Bank marketing used to be relatively simple. The marketing imperative was: "Be all things to all people." With the changes caused by banking deregulation in the early 1980s, however, the imperative has changed to: "Be all things to some people."

And with this change, bank marketers began to use concepts such as targeted marketing, selectivity, segmentation, data base marketing, and relationship marketing - concepts that originated with industries such as retailing, manufacturing, and communications.

Banking owes many of its advances in data base management to vendors and suppliers who have not only educated bankers but also staffed many banks' marketing departments.

Today, for all practical purposes, banks have moved away from a mass marketing philosophy in which consumers received identical, mass-produced products and messages. Instead, the dominant philosophy is market segmentation, which divides consumers into smaller clusters with similar demographic or psychographic characteristics.

Thus, data base marketing as the means to collect and use customer information is moving into the mainstream of banking thought. Behind this movement is a relentless drive by bankers to make marketing more efficient - a longtime goal of top management.

Now, a number of more advanced banks are beginning to move to a new level - marketing to "segments of one." High-powered computers are letting bank marketers focus with laser-beam precision on the smallest of customer segments - the individual household.

Nothing has captured bank marketers' fancy more than what is described in one of today's most popular marketing books, "The One to One Future: Building Relationships One Customer at a Time," by Don Peppers and Martha Rogers, Ph.D. The book, which has become mandatory reading for bank marketers, describes how rapidly evolving communications and information technologies are effecting great changes in competition and marketing.

One-to-one marketing puts the individual customer first. The most successful marketers of the future will be those who build the deepest, most trusting relationships with individuals. This implies a major shift, from gathering and storing market or segment information to collecting detailed information about individuals.

Surprisingly, it is possible that one-to-one marketing may enable small banks to overcome the marketing muscle of large ones - at least in the share-of-the-customer battle for individual customers.

Competition focused on share-of-customer rather than market share would require marketing management organizations set up to manage individual relationships rather than just bank products. This marketing philosophy replaces product managers with customer managers whose goal is to sell as many products as possible to one customer at a time.

The basic marketing orientation shifts from differentiating products to differentiating customers. And it shifts from economies of scale to economies of scope, in which the information held by a bank about a particular customer will be its advantage over competitors.

Other innovations allow banks to have interactivity with customers. Voice mail, PC-based communications with customers, and other interactive marketing technologies, like the Internet's World Wide Web, are such tools.

Where banks once had only one-way communications with customers, they now not only can reach the customer more efficiently but also can hold a "dialogue" with him or her. These innovations nearly eliminate the basis for the old mass marketing, which dominated bank marketing for decades.

This new paradigm, Mr. Peppers and Ms. Rogers wrote, did not emanate "from the imperatives of assembly-line manufacturing but from the possibility of computer-controlled, customized production; individualized distribution; and addressable, interactive commercial media." The development of the data base in tandem with the development of new forms of interactive media makes one-to-one marketing possible.

A corollary of one-to-one marketing is the need to build and deepen customer loyalty. Customer satisfaction is emerging as one of the most critical components of today's marketing strategy. It is based on the recognition that it is much cheaper to keep existing customers than to find new ones.

Another concept filtering through marketing circles is that of the lifetime value of customers. "Lifetime value" can be defined as "the net present value of all future profits from a customer during a specified period."

Determining lifetime value requires four steps. First, find which groups of customers are profitable and which are not. Second, decide how much to spend to acquire a new customer or reactivate a former one. Third, analyze and segment customers based on their lifetime value potential to the bank. Fourth, cultivate the high potential group with special retention programs.

In order to accomplish all this, banks must build and manage a data base that becomes a collective memory of customers' habits and attitudes, practices and preferences. We already know that customer behavior as shown in the bank's own transaction records is by far the best predictor of buying patterns.

With the advent of interactive marketing technologies and supporting data bases, marketing shifts from being largely a monologue delivered by the marketer to a dialogue including the consumer, says marketing consultant David Wolfe of Wolfe Resources Group, Reston, Va.

In the new era, marketers will revolve around consumers, and the latter will control the relationship, instead of the other way around. Marketers will have to function as analogies of consumers.

It won't be easy. "Marketing has become much more difficult," says Mr. Wolfe. "Advertising communications have become much less effective, as consumers suffer from information overload. Brand loyalties are declining. Consumers are more demanding, independent, sophisticated, and as a result, more skeptical. Consumer behavior is increasingly less patternless."

Mr. Wolfe says he believes that traditional ideas about consumer segmentation are being called into question. Segments are getting smaller and more numerous, thereby changing the economics of the old style of segmented marketing. He finds the psychographic attributes of segments have become less well defined and boundaries between segments fuzzier.

