A recent Forrester/Dun and Bradstreet survey revealed that only about half of sales and marketing decisions at B2B companies with over 500 employees are made based on data. The following summary from MarketingProfs shows that challenges to the effective use of data abound: From gathering to application to measurement, all are seen as either “extremely” or “very” challenging by a large portion of the respondents.
The paradox here is that businesses are awash in data today. Companies are spending vast amounts on software, hardware, and services related to data acquisition, management, and display. Moreover, businesses are constantly talking about data and the need to make better use of it. Unfortunately, neither these solutions nor the organizational desire solves the problem. In fact, the solutions often make the problem worse because they are seen (and sold) as a silver bullet and enable managers to check a box saying they are pursuing a “data initiative.”
The reality is that the problem lies not in a lack of will or technology. It lies in a lack of focus—a lack of strategy around data management and analytics. When you can measure anything, you do…but more measures mean more data and more difficulty making it all align. More data also mean more potential interpretations—and a decreased likelihood of consensus around what the data mean and the implications.
To construct an effective data and analytics strategy, marketers need to answer the five questions below. You’ll see that several are much more about strategy than data. Why? Because to capture and leverage the right data, we must first be clear on strategy.
What are the key stages of the customer journey? The point of marketing and sales is to influence behavior towards revenue generation. If you don’t know the path customers will follow that will generate revenue, what good is your data?
What activities are we undertaking today to move people through those stages? Marketing and sales should be targeting points on the customer journey with activities designed to influence behavior. Organizing activities along the journey ensures that you will use data about those activities and customers in the right way.
What should be the measure(s) of success for the impact these activities are having? Once you have aligned activities with the journey, identify ways of assessing whether those activities are successful, specifically with respect to the goal of moving from one stage to the next.
How can we align data we have or could plausibly get with these measures? Effectively using data to make decisions depends on being able to capture the right data consistently and with confidence. If it’s hard to acquire data or the data is subject to skepticism in the organization, it will never be used.
What decisions will we make based on the data? Imagine if, for a given measure or data point, one month it’s high and the next month it’s low. What decision will that trigger? If you can’t articulate the decision that will flow from the data, why capture the data in the first place?
To be clear, answering these questions is NOT easy for most companies. Data strategy isn’t easy. It’s actually much harder than buying software or hiring consultants to deliver more data and more measures through more systems. But without that hard work to decide what data and what measurements can really impact business outcomes, it’s unlikely that surveys like the one above will show any better results.
Most leading U.S. credit card issuers reported relatively strong y/y growth in outstandings in the first quarter of 2018.
Breaking these growth rates out by FICO Score segment, we see that issuers generated growth across multiple FICO Score categories.
There are important differences in the FICO composition of card portfolios. The <660 FICO Score segment accounted for 34% of Capital One’s portfolio, a much higher percentage than other issuers, such as Fifth Third (3%), Chase (7%), KeyBank (11%), Citi (16%) and Discover (19%).
Among the largest issuers, one of the most notable trends was strong growth in the low-prime/sub-prime and super-prime segments, but low/no growth in their prime portfolio. Bank of America grew its sub-prime (<620) outstandings by 6% and its super-prime (>720) increased 8%. However, its loan portfolio held by consumers with FICO scores between 620 and 739 only increased by 2%.
Most regional bank card issuers (such as PNC, SunTrust and Regions) reported strong growth in their sub-prime and near-prime portfolios. Fifth Third’s <660 FICO Score portfolio rose 43%, but this category only accounts for 3% of the bank’s credit card portfolio, so growth was from a very low base.
As issuers enjoy strong growth in their credit card outstandings—especially for sub-prime and near-prime consumer segments—it is worth noting that charge-offs are also on the increase. Most issuers reported double-digit y/y basis-point growth in their credit card net charge-off rates. Four of the 12 issuers below now have charge-off rates of more than 4%, and only one (American Express) has a charge-off rate of less than 3%.
