Bankers are realizing that targeted mail containing segment-specific language is effective in attracting profitable deposit-rich accounts.
Banks are now using this technique to generate returns of more than 450% on their investments.
Banks of all sizes can purchase and quickly deploy new third-party analytics and tested messages to improve same-store deposit growth, a key driver of shareholder value.
In a study by my firm, annual growth in shareholder returns averaged 26% from 1999 to 2005 for regionals in the top 20% in same-store deposit growth - but only 5% for those in the bottom 20%. The first group increased same-store deposits 9% in the average year; the other's were stagnant.
Our analysis uncovered several reasons why banks with high same-store deposit growth gain share at the local market and branch level.
In the late 1990s and early 2000s some banks found that aggressively promoting free checking accounts generated deposit growth.
Initially, free checking was unusual. Early adopters discovered that fees from nonsufficient fund and overdraft activity increased the economic returns from free checking - whose customers, on average, kept lower account balances.
However, deposit growth momentum has waned for many banks offering free checking. The service has become commonplace, and customer attrition has escalated as consumers react to increasing fees.
Consequently, the economic value of direct-mail programs that emphasize free checking has diminished. Responses to direct mail about free checking are falling, and premium costs are escalating as banks try more expensive account-opening rewards, including cash and fashionable consumer electronics.
In a recent analysis we found that only banks that take a balanced, customer-friendly view of fees for nonsufficient funds and overdrafts are capturing attractive lifetime value (the discounted pretax profit over the life of the relationship) from free-checking offers.
A superior customer service experience has also proven powerful in gaining deposit share. However, one of the challenges is communicating to customers and prospects that the bank has made an investment in improving service.
In our segmentation work we have found that "conservative branch bankers" are the consumers and small-businesses customers who are most likely to appreciate superior service.
Members of this group maintain an average deposit balance of over $50,000. They look for a bank that offers more friendly and personal service at their branch.
Conservative branch bankers are also less self-service oriented. For example, a wide network of automated teller machines and branches is of little value to this segment, as is online banking.
Banks should target and tailor their marketing to fit their strategy and capabilities. Marketing dollars should not be spent extolling service excellence to customers who base their purchase decisions on other factors.
For instance, some banks have invested in services for "self-directed diversifiers." Diversifiers maintain an average deposit balance of $45,000 and look for …