By John J. Coffey, C.P.A. and Gene Palm, originally published September 2000, ABA Bank Marketing

In the early 1900s Americans had it pretty good.  Their cities had mass transportation systems with railroads, they could communicate with each other with the telephone and they even had electric lights to illuminate the night.

But Americans didn’t have the freedom to easily travel wherever and whenever they wanted to.  Henry Ford knew this and the Model-T was born.  Ford’s marketing efforts focused on the price of his product.  You could buy a Model-T for $500.  And, you could have your car in any color you wanted – as long as it was black!

 

In the 1930’s General Motors’ marketing efforts focused on their product and eventually, it became the largest company in the world.  GM realized that the options on their products made the total package more valuable to the customer.  And, most importantly, customers were willing to pay more for these options.

 

In the 21^st century, Marketing Customer Information File (or MCIF) companies are focusing on their products and are adding more options than ever before.  By doing so, their products are becoming more valuable to financial institutions.  And, financial institutions are willing to pay more for these options.

 

An MCIF is a marketing database that is capable of combining or “householding” customer and account data from various sources in order to produce a complete profile of customers and households.  It is this capability that elevates the MCIF to the position of being the core marketing technology on the market.

 

Integrating Your Marketing Technologies
By using the MCIF as your core technology, you can integrate a wide variety of technology options (or add-ons) that enhance your marketing efforts.  These options can give you information about:

§         Your customers and products

§         Your retail customers

§         Your commercial customers

§         How your customers are using your products

§         Where your customers use your products

§         The profitability of your customers

§         Which products will be purchased next

Tracking the sales of products to your customers

Customer & Account Data

Customer and account data forms the foundation upon which the MCIF will build.  The majority of the customer and account data used within an MCIF is provided by your core applications. These core applications contain all the operational data on your customers and accounts.  Perhaps there is a system that contains your customers’ names, addresses and other relevant data, another one than contains your checking data, another one that contains your car loan data and so forth.

 

However, other sources of data can be imported into the MCIF.  These include such diverse sources as your credit card data and other stand-alone databases that contain data on your debit card, safe deposit boxes and third party mutual funds.

 

MCIFs use a sophisticated algorithm to household this customer and account data.  This algorithm is called the householding engine.

Among other things, the algorithm is based on account data, which may include the customer's name, taxpayer identification number and street address.  The householding engine generates a unique number at the account level.  Then, if the numbers match exactly, the accounts are "linked" by the householding key to create a household.

As a result of the MCIF’s householding routine, the various customer and products are now related to each other:

§         You can discover the combinations of services that your customers use.

§         You can easily see the number of services your customers have.

§         You can visualize your best loan and deposit customers through a mechanism called “deciling” where the MCIF breaks your loan and deposit customers into equal segments.

Demographic Research

The information your core applications provide on your customers is usually limited to their name, birth date, tax ID #, address and phone number.  There are various types of information that are usually not available from your core applications and external demographic databases have been developed by various companies to help you fill in these gaps such as:

§         Age

§         Income

§         Home Ownership – This includes the value of the house and how long your customer has lived there.  It can also state if your customer owns or rents their home.

§         Car Ownership – What type of car your customer has purchased

§         Marital Status

§         Presence of Children

§         Credit Card – What type of credit card is used by your customer

§         Psychographic Code – Illustrates your customers’ buying behaviors

§         Geographic Code – Data at the household, block, census tract, zip code, county or state level

§         Lifestage Code – This is a combination of age, income, work status and presence of children.  You can also combine lifestage codes with profitability segmentation.  For instance, you might discover that 80% of your bank’s profitability comes from fewer than 20 lifestage codes.

 

Specialized demographic data based on customer surveys is also available.  For example, if you wanted to sell your home equity product to people who loved to travel, you could access their travel preferences.

 

In the past, if you wanted to use demographic data within your MCIF, you would need to ship a file of all of your household data (e.g., customer’s name, address and household number) to your demographic data provider.  They would add or “append” the demographic data and you would load it back into your database.

 

MCIF systems are now employing real time demographic data appending through the Internet or pre-processed demographic data in a CD format.

