It’s been long recognized that checking accounts are the workhorse of retail banking and create the best opportunities for other relationships to develop between the bank and its customers—check cards, bill pay, and the like. At any given time, 16 to 26 percent of the population is seeking a new checking account. However, your bank’s goal should seek to do more than simply acquire anyone in this transitional market.
Target customer acquisition
Banks can significantly increase retention and lower attrition rates (new customer attrition rates can be as high as 30 percent) by simply placing more emphasis on what I call “pre-boarding” customers. Simply put, this means being more cognizant of the type of customer your bank acquires. It’s the process of targeted customer acquisition, or finding and converting prospects that look like your bank’s best customers.
Typically banks use direct marketing campaigns to acquire customers. Direct mail is considered one of the best ways to target offers to a recipient—instead of hoping a prospect hears it on the radio, billboard or in the daily newspaper.
Most checking account acquisition programs consist of full saturation mailings of ZIP codes in a small radius of your bank branches (based on the idea that convenience usually is the number-one reason a prospect chooses a bank). Other saturation programs go one step further and rank carrier routes within each ZIP code—a tactic that costs less and tends to get higher responses than ZIP code saturation mailings.
However, these methods still use prospect lists based on market penetration analysis and other factors such as recent activity and distance from the bank. The rationale behind this methodology: “You’ll like these new customers because they are neighbors of your current customers.” It’s a somewhat shaky premise when you consider that nearly 80 percent of your current customers already are unprofitable.
I recommend that banks use look-a-like modeling and data-mining to select prospects based on attributes (such as profitability, balance and geography) and demographics (like income, age and home ownership) that are correlated to your bank’s best customers. Using analytics allows you to refine your prospect list so you attract customers that look like your bank’s best customers. This more targeted approach will dramatically lower your mail quantities (and associated marketing costs), generate significantly higher response rates and higher balances, and increase your return on investment.
Most important, instead of acquiring price-sensitive customers, or rate shoppers that these other programs tend to attract, your bank will acquire more profitable customers who value long-term relationships—and that will increase your bank’s profitability. These customers also have a higher propensity to open “sticky” accounts like direct deposit, debit cards, online banking and bill pay, during the account opening process.
Implementing the right type of acquisition campaigns should become an integral part of all retention strategies. One of the primary goals of any acquisition strategy should be to attract fewer price-sensitive consumers and more customers who value relationships. Pre-boarding, in essence, is cloning your high-value customers—so your bank not only acquires more profitable and loyal customers, but also increases your customers’ lifetime value and aids retention!