How much did we make on the newspaper ad? Did that direct-mail campaign make any money? Who are our most profitable customers? How long do top customers stay with us? Which of our products are loss leaders? Do we do better with older customers or younger ones?

Such questions are problematic and all too familiar for bank marketing managers, who have long struggled with finding an honest way to measure the value of marketing programs. The dark mysteries of marketing are even more troublesome for bank chief executives, who typically are schooled in a disciplined approach to banking, based on sound financial analysis. Numbers, as we all know, don't lie.

Marketing? Well, that's another story.

This no longer needs to be the case, because of earnings-based marketing. In simple terms, EBM applies the discipline of financial analysis with the promise of customer relationship management.

The word promise is used for good reason. Though a great deal has been written about customer relationship management as the end-all and be-all of bank marketing, there is little evidence that much of its potential has been realized. Sporadic CRM-inspired projects have sprung up, but for marketing to be effective, it must be a process, not an event.

Earnings-based marketing is designed to render marketing quantifiable. It provides a framework to measure the return associated with customers, products, and campaigns.

Implementing EBM refocuses an organization on the acquisition and retention of profitable customers and services. In an industry where 65% of customers can be unprofitable and 20% can generate profits that equal as much as 160% of overall net income, EBM is the foundation from which you can improve earnings and increase shareholder value.

Earnings-based marketing isn't voodoo. On the contrary, it uses the quintessential elements of business.

Identifying needs. The objective is to change the focus and delivery of the marketing message from product-focused to client-focused. The best way to address this sea change is with quantitative (survey) and qualitative (focus group) research.

Marshaling resources. Proper staffing is critical to success. Most customer relationship management projects fail because the proper people are not in place. Staffing is the raw material of any service organization. An inventory of products and services often uncovers "sprawl" and the lack of business-line focus. Core and decision-support systems also play important roles in providing strategic information to the organization.

Assessing profitability. Profitability analysis is the ultimate tool in earnings-based marketing and should include both cost accounting and transfer pricing. That is, it balances back to the general ledger. Products should be evaluated on both absolute and relative bases. With a profitability analysis system in place, the drivers of profitability will become apparent. As these systems yield only a type of relative profitability, be careful not to create a methodology so complex that the project dies under its own weight.

Segmenting the market. Segments, which can lead to valuable insight into both retail and commercial customers, need to be meaningful and effective in achieving an organization's goals. Age and income are good starting points for segmentation groups because they address lifecycle issues.

Formulating messages. Public relations, mass advertising, direct mail, telemarketing, and merchandising need to be coordinated to reinforce marketing efforts and to establish the brand. With earnings-based marketing, the organization becomes the brand, and the delivery system defines the brand. Needs-based products and services are defined by benefits, not features. Customers become the focus of relevant message delivery. Finally, a relationship is built when the customer sees the organization as a place where multiple problem-solving solutions are delivered.

Evaluating effectiveness. The lack of critical evaluation is one of the most common mistakes in the implementation of projects. Campaign tracking, break-even review, and migration analysis should be established to ensure that EBM is delivering on its promise.

For the organization that has embraced earnings-based marketing, what emerges when profitability figures are combined with segments is an accurate picture of the organization in essence, a marketing general ledger. In all probability, "A" customers that is, those calculated as being most profitable will be spread across the spectrum of segments. This tends to contradict the preconceived notion that most profitable customers come from a single segment. Also enlightening will be the fact that "C" customers are also found in every segment. This creates an opportunity to mine the organization's data. The EBM organization can systematically target customers and groups with the highest potential.

Many organizations have discovered that not everything that comes from earnings-based marketing is novel. The technique frequently reinforces the intuitive side of managers. It is not uncommon for managers to recognize many of the names on the "A" customer list. However, what is important is that many of the names they expected to see will be somewhere down the list or replaced with obscure names.

What emerges from earnings-based marketing are profiles. For example, the profile of an "A" customer group may show that their age is generally over 50, that their duration with the organization is mostly over three years and that they usually live near the organization. This information in an EBM environment might lead to the following conclusions:

Age. Efforts should be put into place to evaluate inheritance and trust relationship potential and to nurture those of less age but similar circumstances.

Duration. Barriers to exit should be established for those customers who have been with the organization a short time.

Location. Bank-by mail, ACH, electronic banking, direct deposit, and Internet banking should be readily available, in case "A" customers move to Scottsdale or Naples.

Earnings-based marketing enables an organization to quantify, as opposed to guess, when implementing cross-selling campaigns. Product usage and balance information, when compared with profitability segments, yield interesting results.

In a recent study, "A" customers were eight times as likely to have a money market account and twice as likely to have a NOW account than "C" customers. In the same study, "A" customers, who represented only 5% of the total retail customers, held 29% of retail deposits and 55% of retail loans.

Earnings-based marketing takes the dark mysteries out of marketing and replaces them with sound, proven business principles. It enables an organization to select its customers and to be selected by the type of customers it wants. Additionally, customers can be marketed to in proportion to their expected return. Organizations are at a competitive disadvantage if they do not know the profitability of customers and products.

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