Meet Mary Ann Beach: the key to building better products at First American Corp.
Her business card may say senior vice president for marketing information management, but it could as easily say slayer of sacred cows. Beach's job is to persuade line of business chiefs and product managers to stay committed to integrating product management, pricing analysis, distribution management and sales. The goal: create products that win profitable share of wallet for First American.
Indeed, as the financial services industry consolidates, everyone is offering the same commodity products. "There is a real question as to whether there is even a difference on many of these products in the eyes of the consumer," says Richard Hale, vice president at Epsilon, the Boston- based experts in data mining. The first step, Beach says, is overcoming the long-held assumptions of bankers.
Consider the case of the senior citizen checking accounts. Like its competitors, the Nashville-based regional bank offers free checking to its older clientele. When she arrived from Banc One Corp. two years ago, she challenged the long-standing belief that "free" was the only type of account the over-55 crowd would go for. "I asked, 'Do we need a free senior account.' You should have seen some of the looks that I got," she says, chuckling about it today. "But I didn't have the data that I needed to really challenge the idea."
Once she put a system in place in April 1996 to measure internal information on how seniors used their accounts, she then focused on detailed attitudinal research to find out what customers' preferences were. After conducting a dozen focus groups, First American drafted a survey that was done through outlets such as personal computers in shopping malls. The effort helped to identify the needs of seniors-and what they were willing to pay for. Six months later, she had the data she needed.
The result was a new approach to selling fee-generating services that could be custom-targeted to senior citizens based on how they matched up with preferences highlighted in the surveys. To support her case, Beach provided detailed internal numbers on the campaign on the condition that they not be published. She says the three-month campaign, however, resulted in a 6 percent increase in average balances and a 32 percent increase in fee income. More significantly, account attrition was minimal.
The First American case illustrates the challenges that companies face even after they make a commitment to developing sophisticated models to measure everything from customer profitability to attrition risks. Many financial services companies believe that data is best used in developing a marketing plan. But the true value of segmentation is in building better products. "The greatest challenge in reinventing products is to convince line managers that clients are willing to pay for alternatives when the alternatives meet their needs and preferences," Beach says.
First American is hardly alone. "People are talking the talk more than they are walking the walk when it comes to using the tools they have invested in," says Epsilon's Hale. "The data is still woefully under- utilized. I think that many institutions are wading into this rather than finding themselves drowning in data."
Even financial services companies which have built data warehouses and have the tools to query the information may only now be tackling the challenge of measuring which products are profitable. Equally important is determining what customers want and will pay for.
At Birmingham, AL-based AmSouth Bancorporation, the bank has significantly upgraded its system of measurements to help improve everything from direct mail response to measuring attrition and how to stem the loss of customers. "I think we've made a lot of progress," says Craig Tankersley, vice president of information reporting at the regional bank. "But I think we are still pretty much in our infancy."
Even at First American, where an intensive review of existing products has been underway for more than a year, Beach acknowledges: "We still have a long way to go." She expects the review to be completed in 1999. The most common outcome of that process is that products are consolidated. But the more progressive outcome is that the bank starts using its data to do more targeted pitches to customers and to structure and price products. That alone represents a major cultural shift for most institutions.
One of the early efforts by Beach's group failed precisely because of those differences. In the first quarter of 1997, the bank set out to implement a dormant account fee. The result was that a standard notice of the new fee was indiscriminately sent to all account holders. As a result, high-value clients with dormant accounts were offended. "We didn't lose money," she says. "But we had a lot of irate clients and we came across as not exactly knowing what we were doing."
The lesson: customize the communication to each segment. "Management has to look at what you want to do with each product, not what you can get away with, which is the traditional way," Beach says. "For years, banks have been able to look around their markets and figure out what the average price was for a product and then mass market and get an average response. That isn't enough anymore. The key-the goal-is to be more effective."
The best example of that strategy is in how it can be used to launch or tailor products. This year, First American is rolling out products which include a tailored sweep account similar to Merrill Lynch & Co.'s cash management account. The structure of the account will be determined by the customer's behavior and the offer of the product will also be customized. "What the competitive environment does is tell us how high the price can go. That's it," Beach says. "It's not a market share game anymore. We don't speak to the masses anymore."