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Keeping Bank Customers by Database Marketing

If you were to list the attributes to look for in the ideal customer marketing database, it might include these things:

  • Loyalty Customers are rewarded for staying with you — and they do.
  • Increased Sales. Customers are rewarded for increasing the level of their purchases, and they respond to the rewards.
  • Referrals. Customers are incentivised to enlist their friends and relatives as customers; and they actively and enthusiastically respond to your incentives.
  • Equity. Over time, customers are conscious of a build up in a tangible equity in their relationship with you so that they are unwilling to leave you, despite the blandishments of the competition.
  • Focus on Relationship and Service rather than price. Discounting is the least desirable way to attract and keep customers. Why? Because anyone can do it. Your product or service becomes a commodity which is easily compared with others by using a rate chart. Instead, you want your customer to focus on the super service that they get, the nice people that they deal with, and the idea that your company is a family friend. They may know that they could save a penny by going elsewhere, but they don’t want to do that.

A program that has all of these attributes can be found in the Frequent Banker program designed and supplied by Emanacom Data Services in Dover, New Hampshire, headed by Ted Amazeen, President. Here is what Emanacom did for the Wilmington Savings Fund Society (WSFS) in Wilmington, Delaware.

Why WSFS Turned to Database Marketing

In 1990, WSFS, a 160-year-old savings institution, was in deep trouble. Mistakes in real estate financing in the 1980’s forced the institution to write off $96 million of its $100 million in capital. The publicity caused depositor confidence to evaporate amid rumors that the bank was about to be seized by the RTC. Panic losses shrank deposits from $1.1 billion in 1990 to only $600 million at the end of 1993. The bank was only saved from extinction by two successful waves of recapitalization.

The bank faced a basic dilemma in their core business: consumer banking. In the 1980s real estate loans had been highly profitable. WSFS attracted cash by paying the highest rates on CDs. At the same time, they offered the lowest rates on consumer loans. These were not good strategies to succeed in the 1990’s. As a result, they had two serious difficulties as they faced the new 1990s marketplace:

  • Price conscious consumers: Most of their customers had been attracted by the bank’s low rates. They had been trained to focus strictly on price. This type of customer tends to defect as soon as the customer sees lower rates elsewhere.
  • No competitive differentiation: By basing their entire strategy price alone, WSFS had made their products seem to be commodities. The bank had an insufficient reputation for service, helpfulness or friendship to fall back on to maintain their customer relationships.

To turn things around, under the leadership of Robin Williams, Senior Vice President for business planning and marketing, WSFS instituted a new program called “MVP”, billed as “The More Value Program for our Most Valued People”. Designed to copy the success of the airlines frequent flyer programs, the objective was to encourage people to stay with WSFS by allowing customers, by their use of WSFS services, to earn points towards meaningful and desirable specially awarded benefits. The points could be earned quarterly by a variety of customer behaviors:

  • Level of average deposit balances
  • Balance increases during the quarter
  • New loans and mortgages settled during the quarter
  • New customer referrals

Depending on the number of points earned, a customer could fall into one of four classes: Non qualifiers, and qualifiers in Tier 1, Tier 2 and Tier 3. Each qualifier received a quarterly statement providing the calculation of his points. Depending on the points achieved, he was also notified of the awards he was eligible for. The awards included special offers of bank services plus goods and services at local merchants. The higher the tier, the more valuable the rewards. MVP points were accumulated quarter after quarter, and could be redeemed for “Something Extra” awards which included merchandise, free memberships and travel and entertainment prizes.

The “Something Extra” points were designed as “golden handcuffs”, which became stronger each quarter. As the points accumulated and the redemption awards sought attained greater and greater value, there was a higher and higher cost to defection from the bank. Customers found themselves able to tolerate less advantageous pricing in favor of continuing to build their “Something Extra” points. By the end of the first year, MVP customers were holding points worth over $80,000 in redemption value.

The bank competes for credit card business with national issuers such as MBNA Corp. of Delaware and First USA, Inc. in Dallas. These two companies run very aggressive promotions in the WSFS area. The bank also must compete with large traditional institutions such as PNC National Bank, Meridian Bank and the Mellon Bank. “All of these institutions have powerful regional offers and deep pockets for their advertising budgets,” according to Robin Williams. In the face of this competition, the bank had to stop the erosion of its business and go on to win new accounts.

How Customers were Segmented

The 15,000 customers originally qualifying for the program (Tiers 1, 2, and 3) represented only 30% of the bank’s customer base of 50,000. But these 30% held 94% of the bank’s total deposit balances. The remaining 70% of the bank’s customers, which held only 6% of the deposits, did not make sufficient use of bank services to become eligible. They represented no cost to the MVP program. By segmenting customers in this way, WSFS put their emphasis, and marketing dollars, where they could do the most good. The cost of the program to WSFS for one year was $60,000 paid to Emanacom, plus $80,000 in award liabilities. This worked out to about $9.30 per qualified customer per year. Let’s see what WSFS got for their $9.30 investment.

