HOW ISSUERS CAN GET, KEEP, AND GROW THE OMNICHANNEL CUSTOMER

HOW ISSUERS CAN GET, KEEP, AND GROW THE OMNICHANNEL CUSTOMER New approaches to direct marketing techniques have become a key component of the acquisition and retention mix BY MARGOT VAUGHAN When it comes to finding new credit card customers, the game has changed but the rules are still the same. The rule: Issuers still need new customers to grow their portfolio. The change is in the ways that issuers need to adapt their marketing efforts to meet those customers at the various channels in which they interact with card offers. While emotional affinity is built through brand marketing, omnichannel marketing is designed to convince customers to take action regardless of where they are. Issuers take advantage of the channel choices to encourage a variety of outcomes from customers such as acquire a credit card, use a prepaid card, sign up for additional banking services, or simply get their online newspaper subscription paid with their credit card. Direct marketing in today s world is a key component that makes up omnichannel marketing. Using it effectively in online, mobile, and offline environments will drive positive results....the TOTAL VOLUME OF DIRECT MAIL MARKETING FOCUSED ON CUSTOMER ACQUISITION INCREASED IN THE OVERALL BANKING SECTOR 18 PERCENT FROM Q4 2013 TO Q1 2014. IN FACT, ALMOST 27 PERCENT OF ALL US CONSUMERS STILL RECEIVE AT LEAST ONE CREDIT CARD OFFER PER MONTH VIA MAIL. i Direct mail has been and will continue to be an essential channel in an issuer s omnichannel credit card acquisition strategy. The total volume of direct mail marketing focused on customer acquisition increased in the overall banking sector 18 percent from Q4 2013 to Q1 2014. ii In fact, (Figure 1) almost 27 percent of all US consumers still receive at least one credit card offer per month via mail. i And among all credit card offers, more than 70 percent are for new customer acquisition, representing rich opportunity to seek prospects through that channel. 1 ADVISORS MARKETING ADVANCING COMMERCE

FIGURE 1: DISTRIBUTION OF MONTHLY OFFERS RECEIVED BY CONSUMERS 60% 50% 53.29% 40% PERCENT RECEIVING 30% 26.28% 20% 10% 11.21% 5.15% 2.46% 1.62% 0% 0 1 2 3 4 5+ NUMBER OF OFFERS RECEIVED PER MONTH Notes: This figure plots distribution of the number of offers per month received by survey respondents over the period Jan. 2010 to July 2012. Data is from the Mintel Comperemedia survey of credit solicitations and comprises monthly repeated cross-section spanning this period. The unit of observation is a respondent in a given month. Source: Stanford University Study, 2014. Other research shows that 43 percent of all customers (both acquisition and retention) receive an offer via digital communications: 25 percent by mail, 15 percent in person, and 17 percent by phone or other channels. In terms of response and application, 52 percent apply online, 18 percent by mail, 12 percent by mobile, 8 percent by phone, and 6 percent by other channels. iii Therefore, for credit card issuers, this demands the need to have an online application process that is easy to access, easy to complete, and personalized. This white paper will illustrate the most effective ways for issuers to employ marketing in multiple channels to reach the omnichannel customer. It will cover customer acquisition, direct marketing techniques, and existing customer engagement approaches. 2 ADVISORS MARKETING ADVANCING COMMERCE

