting efforts, it could go a long way to mitigating this scenario. The industry certainly has its work cut out for it: A 2002 Gartner survey of 97 banks, brokerages, insurance and credit card companies revealed that 70% do some level of customer segmentation. But there doesn’t seem to be a lot of formal guidance of these efforts: Only 21% reported having formal segment managers.
A closer look reveals that among these, few undertake more than rudimentary forms of analysis. Just over half perform demographics-based segmentation, while 41% look at products owned.
But the more sophisticated forms of analysis are given short shrift. Both propensity to buy and life-stage analysis are done by only 29% of all respondents, while risk scores are used by just 20%. Psychographics and lifestyle information is thrown into the marketing mix by 17% and 15%, respectively, and only one in ten calculates churn propensity. Lifetime value analysis? Forget it. This was cited by only 4% of respondents.
Even customer-based profitability, a seeming no-brainer, is done by only 30% of all institutions surveyed.
The financial companies surveyed indicated pending plans to embrace each of these segmentations on the future. But anyone who has ever tried to shepherd a new system to completion is well aware of the number of slips between cup and lip.
This is especially true for those companies that don’t plan on creating formal segment managers. And only 26% anticipate creating an office with these responsibilities, which is far fewer than the number of institutions planning to beef up their segmentation efforts.
There is still room for growth among those companies doing these types of analyses. According to Collins, among those firms that do calculate costs per product, 51% are applying industry averages to their customers, as opposed to linking actual, activity-based costs to individual customers.
The numbers get a little better when financial service firms detail the types of predictive analysis they are using for targeting. Just under half (48%) calculate propensity to buy, while another 38% anticipate the next likely purchase. One-third look at attrition rates, and 30% use predictive analysis (as opposed most of the modeling referred to above, which analyzes demonstrated behavior) to generate segments. And predictive modeling is used by only 11% to calculate lifetime value.
So what should the focus of all this analysis be? Retention marketing, with a later focus on cross-sales efforts. Gartner found that financial services organizations spent, on average, $280 to recruit a new customer, compared with just $57 to keep one.
But this is where the hazard of over-saturating a customer comes in. Without a centralized lead management system, the frenzy to get an offer
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