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Is Your Account Acquisition Engine on Autopilot?

Boost Acquisitions with an Economic Approach to Direct Marketing

Delivering Value recently sat down with Grover Pagano, Harland Clarke's vice president for marketing services. When it comes to new checking account acquisitions, Pagano proposes that marketing execs take a close look at the economics of new customer growth. Do so, and he is confident that you might just blow your acquisition goals through the roof!

DV: How do you know if the way you acquire new checking customers is on autopilot?
GP: Ask yourself three questions. First, have you been doing things the same way for more than three years-same list, same letter, same gift? Second, are you unsure what percent of your new checking accountholders are generated directly by your direct marketing initiatives? Lastly, has it become harder to meet your new account growth goals? If the answer to any of these questions is "yes," you might need to shake things up.

DV: To clarify for our readers, your view applies only to acquiring new demand deposit accounts (DDAs), not to other products such as loans or credit cards?
GP: That's correct.

DV: Why is that?
GP: Because a more complete demographic profile is available for purchasers of, say, a mortgage or credit card. That will affect how you market. For the vast majority of consumers who are simply opening a checking account, that level of information is never available.

DV: What's the most important thing a marketer should know about reaching potential new checking accountholders?
GP: That they don't choose their bank based on a free gift. They decide based on convenience. An omnibus survey earlier this year of more than 5,400 consumers found that branch location was cited by two-thirds of consumers as being among the top five factors in choosing their primary financial institution. Compare that to the 11 percent who mentioned "free gift," which ranked practically at the bottom of a list of more than 20 factors. 1

DV: What's the biggest myth about using direct mail to reach your DDA acquisition growth goals?
GP: The biggest myth is that success is measured solely by response rate, and that the better your response, the more successful your campaign. That couldn't be further from the truth! At the end of the day, it's about growth, not response rate. When you look at just response rate, sometimes it's better to do worse.

DV: It's better to do worse? Explain, please!
GP: Marketers too often focus on how sophisticated or scientific a solution is. Boosting your response rate by using highly targeted lists is one example. But the truth is, you can have a high response rate, but your actual number of new accountholders might not be so great. It's better to look for a solution based on a full understanding of the economics involved in acquiring new customers or members.

DV: How might an economic solution differ from a scientific one?
GP: That's a difficult question because a scientific solution often is the most economical solution. The bulk of the work we do as direct marketers is around "science" so we can get the best economies from our efforts. A purely scientific solution assumes that checking consumers choose their primary financial institution because its services match their particular needs, and that branch location doesn't necessarily factor into their decision. The marketing rationale thus becomes efficiency, as you only want to cherry- pick those most likely to choose your bank or credit union. I would call this a targeted prospecting approach. But in the case of checking acquisitions, if you make the assumption that most accountholders choose their primary financial institution based largely on how convenient it is to where they live or work, then the marketing rationale is to reach everyone within a branch's area footprint at the lowest possible cost. We simply don't need to get a whole lot more scientific than that. We call this an area saturation approach.

DV: Does a marketer have to choose just one approach? Can both methods be combined?
GP: Over time, the saturation approach can become more refined and start to look pretty scientific and targeted. But the problem these days, based on what I'm seeing, is that bankers are focusing too much on very targeted approaches when attempting to acquire new checking customers. Not enough focus is being placed overall on economic principles. It's important to keep this balance in check by using the "direct marketing equation," which gives you the total cost of each new accountholder. You determine this cost by taking the cost-per-marketing piece and dividing that by your net response rate. So say each piece costs 77 cents to produce and mail, and your response rate is 40 basis points (0.4 percent), then the actual cost for each new customer is $194.

DV: So cost and response rate are intertwined?
Yes, and they should never be looked at independently. Direct marketing effectiveness is more about the relationship between cost and response than it is about either cost or response alone. The true benchmark is total growth in new accountholders, and the true variable is how much it will cost you to grow. If you keep total accountholder growth as the goal, and successfully manage costs, you essentially "buy" the opportunity to market to a larger group of prospects.

DV: Exactly how does a banker buy the opportunity to reach more prospects?
Say you use a targeting approach to prospecting, and you decide to mail 100,000 pieces. Let's assume your production and mailing costs total $77,500 and your response rate is 40 basis points (0.4 percent). Based on this, you'll bring in 400 new accountholders at a cost of $194 each. Now take the same 100,000 pieces and use an area saturation approach, which is less expensive. Your production and mailing costs now total just $52,000. Of course, your response rate may drop a bit, perhaps to 35 basis points (0.35 percent), bringing in 350 new accountholders at a cost of $149 each. But here's the catch: You saved $25,500 compared to what you would have spent using a targeted approach. If you reinvest that savings in more mailings using an area saturation approach, you are buying the opportunity to mail an additional 49,038 pieces ($25,500 divided by 52 cents per piece). At that same 0.35 percent response rate, you've boosted your total growth to 522 new customers! That's 30 percent more growth than you would have achieved spending all your dollars on a targeted approach alone. (See illustration on page 9.) I invite readers to plug in their own numbers and calculate their growth potential on our free Target vs. Saturate Calculator. Go to and follow the link to download.

DV: Okay, so what's the "dirty little secret" about free gifts?
Free gifts are an expensive line item for banks. Yet they don't necessarily drive growth. For instance, probably less than a third of those who open a checking account have done so in response to a direct mail campaign announcing a free gift. Yet that gift is given to all new customers, regardless of whether or not they specifically came in for it. The cost of a free gift adds significantly to the cost per new accountholder. I propose that those dollars will yield a better return if spent on more mailings.

Grover Pagano is vice president of marketing services at Harland Clarke. For the past 15 years, he has managed analytical and strategic issues in portfolio marketing, credit policy, and acquisitions marketing. He excels in using banking databases and statistical software packages to solve business problems, whether in market growth or attrition or credit quality. Prior to joining Harland in 2003, he held leadership positions in the retail banking and credit card industries, including serving as vice president of acquisitions for Citicorp. He can be reached at or (770) 593-5030.

1. Q1 2007 Online Omnibus Study”, Forrester Research