Of course you’ve heard the bromide that 20% of your customers produce 80% of profits? Some might even argue that the ratio is closer to 10% and 90%. However you slice it, this raises some uncomfortable questions.
What’s the most cost-effective way to get more of these profitable customers?
Isn’t there a better alternative than carpet bombing your entire service area?
Why try to patiently cultivate relationships with Millennials you hope will stick around for their peak income years, when the bottom line says you should focus on acquiring profitable customers?
Of course the first step is to identify which customers are profitable. Hopefully you’ve developed a formula that automatically estimates profitability, and have appended customer records with a decile indicator to their profiles. If you haven’t, you should. But you can still estimate your top 20% based on deposit or loan balances.
Once you’ve compiled a list, it’s not enough to simply match basic demographic data (age, address and income). Age doesn’t tell you a lot about someone’s lifestyle — whether they are a spender or saver, risk-taker or conservative, wealthy or struggling, renter or homeowner. Their lifestyle is a better predictor of financial behavior than any crude vector like age, income or geography.
Your goal is to match lifestyles with profitability.
Nielsen offers a program called P$YCLE which segments consumers into dozens of different lifestyles based on the their propensity to buy financial products. (Experian, Raddon and others offer comparable services.) Nielsen’s lifestyles have labels that give a glimpse into their behaviors, such as Power Couples, New Money and Home Sweet Equity. Each cluster comes with rich insight into their values, habits and social characteristics. If you’d like to look up the most common lifestyles in your area, insert your zip code here. You can also check out a big list with the various types of lifestyle clusters Nielsen has defined.
Next, ask Nielson, Raddon or other similar vendor to append their lifestyle information to your customer database. (Note: This shouldn’t present a privacy issue, because you’ll only share addresses and ages. Names are not required.) Once you’ve matched every accountholder with a lifestyle, you’ll get a rich picture of your customers.
At this point, you’ll have two implementation options. You can pull out your most profitable customers, then rank the five most common lifestyles. Ask your data/direct marketing vendor for a list of similar prospects in a given area, and mount a yearlong campaign to reel them in. Odds are that these customers — the ones who are generally profitable to your financial institution — will hold more products than other customers, so your strategy would focus on cross-selling.
The other option? Decide which product you really need to grow. Say it’s checking accounts. Identify the most profitable 20% of your checking customers, and determine their most common lifestyles. Launch direct mail campaigns to prospects with similar characteristics. You can use the same process to prospect for loans, CDs or virtually any product.
Because the size and location of an individual’s home is a key component in assessing lifestyles, prospect lists are always postal-based. If you’d like emails addresses, vendors can usually provide about 40% of them.
There’s an added bonus that comes with lifestyle marketing. Every bank and credit union has it’s own persona or brand that appeals to specific audiences. Look for alignment between your brand and profitable customer lifestyles. If you’re perceived as a bank for business, popular with families or highly community-focused, for instance, the lifestyles of consumers drawn to those qualities will rise to the surface. Target lifestyles most attracted to your brand, and vice versa.