Over the past two decades the banking environment has changed almost beyond recognition. The advent of interstate banking has opened up virtually every region of the nation to intense competition. Mergers and acquisitions are redrawing the banking map of America. The proliferation of financial products offered by banks and by their nonbank rivals threatens to overwhelm an institution's ability to distinguish itself in the marketplace.

These revolutionary changes have shaken many of the assumptions and conventions that once governed banking practice. Nowhere is this phenomenon more apparent than in marketing. The old verities that guided past marketing strategies are showing signs of wear. Some have proved too general to shape the precise strategies required by more competitive environments. Others are simply inaccurate or untrue.

Over the past 12 years, our group has conducted exhaustive analyses of data on nearly eight million commercial banking relationships. Our results suggest that several criteria commonly used for targeting or evaluating customers - such as annual sales - are not very useful in predicting demand for a bank's products.

These results also reveal new criteria that will more accurately identify the profitable consumers of banking services. By adopting and applying these new criteria, banks can significantly increase the return on their marketing investments and generate new and more profitable revenues.

Consider annual sales as an example. A commonly held belief is that usage of banking products is somehow proportionate to the "size" of a given business. In fact, the data show that there is almost no correlation between the size of a business and the loans or deposits it generates.

One reason is that sales or revenue size is a relative concept. A wholesaler with $10 million in annual sales can be a relatively small business in terms of financial product usage. Another firm with exactly the same revenues might represent several times as much business to its bankers.

It therefore makes little sense for banks to define marketing structures according to current revenue classifications, with the small-business market being defined as under $10 million in annual sales, the middle market as between $10 million and $100 million, and so forth. A more logical method would be to define market size on the basis of financial product needs and uses.

Standard industry codes are commonly misapplied in the marketing equation. Knowing the industry in which a business operates may be important in evaluating credit risk, but such codes by themselves tell a bank little about the banking requirements of a particular business.

Discarding such traditional markers may cause discomfort at first. But our data show that much better markers exist. These more accurate criteria are visible and accessible. Used properly, they promise substantial rewards to banks willing to look for them.

One of the most important of these criteria is founded on the concept of "life cycle." In its simplest form, the life cycle concept allows us to separate growing, "young" businesses from more static, "mature" businesses.

Businesses in a growth stage typically take out 50% more loans than those in a mature stage. Mature businesses generate nearly twice the level of deposits as their growth stage counterparts.

A second and very productive indicator is operational complexity. Businesses with multiple locations and complex organizational structures use considerably more fee-based services than their single-location counterparts. Businesses on the verge of expansion are also more likely to require multiple services.

Duration of growth may also identify outstanding prospective customers. Businesses that have sustained above-average growth in a geographic area over time are also likely to require multiple financial services.

Risk category is often a powerful indicator of use. The data indicate that businesses in higher risk categories are likely to use significantly higher priced types of lending (such as leasing) than customers in less risky categories.

Competitive positioning can often identify a particularly desirable prospect for certain types of products. For example, businesses that hold dominant competitive positions within their geographic area are relatively high generators of deposit products.

Another indicator pertains to the management attitude of the business owner. More aggressive owners tend to be higher-volume borrowers than less aggressive ones.

It is worth noting that our research also challenges a critical traditional assumption in the area of risk assessment. Though credit officers commonly discount the risk of bankruptcy for businesses that have survived past the third year, data show that businesses are more likely to undergo such changes between the fifth and seventh year.

One truth that remains intact regardless of the criteria used to evaluate prospective customers is that an existing customer base represents a bank's most valuable and promising marketing opportunities. The data clearly sustain the old maxim that a bank's best customers are the ones it already has. Existing customers always deserve priority attention.

Our research has documented the following related conclusions in regard to existing customers:

*The longer a business has been with a bank, the higher its balances and uses of multiple products.

*The higher a bank's share of customer wallet, the more significant its profit. (On average, most banks have less than a 40% share of the customer's total balances.)

*Customers with both commercial and retail accounts at a given bank are, on the average, 40% more profitable than those with commercial accounts only.

*Businesses that use three or more products at a given bank are five to 10 times more profitable than the average commercial customer, which uses less than two.

How reliable are these conclusions? Very. The data for the evaluations have been distilled from a central proprietary data base that merges information from more than 60 government and private sources. The research has incorporated data regarding approximately 70% of all commercial banking relationships in the United States. Conclusions have been reached through advanced analytic and modeling techniques that include powerful new developments in artificial intelligence and neural networks. The results continue to be reaffirmed by new data every day.

While our results invalidate some parts of banking's traditional wisdom and confirm others, they represent good news for bank marketing professionals. The identification and confirmation of accurate indicators by empirical analysis offers marketing managers a new and more solid foundation for their efforts.

Bank managers may now devise and deploy new market segmentation and targeting strategies that will dramatically increase marketing effectiveness. Commercial lenders can now allocate marketing resources more accurately than ever before.

And that's important. Effective marketing is one of the principal contributors to institutional survival. Financial institutions currently compete more directly and aggressively than ever before, across larger and more diversified franchises.

If marketing professionals can target new business opportunities more quickly and accurately than their rivals, they and their institutions will prosper. If they lag behind, their organizations will soon be absorbed by their more resourceful rivals.

Mr. Brundage is executive vice president of Oxxford Information Technology Ltd., a bank marketing consulting firm based in New York.

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