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.

Competition for Wealth Management Customers Increasing

At a time when retail banks are finding it difficult to achieve pre-recession levels of growth and profitability, the competition for wealth management business has never been more intense. But while increased marketing and significant monetary incentives are being used to lure customers, recent research indicates that organizational barriers remain that could hamper growth. 

A just published Retirement Plans Trend Report conducted by the direct and digital monitoring firm Competiscan found that retirement rollover direct mail, electronic media and digital communication volumes increased during the second half of 2012 as did the value of offers used to entice customers. While many of these offers came from investment firms, more marketing was done by traditional banking organizations than in the past. 

In 2012, Bank of America was one of the most aggressive wealth management marketers, cross-selling the services of their brokerage unit, Merrill Lynch to current higher value bank customers and prospects.

Bank of America/Merrill Lynch Cross-Sell Mailing (December 2012)

Direct Mail Still Preferred Over Email, Social and Mobile Marketing

Despite a greatly increasing penetration of smartphones and tablet devices and a marketing industry focus on digital, social and mobile channels, a just released study of channel preferences by Epsilon reveals that consumer desire for postal mail continues to be strong.

The new report, Channel Preferences for Both The Mobile and Non-Mobile Consumer, found that, despite a more digitally-focused world, a majority of consumers still prefer postal mail for a large portion of their multichannel communication. This was especially evident with regard to financial services communication, where 38 percent of the U.S. households surveyed preferred receiving postal mail compared to 17 percent desiring information over the internet and 7 percent via email. Only health related communication had a higher preference for postal mail, indicating the advantage of direct mail for communicating sensitive information.

Bank Brand Loyalty Tested With Every Move

When it comes to lifestage marketing events, new movers have always represented a significant opportunity and risk. This is because consumers who move tend to significantly increase spending in a variety of categories while also changing their brand loyalties as to where they shop, eat, buy personal services and even bank. 

But, with new home sales in 2011 being 80 percent below the peak in 2005 (making the number of existing and new home sales the lowest in almost two decades), should bank marketers still invest in this target audience? Do consumers still spend at the same rate as in the past? Is this target audience even scaleable?

Interestingly, despite the ongoing reduction in home sales, the number of people moving has steadily increased since mid 2009, indicating that consumers in transition still represent both a risk and opportunity for marketers. In fact, the New Mover Report 2012 from Epsilon found that consumers continue to spend thousands of dollars in the months following a move, representing a valuable opportunity for those marketers who can identify and effectively communicate to new movers. 

The study also found three major themes when they looked at consumer spending habits, brand affinity and channel preferences associated with a move from one location to another:

• Consumer brand loyalty is tested during a move, with new movers being twice as likely to change brands or service providers than non-movers.
• New movers have an interest in changing and/or upgrading services such as banking, credit cards and insurance after a move.
• Direct mail continues to be a highly valued channel for receiving information during a move, and is even highly valued by Gen Y consumers.

Banks and Credit Union Marketers Taking Different Paths in 2012

According to a Rand Corporation research study, consumers usually select a financial institution based on convenience of branches, convenience of ATMs and bank fees. While bank users were more likely to select based on convenience, credit union users more likely chose with a desire to avoid fees. Consumers also cite personalized service when selecting a credit union.


With this as a backdrop, it is interesting to study the divergence of opinions expressed by more than 300 financial marketers from larger banks, credit unions and community banks as part of the 2012 Bank and Credit Union Marketing Survey covered on January 17 on both The Bank Marketing Strategy blog and on The Financial Brand. 


Faced with many of the same environmental challenges of increased availability of data, a proliferation of delivery options, imminent changes in how payments are processed, new marketing communication channels and consumer sentiment that has at times been polarizing, there are significant differences in how bank and credit union marketers view their roles, challenges and opportunities. There are also differences in the channels different types of organizations will use to communicate in the next 12 months.

As Channel Proliferation Increases, Consumers Still Prefer and Trust Direct Mail for Financial Services Communication

According to a just released consumer channel preference study from marketing services firm Epsilon entitled, The Formula for Success: Preference and Trust, 36% of consumers prefer to receive financial services communication through the mail (compared to only 8% preferring email), while 50% state that they pay more attention to direct mail than email. Interestingly, U.S. consumers actually receive an emotional boost from receiving mail, with 60% agreeing that they "enjoy checking the mailbox."

