How to sell the Next Best Product

DMA Financial Services CouncilPalmer House Chicago

Luncheon SpeechApril 11, 2002

Arthur Middleton HughesVice President / Solutions

ArchitectKnowledgeBase Marketing

What KnowledgeBase Marketing Does

Financial Services Customer Retention varies with products The more products they have, the

more loyal, and the less likely to leave.

0%

10%

20%

30%

40%

50%

60%

70%

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100%

1 2 3 4 5 6

Cross selling has four goals:

Make a profit on the additional product

Build the loyalty of the customers who buy them

Keep the existing products Increase balances and

participation

How to sell the next product?

Traditionally, banks and other financial services use campaigns: credit card, home equity, CDs, auto loans.

This is OK, but we are treating all customers as prospects.

Loyalty is created when you treat customers as valued friends.

Two kinds of database people

Constructors People who build databases, do merge

purge, provide access, create models Creators

People who know how to turn a bunch of names, addresses and transactions into a profit center: make a profit from the DB

You need both kinds

Financial companies have silos

VP for Credit Cards VP for Home Equity VP for Retail VP for Mortgages VP for Auto Loans All working for bonuses No one working for the customer

Customers see us a one institution

They don’t understand the silos They think that the home equity folks

should remember what they said to the auto loan manager.

They want to be loyal to the bank, not just to a silo.

To build their loyalty, we have to share information and treat them as individuals

How to treat customers as individuals

Build a MCIF available to all who have customer contact.

Monthly, determine customer profitability and append it to customer records

Segment customers by profitability Use models to determine likelihood of

defection. Determine lifetime value

How one bank segmented their customers by profitability

79.67%

24.82%15.83%

1.52%

-21.83%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

5% 11% 28% 28% 28%

This 28% lost 22% of the bank’s profits!

Create a Risk Revenue Matrix

Probability of Leaving SoonLTV High Medium LowHigh Priority A Priority B Priority CMedium Priority B Priority B Priority CLow Priority C Priority C Priority C

By concentrating on Priorities A and B, you save 56% of your

marketing dollars

For each customer, determine the Next Best Product First, see what products they now

own Next, what could they own based on

their assets, liabilities, age bracket, employment status.

Determine the likelihood of their buying each of the possible products

Determine the profit to you if they were to buy each product.

Determine your marketing costs

Some products are easier to sell than others.

Figure out your qualification and marketing costs

Use a matrix to determine Susan’s Next Best Product

Possible Bank Products10 = High 0 = Very Low A B C D E FWill Susan Buy this Product? 3 8 6 4 7 9Will Susan's Purchase be profitable for bank? 9 3 5 8 6 3How qualified is Susan for the product? 10 4 2 9 6 0Marketing ease (low cost) to sell product 5 6 2 4 7 8Has she expressed an interest in the product? 1 4 8 4 8 8Next Best Product Rating 1,350 2,304 960 4,608 14,112 -

What to do with the information?

Put the Next Best Product on Susan’s database record.

Show it on the main screen for Tellers, Customer Service, Officers.

Use it in promotions Use in monthly statements

How to prove that your system is working

Set aside a control group for whom you determine the next best product, but do not show it on the customer record.

Do not promote the product to the controls

In other ways, treat the controls the same as all other bank customers.

Determining the Profit from a Next Best Product

Test

Bought Percent Increased Average Gross Marketing Net Totals NBP Bought Balances Profit Profit Costs Profit

Tests 400,000 37,600 9.4% 10.2% $90 $3,384,000 $1,200,000 $2,184,000Controls 40,000 760 1.9% 2.4% $90 $68,400 $0C @ 400,000 400,000 7,600 1.9% 2.4% $90 $684,000 $0 $684,000Test Gain $2,700,000 $1,500,000

Communications work!

Write customers thank you letters. Send them thank you emails. Call them on the phone. Prompt customer contact personnel

to greet people by name, and thank them for their business.

You can prove this by using controls.

Event driven communication:

Dear Mr. Hughes:

I would like to remind you that your wife Helena’s birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock.

As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00.

If you like, I can gift wrap the suit at no extra charge and deliver it to you next week, so that you will have it in plenty of time for her birthday. Or, I can put it aside so you can come in to pick it up. Please call me at (703) 754-4470 to let me know which you’d prefer.

Sincerely yours,

Robin Baumgartner Robin Baumgartner, Store Manager

Ridgeway Fashions

Leesburg, VA 22069

How one insurance company sold the next best product

Thousands of independent agents Program: 10% discount on one policy

if customer buys another policy Method: set up lead delivery system Created personal letters to customers

from the agent. System delivered through the web

Success of the program: Communications Work! Logging on, agent sees 300 leads

selected by model for Next Best Product Name shows discount customer gets Agent adds personal greetings Letters sent automatically: 11% bought Model predicted who would buy: 2/3 of

all sales from top 50% 89% of agents participated

Database Marketing can be Fun!

Try out new ideas. Don’t think big, think small. Test ideas on a small segment of

your database, using controls. Take those that work, and roll them

out. This is an exciting, accountable, art.

Books by Arthur Hughes

From McGraw Hill. Order at www.dbmarketing.com

New Book This Year:

What Works (And What Doesn’t) in Database Marketing

(McGraw Hill 2002)