 

Once demographic data has been loaded into your MCIF, you can perform much more specific queries on your customers’ data.  For instance, if you want to sell a home equity line of credit to your customers you could perform the following research:

1.      Find out all of the customers who do not currently have a home equity line or loan with you.

2.      Of those customers, find out who owns their home.

3.      Of those customers, find out who has lived in their home more than some number of years.

4.      Of those customers, find out who has a home value of greater than some dollar amount.

5.      And, you could keep adding on more and more filters such as marital status, presence of children, etc. to find the best prospects.

Commercial Entities

The MCIF has traditionally concentrated on retail customers since these were the easiest relationships to household.  However, this is changing.  Banks now want to know more about their commercial customers.  External commercial databases have been developed by various companies to help you know:

§         The Standard Industrial Code (SIC) of a company

§         Total annual sales

§         Number of employees

§         Company Officers’ names and titles

§         Directors’ names

 

Should you wish to know data on your competitors, you can receive:

§         Branch locations using latitude and longitude

§         Call Report identification number

§         Deposits by branch

§         Loans by branch (based on survey data)

 

Commercial data providers can provide you with as many as 36 fields of data for each of your competitors’ branches!  You might also be interested to know how retail customers are using commercial products and how commercial customers are using retail products.  These are called “Mixed Use” households.

For instance, you may have a web page developer’s business checking account, but not his mortgage with you.  These kinds of relationships can be very profitable to your bank.

 

Channel Delivery Analysis

Not too many years ago, your customers had to physically come to your main office in order to deposit or withdraw money.  Now, your customers want greater access – to do their banking by:

§         Walking up to or driving through your main office

§         Walking up to or driving through any of your branches

§         24 hours a day – 7 days a week options:

• Using your ATM
• Using someone else’s ATM
• Using their phone (regular phone or cell phone)
• Using their fax
• Using their computer on your web site
• Using their computer to simply download transactions into their financial program
• Using their wireless Personal Digital Assistant (PDA)

All of these channels need to be monitored to measure the effectiveness of your marketing efforts.  Channel data can also be combined with profitability cost and fee data to determine the most economic means of delivering your products.

 

In the past, these product delivery systems (or channels of delivery) were designed for passive order taking.  This is rapidly changing, particularly in the area of web-based banking.  

 

By using your MCIF, you can determine which products you want to sell to your customer (e.g., an equity line).  When this customer logs on to your web site, you can have the web software display a picture of a house and an appropriate marketing message based on the demographic research you compiled previously.

Should the customer click on this picture, an on-line application provides the perfect follow up.  The customer’s action could also be stored as a transaction within your MCIF.

Mapping

In the past, it was common for MCIFs to generate reams of paper to report variables such as the geographic distribution of loans and deposits.  By integrating this geographic data into a Geographic Information System (GIS) you can easily identify areas of high loan and deposit penetration.  In addition, you can see where your branches have done a good job cross-selling your products.

 

If you want to visualize where your customers live, you can use a geocoding engine that is capable of generating the latitude and longitude of a customer’s home to within three feet!

 

Census data can also be mapped using census tracts.  For instance, you can map the distribution of households and the median household income in your market area.  You can even map specialized data such as the growth of an ethnic population in your market area.

 

By using commercial data combined with mapping technologies, you can better determine the potential impact of your competitors on your customers by mapping the locations of your competitors’ branches with the geographic distribution of your customers’ loans and deposits.

 

GIS systems can also be used to determine where you should locate a new branch.  For example, the drive time of your customers to a new branch location can now be determined with an integrated GIS system.  You can even order a list of prospects based on the market area of the new branch.

 

Profitability Management

All banks need to know how profitable their customers and products are.  The profitability capabilities of the MCIF not only will tell you how profitable your customers and product are, it will tell you which products to sell to your customers and in the most profitable manner.

 

Integrating external profitability technologies into the MCIF is one of the most complex tasks facing the MCIF industry.  While MCIFs are not designed to replace cost accounting systems, they do an exceptional job of using account and transaction-level profitability assumptions to calculate the profitability of your customers and products.  In addition, add-on profitability modules can be used to further expand these capabilities to create complex profitability algorithms using mathematical and logical functions.

