If you're looking for an effective way to make the most of your
book, consider the experience of The Toronto Globe and Mail. A few
years ago, Canada's largest newspaper gathered information about its
advertisers and discovered they fell into three groups: The top 900
who accounted for 75 percent of advertising revenue and received
regular contact, the middle 5,000 who generated about 20 percent of
revenue and were contacted infrequently, and the bottom 6,000 who
provided 5 percent of the business and never were contacted.
Does that breakdown sound like your book? If so, you'll be
interested in learning what The Globe and Mail did when it
discovered that 2,900 customers in its middle group of 5,000 had
spent $14.7 million two years earlier but had not advertised at all
in subsequent years. Since the newspaper's sales force was
uninterested in contacting these advertisers, the newspaper hired a
telemarketing firm to call the 2,900 and find out why they stopped
advertising. There were a variety of reasons, but simply by calling,
reestablishing contact and talking about the newspaper, the
telemarketers brought in $2.9 million in advertising revenue.
If, like the newspaper, you'd like to get more from the
underserved middle of your book, consider creating or improving your
marketing database. The basic idea behind database marketing is to
create a relational database that stores customer names, addresses
and emails, plus their transactions, their income, assets, age and
investment goals. This database is used to communicate with
customers personally in messages that are welcomed and build loyalty
-- birthday cards, newsletters, market tips and other personal
messages. These messages reinforce loyalty and improve cross-sales
and up-sales.
You probably already have all or most of the software tools you
need to do the job. While many companies use giant, enterprise-wide
software solutions from companies such as Siebel Systems, your
PC-based contact management software can work almost as well. If you
use ACT!, Outlook, Goldmine or Broker's Ally, for example, you have
capacity to store and manipulate the information you need.
But, as Jaime Punishill, a senior analyst at Forrester Research
in Boston notes, any software is only as good as its usage. Contact
management systems can provide a wealth of marketing information
only if brokers incorporate the systems into their daily work
routine and use the software as more than a scheduling tool. While
company-wide systems can populate account data and holdings
automatically, a broker's own marketing database still can be a very
productive tool.
The beauty of database marketing is that it has become a science
as well as an art. It's scientific because all communications are
considered tests that can be measured against a control group of
customers who do not get the communications. This enables you to see
precisely how well the messages you sent are working. Using the data
in the database, you can develop statistical models that predict
accurately who will respond and purchase and who is unlikely to do
so. That way, you can avoid wasting money on unsuccessful
promotions.
The yardstick used by all major practitioners of database
marketing is lifetime value, which is a measure of the net present
value of the profit you should receive during a customer's
"lifetime" with you. It is a measure of the future based on
historical patterns and it takes into account the cost of acquiring
a customer and the natural attrition of a customer base once
acquired.
How can database marketing improve lifetime value? Communications
can be used to boost the retention rate, increase assets per
customer and reduce acquisition costs. Overall, it is possible to
make significant increases in lifetime value through database
marketing.
Now let's turn to the database itself, which should be the
repository of customer preferences that you unearth when talking to
your clients and prospects. Is a client investing for retirement? Is
she preserving an inheritance? Is the money earmarked for a child's
education? Answers are stored in the database and are used to craft
the communications.
Ask customers how they like to receive communications. Do they
want letters, emails or phone calls? Would they like a monthly
newsletter? Do they like visiting Web sites regularly? These answers
also are stored in the database, and software can be used to
generate the outgoing messages automatically.
Given the different goals and preferences of so many clients,
it's easy to see how any normal broker would be overwhelmed by all
the follow-up such data would require if handled manually. A
database, however, manages this complexity with ease, generating
compliance-approved communications that can be dispatched
automatically or batched for broker approval.
In addition to handling the grunt work of communications, a
customer marketing database can be used to create descriptive and
predictive models. A descriptive model tells you what your customers
are like. A predictive model can tell you with some accuracy which
customers are most likely to defect and which are loyal. Once you
have identified the potential defectors, you can do something to
head them off at the pass: phone calls, special offers, research
reports or other inducements to stay. One profitable use of modeling
is to develop a risk/revenue matrix that combines lifetime value
with likelihood of defection. It looks like this:
Priority C customers are those with either very low lifetime
value or very low likelihood of defection (they are very loyal). Why
spend a lot of money and resources working to retain Priority C? You
should devote your resources to Priority A and B clients, who are
valuable and might leave. By analyzing clients this way, you greatly
simplify your retention problem and cut your costs.
To use your database for prospecting, consider what's known as
the two-step method. First, compile a list of mail-responsive people
in your area who are interested in financial matters. In general,
these people are subscribers to Money Magazine, The Wall Street
Journal, Barron's, and similar publications.
Put these names into a prospect database and mail them an offer
of a free copy of a report on a timely topic by a well-known expert,
perhaps your firm's chief strategist or economist. In return for the
report, respondents are told they will hear from you. Even though
only a small percentage responds, the two-step process works well
because you are contacting only those people who are interested in
hearing from you.
If you do a few of these mailings, you soon will be able to
calculate the percentage of respondents who become customers. This
percentage is usually quite dependable. One company in the resort
time-share business used the two-step process and offered a family
vacation at a nearby resort for as little as $69. It found that 10
percent of those accepting the invitation always buy a time-share
(costing between $15,000 and $25,000).
Large companies use models to
predict which of those mailed are most likely to respond.
Eliminating the less likely responders improves the response rate
and the sales rate. One company I've studied used a model to improve
their targeting and increased sales by 45 percent and profit by 96
percent. These results are not unusual for companies that have
created and used a sophisticated marketing database for prospecting.
Securities firms don't prospect on a corporate level; they leave
that up to you. So for you to be more successful, why not adopt the
techniques of leading marketers and develop your own marketing
database?
Arthur Middleton Hughes is Vice President of The Database Marketing Institute. Ltd. (Arthur.hughes@dbmarketing.com) which provides strategic advice on relationship marketing. Arthur is also Senior Strategist at e-Dialog.com (ahughes@e-Dialog.com) which provides precision e-mail marketing services for major corporations worldwide. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at (954) 767-4558 .
The articles on this web site are available to the general public to read, enjoy and for limited business use. If you want to reprint more than one or two of them for resale or use in a business or educational environment, send an email to Arthur Hughes at arthur.hughes@dbmarketing.com. He will give you permission by return email. The cost, depending on the number of copies you want to reprint, is very inexpensive.