The 2011 study is the latest in a series of studies conducted by Epsilon around communication channel preferences. In the latest study, it was found that the preference for direct mail extended to the 18-34 year old demographic, highlighting the risk in making assumptions around age and channel preferences. Part of this preference bias compared to email and other channels could be caused by the level of trust associated with the channels reviewed, since 26% of U.S. consumers found direct mail to be more trustworthy than email. The least trustworthy channel continued to be social media, with the channel only being viewed as trustworthy by 6% of consumers. Consumers also found direct mail to be more 'private' than email or online channels (important for 37% of consumers).

Direct Mail Still Has Impact in Digital World

As more and more marketing dollars are funneled into digital and social media, and as postal rates continue to climb, direct mail marketing has been getting less and less attention. While there is definitely a case to be made for building a multichannel communication plan integrating a number of different channels to reach customers, recent research indicates that direct mail should still be part of the mix.

A study entitled, Using Neuroscience to Understand the Role of Direct Mail conducted by the research company Millward Brown found that direct mail actually leaves a deeper impression on the human brain than its digital counterpart. The research project used functional Magnetic Resonance Imagery (fMRI) brain scans to show that our brains process paper-based and digital marketing differently and that direct mail actually created a greater emotional impression than digital communications.

Marketers Not Aligned With Consumer Marketing Channel Preferences

Technology is rapidly changing the way consumers interact. We wake up each day to a barrage of messages coming from both traditional and new media. We check our Facebook posts and text messages at the same time we watch television, read the newspaper, listen to the radio or conduct work online. 

Marketers have long recognized the shifts in media consumption that are redefining how customers absorb information and offers. However, recent studies indicate that marketers may not be in total alignment with consumers as to how the new media is consumed and their degree of reliance on various media for making buying decisions.

A new research study by Acxiom entitled, Tug of Love: The Changing Relationship Between Consumers and Brands found that more than four in five people (82%) believed they were in control of the relationship between themselves and their brands (with 'control' being defined as receiving the information they desire, when and through the media they want). This was more than 50% higher than marketers thought, indicating that 'push' broadcast marketing is quickly being replaced with 'pull' marketing where the individual is in charge of message consumption.

Ten Bank Marketer Resolutions for 2011

It is the dawning of a new year in banking with many of the same challenges that we saw in 2010. Our industry continues to be viewed in a less than positive light from both the consumer and small business marketplace. 

The need for new customer growth and share of wallet expansion underpins the need for new sources of non-interest fee income at a time when regulations are dramatically reducing many traditional sources of revenue. In addition, the expansion of transaction and communication channels are changing the ways we interact with customers. 

These challenges are combined with an historically low interest rate environment and a credit environment where there is a massive amount of money to lend at a time when borrowing is more difficult and less desirable for many.

According to a national survey, the majority of personal resolutions in 2011 will revolve around saving money, losing weight, changing a bad habit and being closer to loved ones. Achieving any of these goals will take commitment, focus and changes in behavior. The same can be said for the resolutions I have developed from traveling the country over the past few months and being involved in a number of banks' annual planning efforts.

Here are areas where bank marketers believe they should focus in 2011:

Onboarding Communication - How Much is Too Much

As I discuss multichannel new customer onboarding program development with financial organizations, it doesn't take long before the client asks about how much communication is too much early in a new relationship.

Interestingly, according to our research at Harland Clarke as well as research from J.D. Power, the number of new products sold and the customer satisfaction ratings both increase as the number of contacts increase during the first 90 days. In fact, according to J.D. Power, the average number of accounts sold increases from less than 2.5 to more than 3 if the customer is communicated with 4-7 times or more. In addition, the satisfaction ratings increase by more than 10% if more connections are made with the customer who opened up a new account.

Optimism and Better Results Reported in Recent DMA Quarterly Business Review

In the most recent DMA/Winterberry Group Quarterly Business Review (QBR) for the first quarter of 2010, the Direct Marketing Association in conjunction with The Winterberry Group found that both direct and digital marketers have seen improved performance in terms of revenue, marketing expenditures and profitability compared to the previous quarter and the same quarter last year. Moreover, both marketers and service providers have optimism that this growth will continue, albeit at a slow pace.

Effective Onboarding Begins with Good Insight

In 2003, the BAI released a research study entitled, 'The Ninety Day Window of Opportunity', where interviews, deposit statistics and segmentation models revealed that nearly 75% of all cross-sell opportunities and the vast majority of attrition occurred in the first 90 days of a new customer relationship. These findings continue to be verified in the marketplace, with expanded concern recently around the lack of funding, engagement and use of new products by these new customers.