 

Since most banks do not own a cost accounting system, they need to rely on other sources of data to calculate profitability assumptions for their products.  Historically banks have relied on the Federal Reserve’s Functional Cost Analysis (FCA) study, but that was recently discontinued.  In light of this, many banks have turned to consulting companies to develop the profitability assumptions to use for their products.

 

One of the most exciting developments in the area of profitability technologies has been the advent of historical Funds Transfer Pricing (FTP) data.  This data provides the appropriate funding rate for a particular loan the day the loan was originated.  It also provides an earnings credit for a particular term deposit the day the term deposit was originated.  Having FTP allows you to establish benchmarks for effective pricing regardless of the current level of interest rates.  Simply stated, FTP data transforms your MCIF into an asset liability tool.

After profitability assumptions and FTP data have been loaded into your MCIF, it calculates profit at the account level.  When the MCIF households these accounts, it creates customer and household profitability.  The MCIF also adds the profit of similar accounts to produce product profitability.

Modeling

The MCIF is equipped to model (or filter) your customer data one step at a time.  The example used earlier on how to conduct research for potential home equity line of credit customers is such an example.  However this is research based on human intuition.  It doesn’t look at every combination of data values that are the best predictors of a home equity line purchase because the possible combinations are nearly infinite.

Fortunately, modeling technology is capable of performing such a task.  It is called a “neural network” and it mimics the neural pathways of the human brain.  A “decision tree” can be generated using this approach.

 

Using this approach may yield some unconventional answers.  For instance, a predictor of a money market prospect may include the presence of children!

There are two approaches to modeling data.  One approach allows for complete manipulation of customer data by a professional statistical analyst.  The other uses a “black box” that requires no input by the MCIF operator for it to generate the best predictors of customer behavior.

Sales Tracking 
Your sales force only needs two things to keep selling:  sales leads and knowing where to aim their sales efforts.

Enterprise-wide MCIF add-ons are designed to integrate external and internal sales leads and distribute the best leads to your sales force.  Some systems allow for quick name inquiries to access the MCIF from any point in the bank.

Most importantly, they are designed to be an interactive tool that provides continuous real-time feedback to enable you to effectively manage your business and marketing objectives.

MCIF systems can be integrated into Customer Relationship Management (CRM) systems to provide high quality internal sales leads.

Integration with Distribution Technologies

Not only can the MCIF effectively use various sources of external data, it can export its highly refined data into distribution technologies such as:

§         Platform Automation Systems

You can distribute the results of your marketing research (e.g., ranking your customers by profit) on your Platform automation.  Or, you could display the next most likely product a customer will purchase based on neural net modeling.

§         Intranet

With the advent of browser technologies, MCIF data can now be supplied in electronic form to Senior Management and Line personnel, arming them with the strategic or tactical data they need.  Imagine the possibilities!  A loan officer could be on a business development call with her laptop computer.  With a phone call and browser technology, she could tap into all the available customer information via the bank’s intranet.

§         Data Warehouse

You can distribute some or all of the fields from your MCIF into the bank’s data warehouse.  Having the MCIF’s customer household number residing in the data warehouse would greatly enhance the capabilities of the data warehouse.

 

The Open Database Connectivity (ODBC) standards now in place will enable the data warehouse to access your MCIF directly or will enable your MCIF to access the data warehouse directly.  In this environment, you can create a marketing strategy based on the data collected from all customer contact points.

Future Developments

Who could have predicted 10 years ago that cars would be linked to satellites in geo-synchronous orbit above the earth?  And yet, with Global Positioning Satellite (GPS) technologies, you can have a map on a computer in your car that will help you on your way.

 

Information technologies are evolving at a breath taking pace and will probably be unrecognizable five years from now.  It’s safe to say that the largest trend in the MCIF industry is the convergence of previously separate and distinct technologies into an organic whole.  Marketing intelligence is getting smarter all the time!

John J. Coffey, C.P.A. and Gene Palm are the principals of Profit Resources, a consulting company that specializes in MCIF technologies.  www.profitres.com.  © Profit Resources 2006