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Targeting deposits: mass marketing for deposits is a thing of the past. Today, banks increasingly are using sophisticated targeting techniques to identify existing customers as well as promising prospects in areas near branch locations.

With the changes in the economy and proposed regulations involving fees, banks more than ever are looking at new ways of acquiring those critical core deposit dollars.

To boost core deposits, financial institutions are doing less mass marketing; instead, they are targeting customers both in the bank's database as well as in areas surrounding their branch locations.

And while some institutions are still searching for the profitable checking households, others are looking to find, those core deposits in certificate of deposit (CD) or money market account customers.

Rather than simply mailing to all customers in one category or to all households surrounding branches, banks are relying on more sophisticated, intelligent target-marketing approaches using historical data and computer-based models.

Below are examples of recent core-deposit-raising campaigns used at four different banks.

Building a model

AMCORE Bunk (assets: $3.8 billion), Rockford. Ill., recently used a sophisticated computer model that took all its existing high-balance CD customers, scored them on transactional data such as "other product" ownership, balances, and activity as well as hundreds of demographic and geographical attributes. AMCORE then searched its customer database to find more "'look-alike" households.


The model was also used to score prospects to find new households around its branch footprint in northern Illinois, the Chicago suburbs and southern Wisconsin.

"Like many banks today," says Theresa Wendhausen, CFMP, assistant vice president, advertising and PR manager of AMCORE, "We needed to bring in core deposits and this program proved to be the most cost-efficient way to identify and mail potential households--with minimum waste and duplication."

AMCORE mailed a four-color postcard to 56,000 model-selected customers and 363,000 targeted prospects in their market area. The program brought in:

* $36.8 million in regular CDs.

* $1.5 million in IRA CDs.

* Total CDs of S38.3 million.

The new" deposits from prospects averaged $33,929 while existing customers were fractionally higher at $34,095.

The model look in all the institution's available information, plus used outside demographic data. And where there may have been an imbalance of results, the model-maker adjusted the scoring to find the best prospects.

Promoting money market accounts

In today's environment, plenty of deposits are up for grabs because people are looking for a safe and secure home for funds they might otherwise have invested in the stock market. As a result, financial institutions are challenged with the task of differentiating themselves in order to beat their competition to the deposits and maximize their share of wallet, by combining an intelligent selection strategy with a simple marketing promotion, one Mid-Atlantic bank reaped rewards.

This financial institution's money market promotion to both new prospects and existing customers offered, a bonus rate of 2.25 percent on balances over $25,000, and 1.50 percent on balances under $25,000.

The prospect-acquisition mailing used a postcard and was sent to 18,983 households with selected P$ycle NE (a household-level segmentation system from Claritas) codes within predetermined zip codes.

Slightly more than 10,000 existing customers were selected by using a next-most-likely-product model to determine which people had a propensity to open a money market product. These customers were sent a more personalized letter and envelope package.

The prospect postcard brought in 259 new accounts (a 1.36 percent all deposit open rate) and nearly S9 million in deposits--a 1,485 percent pretax first year return on investment (ROI). The customer letter resulted in 1,103 new accounts (an 11 percent all deposit open rate) and nearly $31 million in deposits--a 3,240 percent pretax first year ROI.

With any customer cross-sell effort, an institution runs the risk of cannibalization and the possibility of an increased cost of funds. The decision needs to be made about whether there's value in keeping the funds or running the risk that customers with maturing CDs and other liquid deposits leave because of higher rates elsewhere.


In this case, the bank felt it was important to retain deposits even if it risked cannibalization. This possibility was outweighed by the thought that attrition could be reduced and that it would also increase the chances that customers would bring in new funds from other institutions where they may hold accounts. And it succeeded ... the customer cross-sell brought in $19.7 million of "new money," or 63-5 percent of the new-deposit account balances.

Customer cross-sell

"We were looking to both deepen our relationships with existing customers and bring in critical core deposits," says Melanie Deutsch, CRM strategies manager of the $1.3-billion First National Bank of Chester County, West Chester, Pa., "and developing a structured and quarterly cross-sell program proved to be the right solution."