So, while issuers want to grow credit card loans across the FICO Score spectrum, they need to ensure that various functions are all calibrated to ensure that cardholder delinquencies and charge-offs remain at manageable levels. These functions include:
Marketing: targeting, offer development, and messaging
Pricing: fees and APRs need to be set at levels that balance cardholder ability to pay with an appropriate margin to offset potentially higher charge offs
Customer support: onboarding, financial education, as well as early engagement in cases where cardholders experience payment challenges
One of the most notable trends in leading U.S. banks’ quarterly earnings conference calls was the extent to which digital channels have become central to their current operations and future growth plans. The reason? Digital channels provide numerous benefits to banks, including:
Allowing banks to reduce branch density…and more easily expand into new markets. With the growth of online and mobile banking, branches account for a significantly decreased share of everyday banking transactions, so most banks have been able to reduce their branch density, which saves costs while enabling banks to maintain a physical presence in markets. Bank of America reported that its branch network has declined from 6,100 to 4,400 during the past decade, but also referred to plans to open 500 branches in new markets. Similarly, Regions discussed plans to open 20 de novo branches in new markets in 2018, while also closing 30-40 branches.
Building a national presence. Banks that already have a limited branch presence are looking to leverage their brand strength and develop a national presence by creating a digital bank. Citibank recently announced that it was creating a national digital bank. Similarly, PNC reported that it would begin rolling out a national digital strategy later in 2018, which it claimed would enable it to take advantage of its brand awareness and serve more customers beyond its traditional retail banking footprint.
Enhancing the customer experience. Banks are investing in digital service channels not only to provide a wider range of functionality to clients, but also to enrich the customer experience. In doing so, banks can improve customer satisfaction and boost retention levels. Regions discussed its goal of providing a consistent experience, with customers seeing the same information and having access to the same capabilities across all channels. The shift to electronic self-service channels also reduces servicing costs; Citibank reported that call center volume fell by 12 million phone calls in 2017.
Communicating through new marketing channels. Banks are significantly changing their media mix and messaging to reflect the channels where people are now consuming information and entertainment, and to communicate to clients and prospects in fresh new ways. In its 1Q18 earnings conference call, BB&T discussed that it is ramping up its digital marketing campaigns; 86% now have a digital component.
Capturing new sales opportunities and lowering average cost per acquisition. As customers increasingly use digital channels for their banking activities, they become more receptive to using these same channels to open new accounts and/or upgrade existing products and services. As a result, many banks are reporting strong growth in digital sales. Wells Fargo recently launched a digital mortgage application and noted that 10% of its mortgage applications in March 2018 came through that capability. The number of BB&T business accounts opened online rose 43% y/y and retail savings accounts grew 96%. Bank of America reported that digital accounted for 26% of all sales. It also rolled out an auto shopping app, with auto loans sourced digitally accounting for 50% of all direct auto loan originations in the first quarter.
Banks Need an Integrated Digital-Human Channel Strategy
While strategic investments in digital channels can lead to significant bottom-line benefits, banks should be careful not see this progress as proof that they no longer need human channels. A recent J.D. Power survey found that satisfaction levels are lowest for retail banking clients who exclusively use online or mobile channels and highest for “branch-dependent digital customers.” Moreover, the gap in satisfaction levels is highest for Millennial customers, underscoring this demographic segment’s affinity for branches. And while digital sales for many banking products are growing strongly, human channels are still vital for a bank’s success.
This means that banks must develop an integrated channel strategy, with digital and human channels acting in synch—and indeed actively promoting each other. Bank of America provided a great example of this synergy in operation in its 1Q18 earnings conference call: clients used its digital channels to schedule an average of 35,000 branch appointments per week during the quarter. Full integration of digital and human channels recognizes the particular strengths and limitations of different channels, and can optimize a bank’s return on its investments in marketing, sales and the customer experience.