1. How to sell the Next Best Product DMA Financial Services Council Palmer House Chicago Luncheon Speech April 11, 2002 Arthur Middleton Hughes Vice President / Solutions Architect KnowledgeBase Marketing

2. What KnowledgeBase Marketing Does

3. Financial Services Customer Retention varies with products The more products they have, the more loyal, and the less likely to leave.

4. Cross selling has four goals: Make a profit on the additional product Build the loyalty of the customers who buy them Keep the existing products Increase balances and participation

5. How to sell the next product? Traditionally, banks and other financial services use campaigns: credit card, home equity, CDs, auto loans. This is OK, but we are treating all customers as prospects. Loyalty is created when you treat customers as valued friends.

6. Two kinds of database people Constructors People who build databases, do merge purge, provide access, create models Creators People who know how to turn a bunch of names, addresses and transactions into a profit center: make a profit from the DB You need both kinds

7. Financial companies have silos VP for Credit Cards VP for Home Equity VP for Retail VP for Mortgages VP for Auto Loans All working for bonuses No one working for the customer

8. Customers see us a one institution They don’t understand the silos They think that the home equity folks should remember what they said to the auto loan manager. They want to be loyal to the bank, not just to a silo. To build their loyalty, we have to share information and treat them as individuals

9. How to treat customers as individuals Build a MCIF available to all who have customer contact. Monthly, determine customer profitability and append it to customer records Segment customers by profitability Use models to determine likelihood of defection. Determine lifetime value

10. How one bank segmented their customers by profitability This 28% lost 22% of the bank’s profits!

11. Create a Risk Revenue Matrix By concentrating on Priorities A and B, you save 56% of your marketing dollars

12. For each customer, determine the Next Best Product First, see what products they now own Next, what could they own based on their assets, liabilities, age bracket, employment status. Determine the likelihood of their buying each of the possible products Determine the profit to you if they were to buy each product.

13. Determine your marketing costs Some products are easier to sell than others. Figure out your qualification and marketing costs

14. Use a matrix to determine Susan’s Next Best Product

15. What to do with the information? Put the Next Best Product on Susan’s database record. Show it on the main screen for Tellers, Customer Service, Officers. Use it in promotions Use in monthly statements

16. How to prove that your system is working Set aside a control group for whom you determine the next best product, but do not show it on the customer record. Do not promote the product to the controls In other ways, treat the controls the same as all other bank customers.

17. Determining the Profit from a Next Best Product Test

18. Communications work! Write customers thank you letters. Send them thank you emails. Call them on the phone. Prompt customer contact personnel to greet people by name, and thank them for their business. You can prove this by using controls.

19. Event driven communication: Dear Mr. Hughes: I would like to remind you that your wife Helena’s birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock. As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00. If you like, I can gift wrap the suit at no extra charge and deliver it to you next week, so that you will have it in plenty of time for her birthday. Or, I can put it aside so you can come in to pick it up. Please call me at (703) 754- 4470 to let me know which you’d prefer. Sincerely yours, Robin Baumgartner Robin Baumgartner, Store Manager Ridgeway Fashions Leesburg, VA 22069

20. How one insurance company sold the next best product Thousands of independent agents Program: 10% discount on one policy if customer buys another policy Method: set up lead delivery system Created personal letters to customers from the agent. System delivered through the web

21. Success of the program: Communications Work! Logging on, agent sees 300 leads selected by model for Next Best Product Name shows discount customer gets Agent adds personal greetings Letters sent automatically: 11% bought Model predicted who would buy: 2/3 of all sales from top 50% 89% of agents participated

22. Database Marketing can be Fun! Try out new ideas. Don’t think big, think small. Test ideas on a small segment of your database, using controls. Take those that work, and roll them out. This is an exciting, accountable, art.

23. Books by Arthur Hughes From McGraw Hill. Order at www.dbmarketing.com New Book This Year: What Works (And What Doesn’t) in Database Marketing (McGraw Hill 2002)