  • Increased Deposits. In the first two quarters, the average deposit balances held by MVP participants increased by $21 million, or $1,400 per participant. To put this in perspective, in the previous year WSFS deposits fell by $19 million. This was a real turnaround.
  • Increased Qualifiers. In the first six months, 3,363 non-qualifiers raised their balances by $15.2 million (an average of $4,519) and became qualified. Sixty six percent of the original “charter” qualifiers also raised their balances during the same period.
  • Reduced Price Sensitivity. As the program began, WSFS fell behind its competitors in the rates that it was able to offer to its depositors. In previous years, this would have signaled a substantial loss of deposits. Due to the MVP program, WSFS was able to hold its own — and actually increase the level of deposits. Because of the rising interest rates, of course, WSFS had to make some increases in the rates it paid to its holders of $230 million in time deposits. Had it increased the rates offered to the same level as its strongest competition, in keeping with prior year practices, it would have had to pay out $805,000 more in interest payments than it actually did pay. Contrast this saving of $805,000 with the total cost of the MVP program of $140,000, and you will get an idea of the return from a well designed database marketing program.
  • Cross Selling. In the first six months, WSFS MVP qualifying customers took out 624 new loans totaling $12.5 million. These qualifying members also enrolled in 892 new banking services during this period.
  • Referrals MVP customers referred a total of 108 new households who became customers during the first six months of the program.

Sophisticated Analysis

Once you have a database which segments customers into useful categories, it is possible to do a great deal of refined and profitable analysis which helps both the customers and the bank.

For example, using their Insight database system, provided by the Customer Insight Company, WSFS was able to predict potential defections by MVP program members who experienced a balance decrease over a certain “harmless” threshold. Since defecting customers would forfeit their “Something Extra” points if they failed to qualify for at least Tier 1 for two consecutive quarters, WSFS was able to remind these customers of the accrued value of their points with letters and phone calls, thereby heading off a loss both to the bank and to the customers involved.

Some bank branches did better than others. Where a branch had a high concentration of non-qualifiers, WSFS was able to funnel additional MVP Point of Sale materials to the branch. In branches with a high movement of qualified MVP customers to higher tiers, WSFS emphasized their referral programs. MVP reports were used to influence branch sales goals and branch staffing.

What the Customer Sees

Every quarter, all qualifying MVP members receive a statement package consisting of:

  • Personalized Statement similar to the frequent flyer statements provided by airlines. This details the points earned in the current quarter, and their accumulated “Something Extra” points.
  • Award Certificates
  • Referral Forms
  • A catalog of “Something Extra” rewards.

For those customers who qualify, the benefits are quite real. Qualified customers, for example, receive a 5% discount on fares for an unlimited number of trips with American, Delta or Northwest during the next quarter. At a participating supermarket, qualified members receive coupons for $5 off a single purchase of $25 or more every two weeks for the entire quarter. Members receive installment loans which are priced 1/2% below those available to other bank customers. These are only a few of the benefits made available to qualifiers.

The MVP program was well advertised within the bank. There were ceiling mobiles, teller counter sliders, take-ones, and sweatshirts worn by associates on designated MVP days. Bank merchant customers were solicited for participation in the awards programs. Merchants selected were those who had less than desired market share plus excess capacity or excessive “spoilage”. Spoilage is defined as a lost opportunity to sell a service or product — examples being airlines or cruise lines with vacant seats or cabins. The solicited business gained significant targeted advertising to a high-wealth group of consumers in exchange for providing these consumers with a high-value single use or evergreen offer.

How the Program Database Works

The Customer Insight Company helped WSFS create and household their customer database. To collect data to calculate the MVP points, the name, address, quarter average deposit balance, social security number, and new accounts opened information is sent quarterly to Emanacom in New Hampshire. Emanacom programmers then processed the data, applying the WSFS MVP point formulas, and produced and mailed the MVP statements, stuffed with special offer certificates for tier qualifiers.

Once this was completed, Emanacom, sent a disk to WSFS which was used to append the MVP tier number to each bank customer’s record, using the social security number.

As soon as a customer qualifies for MVP, he receives a welcome letter and booklet of smaller value certificates good for bank services and local merchant goods. Calling lists, sorted by type of sales opportunity within branch are generated for branch telemarketing.

