Marketers See Customer Data as Business Capital

"Know your customer," a phrase that is raising hackles among bankers fighting a proposed money-laundering regulation, has a much more benign meaning to marketers.

It describes banks' budding love affair with customer data. The matchmakers in this relationship are the companies that develop software aimed at predicting consumer behavior.

At its seventh annual financial technology conference last week in San Diego, HNC Software Inc. invited consultants, marketing gurus, and industry executives to discuss the tools and techniques of customer analysis.

Their talk about "customer intimacy," "deepening relationships," and "understanding" sounded almost marital.

Thomas F. Chapman, chief executive officer of Equifax Inc., referred to customer data as the "new capital for the 21st century," with companies as "knowledge merchants."

"You can't create customer intimacy without a total relationship," said S. Kere Lewis, a principal and partner of KPMG Peat Marwick, based in Atlanta. The clear theme at this conference was the need to embrace technology that helps lenders improve their ability to do customer segmentation.

Mr. Lewis said financial institutions don't rate very high "in terms of what they do with (customer) information as a source of revenues."

But some banks are headed in the right direction.

Data warehouses are beginning to emerge after years of talk and technical struggles. Data warehouses bring together comprehensive information about banks' customers and their product choices, behaviors, and interactions with customer service representatives. Fleet Financial Group and First Union Corp. are considered leaders among the banks with operational data warehouses.

Over the next five years, Mr. Lewis said, banks will spend more than $500 million to develop such capabilities.

Among the most valuable sources of information many banks do not take advantage of are mortgage applications, Mr. Lewis said. "There is a wealth of information that slips through our hands."

San Diego-based HNC, which sells predictive software, is promoting transaction-based models as a key to data base marketing and risk management. "Transaction data is the most valuable data banks have," said Jim Reardon, general manager of Aptex Internet Solutions, a subsidiary of HNC.

An HNC product, Select Profile, can build customer profiles based on the names of stores where they make credit card purchases. Select Profile indicates whether the customer is "upscale," a "value" spender, or a new parent. Each type of customer merits a different marketing strategy.

An upscale spender would get offers such as platinum cards and discounts at luxury stores, while a value spender would be offered low-interest-rate products.

The keynote speaker, Silicon Valley marketing luminary Regis McKenna, said consumers value price and choice more highly than brand names.

"People do comparison shopping," said Mr. McKenna, chairman of McKenna Group in Palo Alto, Calif. "They do research before they go to buy something."

People born after 1981-generation Y, as Equifax's Mr. Chapman labeled them-are "indifferent to traditional brand names." This group, the credit bureau CEO said, is larger than the baby-boom generation and "radically different in attitude than anything we have encountered."

Baby boomers will remain key market drivers for the next 10 to 20 years. As they begin to retire, they will have more disposable income than previous generations, resetting "the rules of the game for traditional age- based marketing," Mr. Chapman said.

Mr. McKenna, who gained fame from developing Apple Computer Inc.'s marketing plan and logo, said the Internet is already transforming how companies market and sell.

"Transactional activities are occurring on the network," he said, and marketing executives will eventually be replaced by information technology people.

"Customer satisfaction and loyalty will depend on the quality of a company's back-end infrastructure," Mr. McKenna said. He contended that customer service and communication on the Internet are more reliable, or "human," than customer service representatives. "We forget, we're moody," he said. "But systems don't forget the last time you visited a site. They welcome you back. Self-service makes people happy."

Mr. Chapman said an attractive new group of customers is emerging: the billion-plus middle-class people that U.S. corporations barely know in South America, China, the Pacific Rim, India, and Africa. They earn $7,000 a year, compared with the $44,000 Americans in this segment earn.

But there will be a price to be paid in the information business, Mr. Chapman said.

"If information is the basic resource of tomorrow's global economy, privacy is the key to the vault," Mr. Chapman said. The privacy concerns of other countries cannot be ignored in the United States, he said, adding: "I'm convinced that to solve privacy at the individual level we must solve it at the global level."

Mr. Chapman predicted that companies will assign balance-sheet values to customers. He envisions point of sale devices as point-of-marketing tools and automated teller machines evolving into automated marketing machines. Each interaction with a customer is an opportunity for a "feedback mechanism" to capture customer knowledge, he said.

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