Optimizing the cardholder lifecycle part 1: acquisition

Key Takeaways

  • Most banks’ marketing still follows a traditional interruptive paradigm, demanding customers’ attention rather than asking permission to engage. By applying permission marketing concepts, banks can facilitate a tight value exchange that encourages customers to engage voluntarily with banking communications.
  • Customers are most receptive to banking offers when banking is already on their minds — for example, when they’re logged into their banking app. In addition, leveraging bank-owned channels such as a mobile app will yield lower customer acquisition costs (CAC) compared to marketing through expensive, hard-to-scale third-party channels.
  • Banks can also leverage data to cross-sell to current customers, using personalized, contextual offers to further boost conversion rates. By seeking product fit instead of offering high sign-up bonuses, banks will reduce churn, since the customers they attract will be less likely to defect when they get an offer from a competitor.

A New Approach to Customer Acquisition

Most marketing follows an interruptive paradigm. It aims to grab a customer’s attention, rather than asking for it — and often offers irrelevant information at an inconvenient time. Think of a pop-up ad blocking a webpage you want to read, an unwanted flyer crammed into your mailbox, or a telemarketer calling during dinner.

Unfortunately, many banks continue to rely on these tactics to market credit cards, driving high costs and low conversion rates. Reliance on third-party-owned channels such as print ads, web ads, and email further drive up expenses. Banks can see acquisition costs of up to $150 per customer, depending on the card product and channel.

But there is a better way — one that many companies have been applying for decades. It’s called permission marketing, defined by marketing expert Seth Godin in his classic book of the same name. Permission marketers build campaigns that actually add value for customers — for example, by offering useful information or relevant offers. Through the facilitation of a tight value exchange, permission marketing lets customers choose to engage rather than being forced to consume irrelevant information.

Banks can apply the precepts of permission marketing by making the right offer to a customer at the right place and time. And by providing a tight value exchange that is personal and relevant, banks can teach customers to anticipate service and product information from the bank, rather than feeling interrupted when the bank reaches out.

Customers are more likely to engage with messages that address a pain point that’s relevant in that moment. A 2017 Bain study found that half of customers who defected to other banks would have stayed with their original bank if it had made them an offer at the right time.

Customers are also most open to marketing messages when banking is already top of mind, like when they’re using their bank’s mobile app. Bank-owned channels are also less expensive and give banks more control over the customer experience as well as more control over messaging compared to third-party-owned channels. (In addition, they offer an excellent channel for communication during the activation phase, which is why banks should always encourage new customers to download a mobile app immediately — we’ll discuss this more next week.)

By reaching customers with timely, relevant, and useful marketing messages through bank-owned mobile channels, banks can boost conversion rates for credit card campaigns while keeping acquisition costs low.

Successful customer acquisition strategy begins with existing customers

Banks will get the most out of permission marketing if they focus their acquisition efforts on the people they know best: existing customers. By cross-selling, banks can turn single-product customers into multi-product customers — and likely gain more primary cardholders, who are 15 times more valuable to banks than casual card customers. Successful cross-selling by the cards group thus has an outsized impact on revenues for the entire bank.

However, most banks don’t have the data infrastructure in place to differentiate between new and existing customers when targeting campaigns. To enable effective cross-selling through permission-based customer acquisition techniques, banks must develop the technical capability to share data between lines of business, so for example, the credit card group knows which checking-account customers do not already have a bank credit card.

By assembling their data in this way, banks can also develop a more holistic view of customers’ needs, including which card products would be the best fit. From there, banks can leverage resources they already have to get stronger results from customer acquisition marketing at a lower cost.

Four levers to optimize acquisition of current customers

With the right data infrastructure in place, banks can take action to move away from traditional interruptive tactics. By marketing to existing customers more efficiently and effectively, they will also build stronger customer relationships at the same time. Here are several levers banks can pull to optimize those results.

  1. Shift communication to bank-owned mobile channels. Casting a wide net on third-party channels like web ads, email, and direct mail will achieve lower conversion rates than leveraging a bank-owned mobile channel. Since mobile app users are already engaging in banking-related tasks, they’re prime to receive banking-related marketing messages as well. The mobile channel is also highly personalizable, allowing banks to deliver content, offers, and experiences tailored to the individual customer.
  2. Market to the right people. Lacking an ability to personalize, most banks entice new customers with expensive incentives, including generous sign-up bonuses, cash-back rewards, and waivers of annual fees. This not only raises costs for banks, it also attracts customers with a higher risk of churn. However, when banks can target customers who actually need the product, monetary incentives are less relevant, helping keep costs low and retention high.
  3. Make relevant offers at the right place and time. Banks can also leverage customer data to tailor the offers to individual customers and their situations. For example, if a bank offers a sign-up incentive, it can make that incentive meaningful by offering to cover the customer’s next 10 coffees at their favorite coffee shop. They can further sweeten the incentive by making the offer early in the morning, right around the time the customer usually purchases coffee. Layering on contextual data, such as weather or customer location, boosts relevancy even more. For example, a bank could offer discounted Lyft and Uber rides while the customer is out of the house during a rainstorm — and more likely to make use of a ride-hailing app.
  4. Build a frictionless customer experience. The easier banks make the credit card acquisition process, the more likely a customer is to sign up for a credit card. It’s best practice to make the card application easily accessible via the mobile app and to auto-load the customer’s information so they don’t have to enter it twice. Making the customer experience frictionless also means less drop off leading up to the next stage of the cardholder lifecycle, activation (which we’ll talk about in another post).

Building a personalized, data-driven customer acquisition campaign

When banks apply this new marketing approach, it becomes possible to run cross-selling campaigns that are personalized across several dimensions. A successful strategy will consider audience, channel, offer, and context to tailor offers to each customer and deliver them at the right moment. If banks provide a tight value exchange, customers will permit personalized, relevant communications and learn to anticipate useful product and service information when their bank reaches out. By targeting current customers with this approach, banks will reduce churn and increase alignment, setting themselves up for success throughout the rest of the cardholder lifecycle.

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