Product Holes

After the MVP statement was generated, WSFS used Insight to generate personalized letters to MVP customers with a “product hole” (absence or inadequate utilization of a bank service expected of members with corresponding balances). For example, Tier 3 customers were qualified for the premier packaged checking program, free of all pricing requirements for as long as they remained in Tier 3. For those who were in this tier, who don’t have a checking account, for example, a letter was sent enumerating in detail the extraordinary value of the offer, and providing a simplified method of opening the new account.

For those who still had not snapped at the bait, WSFS furnished each branch with a calling list, identifying the qualifying members. Sales representatives at each branch called the customer to close the cross-sale. Appended demographics in the database make it easier for the telemarketers to position their discussions.

Program Design

It took a full year to put the entire program together. Included in the advance planning was the design of the database, computation of the elasticity of demand for time deposits, and an estimate of the value of the benefits needed to provide to MVP members to get them to keep and increase their use of bank products. Much thought went into the questions of the monetary value required for each MVP “Something Extra” point. The process involved a three-way collaboration among Emanacom, Customer Insight Company and WSFS. Within WSFS, marketing had to get the support of top management not just for the database activities, which were relatively modest in cost, but for inclusion of branch personnel in program promotion and administration. For a program like this to work properly, everyone in the bank has to be conscious of its objectives, and working to make it a success. That is what the Wilmington Savings Fund Society was able to do.


“This program has paid for itself many times over by our ability to price less aggressively,” said Robin Williams. “For example, the bank does not now have to compete for Certificate of Deposit customers on the basis of interest rates alone, because WSFS customers are finding that their having a CD balance with the bank can bring them other value. The great thing about this system is that it’s extremely flexible. We can use it to encourage behavior in whatever fashion we want.”

Other banks instituting similar programs include The Republic National Bank in New York, and the Metropolitan Credit Union in Chelsea, Mass. This credit union, with $250 million in assets, had a similar experience to that of WSFS. Because the company’s research indicated that its 12,000 customers generally favored cash back bonuses, Metropolitan rewards customer credit card usage not with points, but with checks at the end of the year. As reported by Candace Doucette, Vice President and Director of Marketing, “Transaction volumes have increased and the company has been able to retain its card base in a highly competitive market. It’s a great card enhancement.” In the first year of operation, Metropolitan increased its balances by $1 million and added 2,300 new accounts. Against these gains, the program cost the credit union only $40,000 per year for Emanacom, plus the credits earned by customers.


Bankers are increasingly making use of database marketing to retain their customers and expand sales. The goals, which are not difficult to achieve, are:

  • Retention: By helping customers to build equity in remaining with the bank, customers are less likely to drift away.
  • Cross Sales: “Holes” in a customer’s portfolio can be identified. The customer can be encouraged to plug the holes by pointing out that increased use of bank services can increase his equity without cost to him.
  • Reduction in price sensitivity: One continuing goal of database marketing is to get customers to think about the value of the product and the service, and to forget about the price. Database marketing helps wonderfully in this objective, particularly in a banking situation in which service can be meaningful, and price competition is always a threat.
  • Referrals: Word of mouth works well in financial services. If customers have an incentive to refer their friends and relatives, they will do so, as MCI has proved to the world.

The cost of such a system is really quite modest, in relation to the possible increased profits. What are the secrets of success that will make such a program flourish or founder?

First, and foremost, is conducting a close calculation of the possible benefits to the customer. Customers are ultimately interested in making a personal profit from their patronage with any institution. What they consider a profit is what the bank will have to discover. For some airline passengers, for example, frequent flyer points may be desired because they provide the ability to travel first class. For others they may be valued because they provide free transportation. Likewise in a banking situation, giving some customers free trips may be more meaningful to them than reducing their loan rates by 1/2%. If you are planning to set up such a system, spend as much of your planning time in designing the benefits for the customers — and in building in variations for different types of customers — as you do in laying out the mechanics of the database. If the benefits for customers are wrong, the rest of the program is just a waste of your money and time.

Second: related to the previous point, is the cultivation of merchant bank customers who provide the premiums for your consumer customers. Enthusiastic participation by these merchants is essential for your success. At the same time, the program itself can be a godsend for the merchants by introducing them to wealthy bank customers that they might otherwise be unaware of. In setting up the program, the bank becomes an intermediary which benefits both parties, and, at the same time helps the bank. Invest enough resources in merchant recruitment to make the system pay off. The experience of banks in this field is quite similar to that of newspapers who also try to enlist merchant cooperation.

The third secret, it seems to me, is outsourcing your system to someone who has experience in the field. WSFS picked Emanacom as a provider. There are others, of course, who can provide this type of service. Outsourcing permits a bank to get up and running in less time and at far less cost than trying to do the entire project in-house. When you look at the figures for WSFS in the first year: $60,000 to Emanacom versus $800,000 in interest savings, there is just no question that outsourcing is the way to go.

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