Banks and Credit Unions Must Improve Cross-Selling Efforts

Despite the fact that banks and credit unions have talked about the importance of cross-selling for decades, few institutions have a disciplined process to take advantage of cross-selling opportunities that can grow operating revenue from existing customers. 

For those organizations that do have a process in place, studies show that many are not targeting the offers to reflect insights readily available, thereby annoying some of the best customers.

Outside of an improved interest rate spread (which is unlikely in the foreseeable future), banks can only create revenue by adding new customers or by deepening existing relationships. At a time when competition for new customers has never been greater from both traditional and non-traditional players, the only sustainable opportunity is to sell more to the customers a bank or credit union already has.

While the findings differ a bit by study, research shows that U.S. adults own between 8-12 financial products each, with ownership of services increasing with age (until age 54), by channel (online users have more products) and by type or institution (credit unions and smaller banks do better cross-selling).

Forrester: North American Technographics Benchmark Survey, 2009

Forrester: North American Technographics Benchmark Survey, 2009

While the number of products held by a typical household hovers around 10, most customers only hold 2-3 services at any one institution. Only the very best organizations sell more than four services to any one customer (not including 'go with' services such as debit cards). How can banks improve their penetration within their current customer base?

Demographics No Longer Effective For Financial Direct Marketing

Bank and credit union marketers have traditionally relied on the use of demographic segmentation as a means of targeting customers for product and service communication. 

Recent studies, however, provide growing evidence that changes in product delivery, communication channels and competition may have made a demographic-based targeting approach much less effective compared to other approaches that use additional data sources.

Marketing segmentation is one of the most widely used marketing tools and has long played a crucial role in identifying and treating differences among customers. For decades, bank and credit union marketers have used demographic segmentation for product development, product positioning, marketing communication and results measurement. Traditionally, this segmentation has been done based on characteristics such as age, income, gender, family life stage, occupation, education, race, etc.

The reason for using demographic segmentation is that it is relatively easy to use for most financial institutions due to relatively accessible customer databases and because this form of segmentation is continuously referenced by both academic and trade literature. While it is still true that there are differences in the use of financial services across demographic segments, however, research as far back as the 1960s has suggested that demographic variables are only remote proxies for differences in buying styles, decision processes or sensitivity to promotional influences (A Two Dimensional Concept of Brand Loyalty).

A more recent research paper in the Journal of Financial Services Marketing entitled, Suboptimal Segmentation: Assessing The Use of Demographics In Financial Services Advertising found that there is little support for the reliance on demographic variables for bank marketing. Despite continuing popularity, the research found that while demographics can explain broad behaviors, they play a weak role in explaining brand preference, product purchasing, innovation adoption, channel use and technology uptake.

Differentiation Is Key Component To The Value of Rewards

Yesterday, it was announced that merchant-funded rewards leader, Cardlytics had signed a global strategic alliance with loyalty leader Groupe Aeroplan allowing for the expansion of transaction-driven marketing (TM) to Canada and abroad.

Unlike traditional rewards programs used by financial institutions that are points based and driven by the volume of transactions processed, the Cardlytics platform provides the ability to present highly targeted retailer offers to customers through a bank's online statement, mobile device or email based on the customer's recent transaction activity. Since the Cardlytics decisioning tool resides within the bank's firewalls, customer insight never leaves the bank and retailers never have access to proprietary customer information. In addition, as opposed to the points reward program being a cost to the bank, the Cardlytics pay-for-performance model not only eliminates risk for the merchant, but also can provide much needed revenues for the partner bank.

Be Careful of 'Mental Opt-Out' With Email Marketing

For those who read my Blog, you know that I feel strongly that the email channel is significantly underutilized by the banking industry. Not only do marketers not effectively leverage this channel in conjunction with other direct and mass marketing options, most banks do a terrible job at even collecting email addresses in the first place.

Unfortunately, for those who have begun to use email marketing in support of customer communication efforts, some have gone to the opposite extreme by viewing email as a 'free' marketing tool without giving adequate thought to the importance of relevancy. As many realize in their daily scanning of their email in box, overusing the email channel can have a detrimental effect of the value of this channel and negatively impacting the overall customer experience.

Cardlytics Introduces Bank Statement Innovation

At a time when banks are looking for ways to generate new revenue and increase customer loyalty, Cardlytics has developed a way for banks to leverage transaction data to deliver targeted offers to clients on their online bank statements.

Since the privately held company launched the innovative product last November, more than 100 marketing campaigns have been run, reaching half a million bank customers. According to a recent AdvertisingAge article, the company expects to have 50 to 70 financial institutions on board by the end of the summer, reaching some 10 million customers by the end of the year.

Online Customers Aren't the Only Target for Mobile Banking Services

While attending the 2009 Mobile Financial Services Congress in Miami a little over a month ago, there was a consistent message from almost all of the speakers that a mobile banking customer is less likely to attrite, more likely to use additional engagement services such as bill pay, and less costly to serve.

Interstingly, it was also emphasized that while most banks have promoted the use of mobile banking to their current online banking customers, the real financial benefit is realized when a customer who is not as heavy a user of online banking is converted to the mobile channel. In other words, it makes stronger financial sense to try to segment offline customers and implement a proactive channel migration strategy to convert channel usage.