Too much,too often

Slipping response rates mean the financial services sector needs to overhaul its approach to direct marketing. Those companies that adopt a more tailored approach will stay ahead.

Reports of the demise of direct mail (DM) are greatly exaggerated. For all the claims being made for e-mail and “permission marketing”, the reality is that still only one in five adults in the UK has an e-mail address. While this may suit niche products, it is no good for any company which is trying to reach a mass market.

Many financial services, such as credit cards, are by definition aimed at a mass market. This is either through choice – providers want the largest possible customer base; or through necessity – the pressure from Government to ensure poorer consumers have access to banking facilities, for example. Competition for every customer is also intense, especially in the credit card and lending markets.

Little surprise, then, that financial direct mail is still booming. According to the Direct Mail Information Service, in January to March 2000 total volumes rose by ten per cent to reach 1.25 billion items, while expenditure jumped 15.5 per cent to &£544m. But mailshots by financial services companies grew by twice the average, up 22 per cent year on year to 236.8 million items. In other words, out of every five pieces of direct mail hitting the door mat, one will be for a financial product.

Many in the DM industry will confirm that response rates are slipping. If this is true, why the continued growth? David Cole, head of database marketing at The Telegraph Group, believes many companies in the sector have not changed their approach: “The same old formula is still applied by many substantial, but consumer-unfriendly organisations. A senior director of one recently told me, ‘We mail the customer until they give in’.”

This is persistence, rather than permission, marketing. “The situation is compounded by the inertia created at every level by those with a vested interest in maintaining the status quo. Indeed, some of the biggest financial services companies have invested in printers and mailing houses themselves,” says Cole.

Research carried out by DMA West three years ago showed that for many financial services providers, the primary purpose of their marketing approach is to maximise sales for each product line. Product managers are often competing for the same customers, who end up receiving multiple, often conflicting mailshots as a result.

DMS managing director Jonathan Maiden believes a cultural change is required: “Financial companies need to put customers first rather than rely, as they previously have done, on a ‘stack ’em high, mail ’em cheap’ approach. Successful direct marketing for financial products calls for better targeting, appropriate frequency and creativity.”

Many of these companies are now trying to adopt a customer-centred approach to customer relations projects. This will impact dramatically on the nature and type of communications used. Direct mail may lose some ground to other channels, including e-mail, SMS and WAP messages, but its role will still be central. What will change is the type and frequency of message sent.

Innovative products

As Maiden notes: “The inappropriate frequency of financial mailings alienates customers and damages brands.” The disparity between how often companies mail and the frequency consumers actually find acceptable was identified in research carried out by DMIS. As part of research into loyalty among a sample of 458 consumers, it asked how often they receive and how often they would like to receive financial direct mail.

While only three per cent would accept a mailshot once a week, six per cent had been mailed at this rate. More alarmingly, although 21 per cent said monthly mailshots would be acceptable, 46 per cent had actually been mailed this often. Consumers’ main preferences were for quarterly (35 per cent) or six-monthly (19 per cent) mailshots. Just over one in ten said they would prefer never to be mailed.

Despite this, direct mail remains a remarkably important source of information on financial products. In another DMIS survey, 68 per cent of consumers said they found out about financial cards from direct mail, making it the most important advertising medium of all.

However, to sustain that level of interest and effectiveness, some things do need to change, above all the range of products offered. There are some genuinely innovative products, like Egg, Virgin One, Smile and Goldfish, which, so far, have been relatively successful.

Innovative products address customers’ needs, too. Royal Bank of Canada has been redeveloping its product portfolio in this way, working with NCR to analyse its customer base and assess its needs. It recently introduced a new product for high-value customers, the Royal Certified Service Account. This has been designed specifically for people with a high volume of transactions. They pay a fee of $9.50 (&£6.50) per month which covers up to 50 transactions. The bank says that as a result it has earned $21m (&£14m) in new revenue from customers who signed up for the account.

Innovation can be a way of countering the criticisms currently being levelled at the financial services sector, and at banks in particular. As Jon Voelkel, head of planning at Craik Jones, says: “While there are many companies competing in the financial arena, they offer much the same thing – the consumer has very little choice. ‘Rip-off’ Britain is alive and well in the financial services sector.”

This conservative attitude towards products and services is also reflected in the way direct mail is used. “In good examples, we see customers treated as adults, with financial companies actively seeking out good deals for them and talking to customers in their own language,” he says.

New tools to understand the trigger points for consumers are now available. Equifax’s MicroMatch, for example, allows marketers to segment prospective customers according to their buying motivations and level of risk aversion. Digging deeper into customer and prospect data for differentiating factors has to be the way forward.

Accurate targeting

This should include breaking down the view of the mass market into more clearly defined segments. Age and lifestage, in particular, are significant clues to product usage. These can often be complex, as Martin Smith, managing director of Millennium Direct, says: “There are significant differences in attitudes and needs between, say, the over-50s that are working and those that are retired. Working over-50s are more interested in financial products, while retired members of the mature market tend to regard health issues and personal comfort as more important.”

As well as understanding which products to target at a particular group, data mining may also reveal more about what direct mail should look like. Smith points out that soft colours and small type are not appropriate for mailings to older consumers who are likely to have weaker vision. Language, too, is critical. “A financial services company targeting the mature sector is likely to irritate its target if it begins sentences with ‘and’ or ‘but’,” he says.

Profitability is success

The level of analysis applied to the targeting of direct mail may be on the increase. Less certain is the amount of thought going into making mailshots more appropriate to their targets. DM agencies will protest that they do offer more creative ideas. But anybody who has sat on a direct mail judging panel will confirm that most financial services mailshots are dull, repetitive and likely to fail.

What this reflects is a continuing volume-based approach. The equation used is simple: mail high volumes, accept low response rates, but ensure costs are kept down. In this way sufficient leads at an acceptable cost can be delivered. This leads neither to innovation, nor to genuine engagement with the brand by the consumer.

But Brann account director Sean Bailey points out that the ultimate goal is not just increasing response rates: “It is important to understand that high response rates do not equate with success. It’s the profitability of the customers who do respond that matters. So who you are targeting is very important. Get this right and you only need a small percentage of take-up for your campaign to be successful,” he says.

Increasing productivity

For some financial services companies, achieving higher conversion rates involves not just more efficient use of data, but also the near exclusion of agencies from the mailing process. Royal Bank of Scotland has been pursuing a marketing automation project, using campaign management software from Prime Response. It recently announced a six-fold increase in marketing productivity, with a 25 per cent increase in its response rates and additional revenues of &£660,000.

Financial direct mail looks set to become a more focused, low volume product, the result of careful customer-based analyses, rather than the volume-driven tool of product managers that it predominantly is today. Those companies which do take this new approach could be stealing a march on their rivals. As Cole says: “The inertia of the major institutions may act as a catalyst for a dramatic change in the financial services industry. By contributing to their own downfall, some of the UK’s biggest companies will leave the way clear for the new consumer-focused companies to exploit their vision and courage to take the lead.”

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