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Putting a value on customers

Marketing initiatives have to change. The cost of retaining customers and

acquiring new ones has been growing steadily as the proliferation of new

marketing avenues continues.

The question how best to attract new business is difficult. If you choose

TV commercials, bear in mind there are soon expected to be nearly 500

channels. Press advertising has become more difficult as newspapers

increase in size. Direct mail is all too often termed, inaccurately, junk

mail and binned before opening. Poster campaigns get lost among the 4,000

messages we are on average exposed to each day.

In this environment, how should financial institutions and IFAs carry on a

relationship with their existing customer base and what message should they

be trying to put across?

It is widely recognised that 80 per cent of profits come from only 20 per

cent of customers.

In the past a round-robin mailer has been the cornerstone of many

marketing campaigns. Throw enough against the wall and something will stick

has been the approach adopted by many financial institutions. The

redemption rate of 1 to 2 per cent was accepted as an industry standard.

The problem has not all been of the making of the financial institutions.

The knowledge of their customer base and the sheer cost of producing

tailored marketing material have frustrated many creative campaigns. But

all this is changing and, potentially, one of the greatest beneficiaries

will be IFAs.

Although companies and IFAs have realised the potential for upselling and

cross-selling from their customer base, the inability to extrapolate

relevant data and produce relevant marketing material has, until now, been

too expensive.

IFAs, for instance, tend not to have direct access to the data banks of

information on their customers and are often unaware of the complete

financial picture. Thus, their goal of delivering truly personalised advice

can be thwarted by insufficient information.

Recent software developments have significantly changed the face of data

listing and the huge reduction in the cost of digital printing have enabled

companies to tailor marketing materials. The result is the ability to run

customer value management (CVM) programmes. CVM has been a long time coming

and is finally made possible by new advances in technology. The theory is

easy to understand, the implementation more difficult.

Manifesto Marketing Services managing director Keith Johnston says: “CVM

is the management of customers according to the value of each customer to

an organisation and the value that each customer perceives to be obtainable

from the organisation/brand. As with one-to-one marketing, it is the

ability to identify, differentiate, interact and customise the way that a

company does business with each customer.”

IFAs should be trying to ascertain the profitability of each of their

customers and form an emotional bond by delivering personalised and

customised offerings. Rather than the blanket approach of most companies,

CVM makes it possible and profitable to treat different customers

differently according to each individual&#39s unique value relationship.

The practicalities of delivering CVM have been missing, mainly owing to

the large front-end investment cost in ascertaining who the high-value

customers are. But a recent CVM project by Talisman One To One for a major

City investment house doubled revenue compared with the usual mailers and

increased cross-sales by 70 per cent. Average investment size almost


Roxanne Parker, who oversaw the project for Talisman One To One, says: “We

measured profitability by attaching a value to every client transaction,

that is, every purchase, sale, transfer or switch of units. We then

calculated the income generated to the company from the initial and annual

charge for every investment made on a per-client basis.”

The profitability analysis on the full database of 40,000 clients found

that 8,000 customers were of sufficiently high value to warrant an

expensive and highly personalised mailer. Talisman One To One produced a

56-page magazine, 20 pages of which were changed per copy. Each client

received a truly personalised magazine showing the performance of their

specific unit trusts or financial investments adjacent to articles on the

performance of other suitable trusts worth investing in.

The relationship between the customer and the IFA or financial house is

important and central to the ethos of CVM. If an IFA was responsible for

the initial business, then the relationship formed between them and the

customer is integral to the long-term success of the alliance.

CVM favours maintaining the link chosen by the customer. Parker says:

“Forging working relationships depends on trust and so it would be in

neither the interest of the IFA nor the financial institution to break the

status quo. The customer tie prevails.”

Manifesto has been working for 18 months within the financial sector using

CVM. The company also uses psychological and personality profiling,

believing it is important to communicate a message in a personalised and

distinctive way for each customer.

Johnston says: “While two customers may have the same value to a company,

they will undoubtedly have different personality types. While one may

respond to a direct approach, the other may show more cautious traits and

be impressed with statistical data and reams of information. The delivery

of the message is as important as the message.”

One of the fundamentals of CVM is treating the customer as the lynchpin in

all activity. Maher Bird Associates managing director Graham Monk says: “A

customer-centric approach is vital to the success of a CVM campaign.

Whatever channel was used by the customer to purchase services should be

encouraged and it would be seen as counter-productive for any organisation

to disrupt this relationship.

“Rather than bombard customers with irrelevant messages, each high-value

customer would be sent information based on his profile and financial

status. For instance, experience might dictate that those who bought growth

funds from one company would only be interested in income from another, so

why try and sell them ones from the original company?”

CVM looks set to revolutionise the way that financial institutions and

IFAs market themselves. The days of the standard letter with the standard

redemption rate are numbered, replaced by highly targeted and personalised

marketing material with the associated high-redemption rates. IFAs are in a

strong position as they have already a personalised and detailed knowledge

of their customer base which forms the basis of any CVM campaign.


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