The targeted customers were selected by using a proprietary predictive model for banking customers. Only customers with a high propensity for specific products were selected.

The bank then mailed an average of 5,000 targeted customers each quarter with an upscale package of a personalized letter and personalized reply coupon. Depending on the characteristics of the selected customer households, they were offered checking, equity line of credit or a money market account.


Over a two-year period, the recipients of this mail campaign opened a total of 2,280 new accounts of all types, which was an overall account-opening rate of 6.3 percent and cost per account of only $30.

The program resulted in checking balances of $15 million, loans of $10 million and savings/CD deposits of $43 million.

"Of all the excellent results," says Deutsch, "the most pleasantly surprising to us was the amount of new money that this program generated."

Checking acquisition

"Generating new checking accounts has been a continuing and critical goal for our bank," says Laura Pomerene, CFMP, marketing director for the S825-million First National Bank & Trust, Beloit, Wisc., "SO we have been actively promoting them in their market area for several years."

Last year, the bank used a variety of promotional incentives from tangible gifts such as Bushnell binoculars to $100 in cash. The institution mailed approximately 40,000 targeted prospects within the market area four times with success.

"While our primary objective was to reach new prospects and open checking accounts," says Pomerene, "we also succeeded in gathering core deposits in other accounts"

The detailed sales analysis showed there was a 0.93 percent account-opening rate from all the carrier routes mailed to, with an average cost per account of $43 and an average balance of $1,914.

A more sophisticated segmentation analysis showed that specific prospects who were recipients of the mail campaign opened 658 new checking accounts, with balances of nearly S1.4 million. Each deposit openings involved more than $1,000, with over $5 million brought into the bank.

The carrier route selection and sales tracking also showed the predictable decline in response rates as the lower-valued segments were measured.

New market analysis

This new insight into checking account opening trends has aided in developing a unique carrier route segmentation analysis strategy. With this segmentation analysis, the bank had the ability to better focus its marketing efforts on areas and prospects most likely to open new accounts.

Carrier route segmentation uses several factors to determine which areas that institutions should target over others. The first factor is the recency of checking account openings. It's a measure of the most recent checking openings the bank has in a carrier route.

The second factor is proximity, the carrier route's calculated distance to a bank's branch. The third factor is the percentage of market share the bank owns within the carrier route.

With these combined factors in a carrier route segmentation analysis, the bank was able to identify carrier routes that were more likely to contain prospects who would open accounts. This was a way to eliminate wasted mail and target messages in the right areas around branches.

Segmentation also gave the bank the advantage of being able to increase or decrease mail quantity per branch by adding or deleting carrier routes. This allowed the bank, to take control of how much exposure it wanted to give on a per-branch basis.

Historically, the standard approach for checking acquisition has been saturation mailings around branches, also referred to as the "spray and pray" method. Carrier route segmentation has proved to be an advantage to institutions because it gives them better control over the areas they mail.


"Offering the customer what is best for them is always the right marketing," says AMCORE's Theresa Wendhausen "Experience shows customer loyalty increases and cannibalization does not take place; instead, the customer more often rebuilds the moved funds. And it is better to pay a little more to keep a customer, than to have them move their balances to a competitor."

One related study from a $6 billion institution showed that customers who have a CI) and money market account have higher balances in all savings products than those with just a CI). And customers with a CD and savings have higher balances in both products than customers with just a savings account.

In summation, banks can use target-marketing approaches to successfully raise core deposits. And, with special promotions, cannibalization is a concern, but usually far less of one than commonly believed.

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Christopher Wachtel is president and CEO of WordCom Inc. an intelligent target marketing company Located in Ellington, Conn. Telephone: (800) 822-0622; e-mail:
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Title Annotation:Core Deposits
Comment:Targeting deposits: mass marketing for deposits is a thing of the past.
Author:Wachtel, Christopher
Publication:ABA Bank Marketing
Geographic Code:1USA
Date:May 1, 2010
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