Most banks think of marketing in terms of channel - print, digital, radio, in-branch collateral material and so on. While that is one way to think about it, the next time you talk marketing, figure out how much of your limited resources are going to these three functions: 1) New customer acquisition, 2) Retention and 3) Cross-sell. This purpose-driven approach has the advantage of keeping the objective in mind while providing a framework to measure objectives.
Traditionally, banks have largely utilized marketing as a customer acquisition tool. Further, they have used it in a general sense to promote their brand. While needed at some level, this is probably the least effective use of marketing dollars as measured by a return on investment. Just as bad as a low return (usually low single digits if not negative), is that bankers rarely put an objective with a general marketing program. Because there is no objective, measurement is impossible and effectiveness is a random roll of the dice.
Your Better Marketing Return
A better approach when it comes to acquisition is to market a specific product or service. Maybe it is medical loans for equipment financing or cash management services for manufacturing companies, but a specific campaign with clear objectives will often produce a return in the low to mid-teens. This has the advantage of being able to track, benchmark and improve your marketing effort.
However, instead of acquisition, if you carve out some marketing budget for retention, then you shift objectives to a more efficient endeavor. Because current customers are more receptive to marketing messages from a trusted source they are already engaged with, retention campaigns often have significantly better metrics as measured by opens, clicks, downloads, etc. Here, the goal is to increase a customer’s lifetime value by elongating the number of years they do business with your bank.
When it comes to retention marketing, the best investment your bank can make in this regard is a loyalty program. These marketing dollars will help increase satisfaction, possible jump cross-sell rates and extend your customer’s lifespan. Return on investment for bank loyalty programs are often in the high 30s to beyond.
Your Best Marketing Return
Of course, to get the biggest return on your marketing investment, cross-sell promotion usually wins hands down and is worthy of the largest portion of your marketing investment. Since an existing bank customer is multiple times more likely to do business with you than a non-customer, conversion rates are significantly better. In addition, cross-sell not only immediately helps current customer profitability, but also extends a customer’s lifespan as a customer that uses five products has an approximate 5% or less chance of defection compared to a 14% rate for a customer that uses just one product. Cross-selling a revolving line of credit to a term loan customer or payroll cards to an existing cash management customer can produce returns of better than 100% on the marketing investment.
It Is a Balance
When thinking about your marketing effort, think balance. While optimization levels differ for each bank, a good mix to strive for is to spend about 5% on general branding, 20% on focused new client acquisition, 30% on retention and 45% on cross-sell. This mix will likely produce a much higher return on your marketing efforts than what you are doing now.
You have likely worked hard to acquire customers, provide quality customer service and to build your brand. Now, it is time to build on that foundation. Share this with your management, marketing and sales group in order to get the whole bank on the same page. When it comes to marketing, think in terms of your objectives and place greater emphasis on marketing to existing customers and you will likely see a notable improvement.
Submitted by Chris Nichols on August 26, 2014