One-to-one segmentation will be the wave of the future because rising individualism works against bank marketers' aggregating consumers into neat categories, as they have in the past. In addition, an increase in ethnocentricity has complicated segmentation.

In Mr. Wolfe's mind, the most revealing statistical trend is the increase in median age that has radically changed the demographic foundation of segmentation. The median age for adults in this country is 42 - higher than it has ever been - and the psychological center of gravity is somewhere between 37 and 47.

One way of looking at this change is to compare yesterday's markets with today's. The differences are substantial. The U.S. market is no longer socially and culturally homogeneous but has become diverse. It is no longer youth-dominated but led by the middle-aged. And it is a marketplace that offers the consumer more, not fewer, choices.

Other significant changes are from a set of traditional values to a set of new values, from less individualism to higher levels of individualism, from a low- to a high-tech society, from a socially insensitive culture to a more sensitive one.

In speculating about the future of bank marketing, segmentation, and targeting customers, it might be helpful to keep in mind Albert Einstein's often-quoted dictum: "No problem can be solved from the same consciousness that created it." We must learn to see the world anew, says Mr. Wolfe.

The central goal of relationship marketing for the bank is to enhance the profitability of customer relationships. A genuine relationship marketing approach requires that customers be treated as individuals; the information stored in data bases makes this possible. But in order to make it possible to communicate the key findings of a customer base analysis simply, it is helpful to find a way to group customers.

Bank consultant and professor Kaj Storbacka of Finland, in his report "The Nature of Customer Relationship Profitability: Analysis of Relationships and Customer Bases in Retail Banking" for the Swedish School of Economics and Business Administration, defines four basic ways to segment customer bases.

They are based on:

*Combining relationship revenue and relationship cost.

*Relationship volume.

*Customer relationship profitability.

*Combining relationship volume and customer relationship profitability.

Mr. Storbacka's research and analysis with segmentation applications for his bank clients concludes that the different segmentation solutions emphasize different aspects of the customer bases and different profitability drivers. He finds that the choice of a segmentation scheme strongly influences the design of the bank's strategic development.

To act in ways that influence the profitability of relationships, banks must develop a better understanding of the factors behind "relationship strength." This is the most important criterion in choosing tactics for influencing customers' behavior, writes Mr. Storbacka.

Customers with different degrees of profitability and relationship strength must be cultivated in different ways.

Are most banks ready to move to a new level of data base sophistication? Some are, but many are not.

The industry has accumulated more information on customers and buying behavior than any other, says Jack Woerner of Strategic Database Marketing, Charlotte, N.C., and he believes banks also have the biggest opportunity to produce significant results through data base and relationship marketing.

But this opportunity is sometimes squandered for internal reasons. Among these are the multiple product lines typical at many banks and the organizational complexities of banking's operational and financial philosophies. These complexities often prevent internal business units from obtaining pertinent and timely information for decision making.

Technology is developing fast enough for building financial data bases, but a missing element at some banks is the vision provided by a certain type of marketing or retail banking leader.

The biggest winners are banks with creative or entrepreneurial-minded executives who figure out how to make money with the data base by designing practical relationships, building functional programs, and developing ways to track results.

In Mr. Woerner's view, banks have done a great job on customer relationships but have failed to recognize their customers' long-term value.

As PC banking becomes feasible, marketing to existing customers who use multiple banking services will depend on the data base marketing techniques developed by creative and practical employees. Before banks can effectively harvest marketing data bases, they must divorce themselves from "mainframe bias" and concentrate on a more efficient, results-oriented PC environment.

Bank managements' traditional view of their institutions as stand-alone businesses must be altered to include strategic alliances with outside business partners. Banks are about to move into a new era of extensive consolidation, and they will find that the essence of the bank changes - new customers must be courted, market shares are challenged, management is restructured, and staffs are downsized.

The successful banks will know they must work through these events. Mr. Woerner says he believes they will do so because they understand the value of information and the value of data base marketing experts both inside and outside the bank.

Change is occurring so rapidly; technology is moving so fast; and computers and software are becoming so advanced that it is possible to say, "If you can imagine it, it probably already exists." This is the view of Arthur Hughes in his book, "Strategic Database Marketing."

Marketing executives realize that they must run faster and faster - providing new products and services and new ways of delivering them - in order to keep up with the customer.

It all begins and ends with the consumer.

Customers want recognition as individuals with personal desires and preferences. "They like being called by name," says Mr. Hughes. "They want thoughtful service provided by sales staff, customer service, operations, and technical support. They want diversity and a wide variety of products. They want more information, including technical information, which is as important to them as the product or service itself." Mr. Sullivan is president of Michael P. Sullivan Associates Inc., Charlotte, N.C., a bank marketing consultant.

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