More than ever, financial institutions need to begin the onboarding process by capturing an accurate and robust view of the customer which can be used across the organization to enhance the customer experience and expand the relationship with the bank. In short, to optimize the customer experience during the first critical months and year of the relationship from both the customer's and bank's perspective, you need a 360 degree view of the customer. With online account openings, this process becomes even more critical.

Reg E Opt In Results Better Than Expected

As I travel across the country and talk to bankers about their early Reg E opt-in results, many are experiencing significantly higher than expected acceptance rates. In fact, some banks have indicated that they have achieved opt-in rates of as high as 85% or more from the highest impacted segments (those who have the highest use of overdraft coverage) and more than 95% from new customers who are opening a new account.

This level of acceptance should provide some comfort to financial institutions who have been concerned about a massive outflow of fee income as a result of Reg E beginning on August 15. Alternatively, this level of opt in sets the bar rather high for those organizations who have either not begun their Reg E communication or had thrown in the towel expecting customers to opt out on a massive basis.

Comparing Results to Industry Norms

I am frequently asked about what response rate a client should expect based on 'industry standards' or results from similar programs at other financial institutions. While the DMA does compile statistics and reports on direct marketing response rates with their Response Rate Trends Report, and there are other tools available from alternative sources such as MarketingSherpa, there are significant flaws to using general standards or even the results from another bank's program as a guide for setting expectations.

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.

BAI Checking 2.0 Executive Forum Recap

I just finished presenting at the second BAI Checking 2.0 Executive Forum in Chicago where close to 50 financial institutions learned about legislative changes, customer perceptions, new product development and marketing opportunities around the checking account. While only a month has passed since the first Checking 2.0 Executive Forum held in Atlanta, it is obvious that there are a number of changes occurring in the marketplace.

There was consensus among the participants that while consumer trust and confidence in banks has been negatively impacted by the events of the past two years, there may be some uptick in these measures over the next few months if financial results continue to improve and if banks continue to focus on the customer experience.

Segment Your Customer Base For Reg E Communications

The recent changes to Reg. E, impacting how financial institutions can levy fees for overdrafts caused by one time debit card or ATM transaction, have created a period of both challenge and opportunity for financial institutions. Due to the almost certain negative impact on a bank’s fee revenue and potential customer confusion about this new regulation, it is important to be able to effectively and efficiently implement these new requirements, maximizing account holder opt-in responses while providing a positive customer experience.

In this month's ABA Bank Marketing Magazine, Robert Giltner from Velocity Solutions suggests that financial institutions should start their communications process with a mass mail and email campaign to all customers explaining the new regulation. While I agree that all customers should be provided a clear understanding of their options, I don't agree that an all encompassing direct mailing should be done from a cost perspective.

Capital One Continues to Innovate

Historically an aggressive marketer and innovator in the credit card industry, Captital One has expanded its reach in recent years, using their growing banking franchise as the foundation for introducing innovative banking products. In addition to having a relatively rich debit rewards program and expanding into online and small business banking, they have recently introduced a new savings product called "InterestPlus Online Savings".

The saving program offers an above market interest rate on balances over $2,500 in addition to a 10% quarterly interest bonus payment paid if the customer uses their Capital One credit card once a month.

Targeting New Movers for Enhanced Growth

According to the U.S. Census Bureau, the national mover rate declined from 13.2% in 2007 to 11.9% in 2008 - the lowest rate of moves on record. Still, over 30 million people changed residences during this one year period, representing a powerful opportunity for new customer growth. In fact, even though the demographics of movers has skewed younger, with a higher percentage of renters moving, this segment continues to outperform all other prospect universes from a new customer acquisition perspective.

While many of my clients continue to focus on checking offers for the new mover segment, more banks are realizing the benefits of promoting products such as money market accounts and even equity credit and investment services.

Credit Card DM Volume Finally Rises

For the first time in three years, credit card-related direct mail volume increased during last year's fourth quarter according to research recently released from Mintel Corporation.

According to the research, while the volume of credit card direct mail in 2009 (less than 2 billion pieces) was 66% less than in 2008 and far less than the annual level of 7 billion a year experienced from 2004-2007, there was an increase of 47% during the fourth quarter of last year, compared to the previous quarter. Contributing to this increase, Chase increased their credit card mailings by the largest amount – 87% over the same period in 2008. In addition, US Bank's credit card mailings were up 64% over the same period of time, according to the study.