http://search.proquest.com/docview/200751504/13EF9DBDD4EA121E06/4?accountid=3197 0#center Data base marketing: Just how personal? Silber, Kenneth. U.S. Banker108.2 (Feb 1998): 57-58.

() Technology has contributed to the depersonalization of banking. Yet, technology also enables banks to collect and analyze vast quantities of customer data, and to formulate marketing strategies accordingly. Data base marketing is the key to restoring the vital personal link between banks and customers. Proponents argue that data base marketing allows for a different - and in some ways better - typ e of customer relationship than was possible in an earlier era. Many of the pote ntial benefits, and pitfalls, of data base marketing are discussed. Headnote Data base marketing can help restore personal seruice and customer loyalty in an era when banks have grown large and distant, but they must be careful not to tr ip over important profitability and privacy issues. Much as couples only talk about their "relationship" when something is going wro ng, bankers have focused ever-more intently on "relationship banking" in recent years, precisely because maintaining close customer contact is difficult in an e ra of large institutions and mass markets. Technology, of course, has contributed to the depersonalization of banking, as c ost pressures impelled banks to serve their customers through automated teller m achines, call centers and other remote channels. Yet technology also enables ban ks to collect and analyze vast quantities of customer data, and to formulate mar keting strategies accordingly. Data base marketing, according to its enthusiasts , is the key to restoring the vital personal link between banks and customers. "I think data base marketing is absolutely critical to banks surviving, going in to the future," says Steve Cone, chief marketing officer of KeyCorp. "Because if you manage the process correctly, you are in fact providing more personal servi ce to people than you could in any other fashion, regardless of what channel the y contact you through." Indeed, its proponents argue that data base marketing allows for a different-and in some ways bettertype of customer relationship than was possible in an earlie r era. Banks operating in large cities with a mobile customer base and normal ra tes of employee turnover are unlikely to form ongoing links between individual e mployees and customers, notes U.S. Bancorp vice chairman Philip Heasley. "But wh at makes it work is the relationship with the corporation and what the corporati on stands for. I think our whole industry is moving much more towards the brand defining the relationship with the customer, rather than individuals defining it ." A major benefit of this, he says, is greater consistency of service. Increasingly, bank marketers talk about targeting a "segment of one." A decade a go, the industry tended to market products to a hypothetical "average" customer, notes David Miller, vice president for customer information and delivery strate gy at First Tennessee Corp. Subsequently, banks would "take our customer base an d slice it and dice it into six or seven homogeneous groups." Now, says Miller, the crucial goal is to respond to-and anticipate-customer needs on an individual basis.

Some institutions already have made impressive progress toward such a goal. Chas e Manhattan Corp., following its 1996 merger with Chemical Banking Corp., sent c ustomers some 350 categories of specialized letters, including pitches for new p roducts based on customer balances and histories. By contrast, when Chemical and Manufacturers Hanover Corp. merged four years earlier, customers were notified in a a generic form letter. Certainly, the potential of data base marketing seem s vast. More and more customer informationboth internally generated and compiled from external sources-is piling up in bank data warehouses. The techniques of d ata mining are improving apace. A growing array of variables-age, income, geogra phic location, and purchasing behavior, among other things-can be brought to bea r on questions of which customers will want which products, and when. How Is Data Used? But creating a data warehouse is not an end in itself-what counts most is how yo u use it. "We do a lot of emphasizing of the technology, the data base marketing skills, the algorithms that are built," says Thomas K. Brown, a banking analyst at Donaldson, Lufkin & Jenrette. "The key is still going to come down to that p erson at the point of customer contact and how they utilize that information. Th at person can be in a call center, or in a branch, but it's how that information is ultimately used that will determine winners and losers." Many of the potential benefitsand lurking pitfalls-of data base marketing revolv e around the issue of customer profitability. Financial institutions increasingl y seek to identify their most lucrative customers and provide them with a commen surately high level of attention. However, doing so involves numerous subtleties . For one thing, a customer's current profitability represents only a snapshot i n time. "What the best players will do is look at customer lifetime value," says Jack Stephenson, a principal at McKinsey & Co. "They'll try to estimate the net present value of the customer, the cost to acqu ire and service the customer, and the expected revenues and/or losses over the l ifetime of the customer," Stephenson adds. Moreover, taking an accurate measure of customer costs will require banks to sor t through prodigious amounts of transaction data. Institutions on the cutting ed ge of data base marketing, such as Chase, have begun to do just that. "We don't take averages," says Russel Herz, Chase's senior vice president of product manag ement. "We know how many checks each person writes, whether they use the phone, whether they use the branch, how many deposits they make, and so on. So we calcu late, using unit costs, based on actual frequency." Even upon identifying their most profitable customers, banks may need to make fu rther distinctions in order to provide them with appropriate service. Waiving bo uncedcheck charges for high-profit customers might be a sensible way to build re lationships-unless many of those customers were profitable precisely because the y bounced a lot of checks. "If you instruct your frontline people to treat all y our profitable customers the same way," says DLJ's Brown, "you can turn some of your most profitable customers into your most unprofitable customers." Dealing with unprofitable customers raises additional challenges. Banks may be t empted to omit such customers from marketing strategies, or even to charge them high fees in the hope that they will cancel their accounts. Yet an in-depth unde rstanding of loss-making relationships might also reveal ways to tap their poten tial. "There's a much bigger opportunity for banks to take their unprofitable cu stomers through a series of win-win steps to profitability, than there is in jus t unloading the currently unprofitable customers," asserts U.S. Bancorp's Heasle y.

Besides grappling with the issue of profitability, financial institutions must a ssure that their data base marketing techniques respect customer privacy. Seemin g to know too much about customers might be as harmful to relationships as knowi ng too little. "There clearly will be some institutions that go too far and make people nervous," predicts McKinsey's Stephenson. Few customers, he notes, would welcome calls from credit-card telemarketers offering them discounts on alcohol because they've been purchasing a lot of it lately. However, argues Cone at KeyCorp, a sophisticated data warehouse is a powerful to ol for safeguarding customer information. "I'd like to remind people that techno logy enhances privacy," he says. "If you can inquire about your account, if you can open a new account, if you can apply for a mortgage, all without talking to a person looking at all your financial data, is that more private or less privat e than the old way? The answer is more." A final issue-and perhaps the thorniest of them all-is finding the right mix of technology and personal contact. Some bankers emphasize that data base marketing can complement, but not substitute for, regular meetings and phone calls with c ustomers. BB&T Corp. makes extensive use of data base technology, but "it still comes down to the grass roots level of knowing and understanding your customers, " says Sharon Langston, vice president of market research at the North Carolinabased bank. "Sometimes it doesn't take the most expensive system, it doesn't tak e the most technical system, to be able to do that." AuthorAffiliation Kenneth Silber Is a freelance writer based In New York. : 1238 Copyright Faulkner & Gray, Inc. Feb 1998

() Relationship banking; Data base marketing; Customer services; Market strategy US 9190: US 7000: Marketing 8100: Financial services industry 5240: Software & systems 2400: Public relations Data base marketing: Just how personal? Silber, Kenneth U.S. Banker 108 2 57-58 2 1998 Feb 1998 1998 SourceMedia New York United States Business And Economics--Investments, Business And Economics--Banking ISSN 01488848 CODEN USBAEH Trade Journals English

 PERIODICAL 01586047, 00330192 ProQuest 200751504 URL http://search.proquest.com/docview/200751504?accountid=31970 Copyright Faulkner & Gray, Inc. Feb 1998 2012-01-26 ABI/INFORM Complete