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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


doubled.


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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