Helping your customers behave themselves. (bank marketing)(Cover Story)

Your customers: you've sliced 'em, you've diced 'em, you may even have spliced 'em...

But now, after worrying about where they live, after obsessing about what they think, after wondering about their census info,

It may all come down to that most straightforward of truisms:

Actions speak louder than words.

What will customers buy? Well, what have they bought in the past?

Banks and thrifts are desperate. Desperate to find new customers. Desperate to make current customers more profitable. Desperate to halt the exodus of customers to competitors like mortgage, insurance and brokerage companies. Desperate to fuel customer growth.

In recent years, the short-term solution has been to acquire customers by buying other banks. In 1997 alone, banks and thrifts spent over $95 billion on mergers - a 109 percent increase over the previous year. 1998, which may come to be known as the Year of Wretched Excess, saw some of the biggest mergers of all time. However, the supply of banks to gobble up is dwindling, and those remaining command increasingly premium prices.

But stock analysts report the cost of retaining each household in a bank merger deal is between $6,000 and $20,000; therefore, proactive marketing to acquire profitable customers and retain the combined bank's most profitable customers during and after the merger has become key to successfully integrating the companies.

The short-term solution is no solution. To address long-term growth, banks are turning to technology. Last year, banks spent over $2 billion on data warehousing and datamining, betting the investment would yield significant pay-back in profitable cross-sell and account growth.

The jury is still out on this investment in tech - not because the strategy is wrong, but because banks haven't figured out how to take full advantage of the their most important asset - customer data.

The heart of the technological approach is segmenting customers. In his book, Marketing Imagination, Theodore Levitt says, "If you're not thinking segments, you're not thinking." Segmentation has been - and will remain - the cornerstone of every successful marketing plan and long-term customer growth strategy.

But despite extensive databases, bankers still depend on, and predominately use, segmentation schemes from the 1980s. Further, they tend to use the same scheme - and the same databases - for all marketing applications. To achieve their customer growth targets, banks and thrifts must adopt new segmentation strategies: Schemes that are not based on demographic information, but on past and current behavior with the bank. And, further, banks need to learn to vary segmentation criteria and databases according to marketing goals.

Classic approaches

Bankers have typically relied on three segmentation schemes - geographic, psychographic and demographic - all useful at the right places and times.

Geographic segmentation is typically based on postal ZIP codes, census boundaries or customized geographic markets. This method is often used to assess market potential for placement of branches or ATMs and for efficient management of branch staffing and service levels.

Psychographic segmentation helps us understand why customers buy …