Take a second to think about how much of your operating, sales and marketing effort is spent acquiring new customers versus growing your existing customers. If you are like most banks, 95% of your effort is directed at new customer acquisition and not at increasing product usage. This is an area where banks can improve as when you look at conversion rates for bank products, the highest probability of sale is in those loyal customers that already use a product, just not to its fullest extent.
The conversion rate is the success rate in which a sales or marketing message is delivered and the percentage of the total targets that convert or complete the desired action. Here are some common conversion rates that compare qualified potential new customers (via web, email, direct sales, etc.) and existing customers for popular bank products:
As you can see, one of the highest rates of conversion is to take an existing deposit account and give retail or business customers a reason to add to their balances. Retirement, vacation, college, business expansion or acquisition are all items that households or businesses commonly think about but don’t take action on unless they are reminded and have a clear path.
Last Action Marketing
Banks that plan marketing campaigns should look at their (or our) data on past responses to figure out which customers are most likely to react favorably and then spend their resources accordingly. Next to marketing to existing customers, the other bit of low hanging fruit is targeting customers with recent activity. “Last Action” marketing campaigns are triggered when a customer reaches some demarcation in a product such as increased deposit balances, paying off a portion of their revolving loan or even sending a wire. Last Action marketing is predicated on the fact that a customer is more likely to convert if they are recently familiar with the bank and product and they are satisfied with the service they are getting.
Preventing The No Engagement Zone
The above formula is the reason why millions of community bank customers sign up for online banking or bill pay, use it for a period of time, stop and then never go back. This “no engagement zone” happens with a variety of bank products and is an easy problem to fix.
A customer is more likely to open an additional account or use a product if their time from last interaction is kept to a minimum. While this varies as to bank product, we have summed up a composite picture of all bank products based on our experience. As you can see, marketing while a customer is using the product can make a huge difference in conversion rates.
The practical action based on this data is that banks should design marketing campaigns around some product-related action. Our health savings account experience is a classic example. Many customers open an account and then move on, not adding to balances. However, sending a series of follow up emails helps set behavior patterns and confidence, so permanent adoption and frequent usage are more likely. The result is higher deposit balances.
Putting This Into Action
When deploying management time and marketing dollars, banks must weigh whether to spend the money to acquire new customers or do they spend the money on increasing their share of wallet with existing customers? If done soon after a transaction (or an account open/loan closing), we can tell you that marketing to existing customers is multiple times more efficient. The ironic part is, as can be seen on the conversion curve, somewhere around month eight, the chances of conversion approach that of a new customer. Thus, if banks don’t do anything or wait too long, they don’t have to worry about it.
The above data is different for various products, for various banks, and various geographies. Loans, for instance, have much lower conversion rates when compared to deposits, so if we pulled loans out, you would see a more muted curve. Deposits, particularly savings, are one of the most sensitive accounts to marketing energy. Sometimes a simple and single email can yield material results in the form of higher average balances.
One important point is to take a product and try a test. These days, online or email marketing is very quantitative and very inexpensive. A positive return on investment can usually be instantly seen, and various marketing strategies and tactics can be compared in short order to determine which are the most effective. Establishing a control group of customers, marking their last transaction and then testing to see how many, and when, they convert can give you amazing insight into the data. From the data, glorious stories will emerge that will point you down a clear marketing path - a path that will hopefully result in greater profitability.
Submitted by Chris Nichols on February 11, 2019