SECTION ONE: PROSPECTS Proven direct marketing techniques drive the effectiveness of cardholder marketing efforts, but it s important to distinguish marketing strategies for new and existing customers. An acquisition program technically means the customer has no current relationship with the issuer. Attracting and converting customers that currently have no relationship with your bank still starts with direct mail, but it no longer ends there. Direct mail is the leading acquisition channel for financial marketers (not overall applications), with over 40 percent of prospects receiving credit card offers through this channel. The ideal direct mail pack needs to have a message that is benefits-oriented and directed on the addressing façade. All surfaces should be used, front and back, to drive the consumer to open either the self-mailer or an envelope. A call to action is critical. The action you want the consumer to take must be prominent on all surfaces of the mail pack. Use icons, enumerate to telegraph your message, and state the offer quickly and succinctly for response. Today, the majority of offers drive responders to apply online, with mail and telemarketing alternate fulfillment options. As stated above, the path to completed application requires the techniques of customization, ease of completion, and continuity of messaging. FIGURE 2: DIRECT MAIL STILL LEADS ACQUISITION CHANNEL, WHILE INTERNET IS MOST FREQUENT RESPONSE CHANNEL 43% INTERNET OTHER 17% DIRECT MAIL 25% 52% 8% 5% INBOUND TELEMARKETING IN-STORE/KIOSK/ OTHER MOBILE INTERNET DIRECT MAIL 17% TAKE ONES* 15% HOW CONSUMERS OBTAIN OFFER HOW CONSUMERS APPLY 18% * Take Ones include branch and in-store applications. Source: Mintel Comperemedia / Mail Monitor, Q2 2014. Nearly three fourths of direct mail sent by the top US issuers is for acquisition, and results confirm the wisdom of this strategy: Credit card offers via direct mail reached many more consumers than did email acquisition efforts. iv Email for acquisition is not effective because the emails are considered spam if the customer does not have a relationship with the bank. However, to translate offers into new accounts, issuers must employ an omnichannel suite of tools to make the path from card offer to activation and usage as easy as possible. Integrating Digital Solutions As Figure 2 shows, 52 percent of customers apply for new credit cards via the Internet. Digital solutions for the new customer are critical for the overall customer application experience and for conversion. 3 ADVISORS MARKETING ADVANCING COMMERCE

The landing page messaging must be consistent with the media (direct mail, email, etc.) that triggered the offer and customized for the consumer. The days of filling out multi-page paper forms with pen and ink are nearly over. Consumers today enjoy the ease, responsiveness, and speed of selecting products with as few mouse clicks as possible. To make that application process as easy and secure as possible, conducting a path analysis is the crucial first step. Direct the customer through the app process. Make it obvious how to begin the application process and complete it, and make it as frictionless on tablet or mobile as it is on a PC or on paper. To get maximum return, these and other issues should be examined, prototyped, and subjected to usability testing at least six months before launching your campaign. Learnings from these efforts will also inform and enhance subsequent marketing efforts. Have an online application that will keep your prospect engaged to hit submit and apply for the card. POS Environments When the acquisition plan includes customers, part of the omnichannel acquisition equation also includes in-branch collateral and ATM communications. Branches must be ready to sell and service prospects. To provide a seamless experience for customers across every touch point, the physical points of contact should be easy and empowering. And while consumers do more banking through digital channels than ever, the majority still visit branches. In fact, a March 2014 report from TD Bank found that digital banking has not slowed in-branch visits, even among younger, more digitally savvy audiences. While Millennials are banking more online and on their mobile devices, 52 percent are still visiting a branch as frequently as they did last year, said the report. The branch visits plus the increased mobile banking activity show that they appreciate a bank that can offer them the tools they need to succeed, whether this is in a branch, online, or through a mobile app. Some smart strategies for these POS environments: Place tablets around the branch, so visitors can easily conduct their own research into your products and services, learn more, and even apply. Arm associates with tablets, so they can roam the branch and assist customers anywhere. Install smart kiosks that enable customers to get more help with any task than typically available at an ATM, without waiting in line for a teller. SECTION TWO: KEEPING AND GROWING EXISTING CUSTOMERS Once a customer responds to an offer, leverage online marketing. Use a Digital Welcome Kit or online account opening process that enables quick and easy activation for new customers and provides flexibility to add or enhance services. This is significantly cheaper to maintain compared to printing new communications collateral. It can be used for credit cards, new checking accounts, and other financial products. Email strategies play a big part in addressing existing customers. The scale and engagement potential of email makes it more effective than social media for extending services to them. According to email research specialist The Radicati Group, the total number of worldwide email accounts is expected to increase from nearly 3.9 billion accounts in 2013 to over 4.9 billion accounts by the end of 2017. In 2013, the majority of email traffic came from business (rather than personal), which accounts for over 100 billion emails sent and received per day. Email remains the predominant form of communication from companies to their customers. This trend is expected to continue, and B-to-C email will account for over 132 billion emails sent and received per day by the end of 2017, according to Radicati. 4 ADVISORS MARKETING ADVANCING COMMERCE

Email is a particularly strong medium for financial services marketers, used primarily for retention-focused communications with existing customers (70 percent of volume in Q4 2013). Emails from banking and credit card companies had double the open rate of general media and publishing companies: 41.6 percent vs. 19.3 percent. This reflects their customary personalized presentation as well as customer expectations of receiving important account information. As an acquisition tool, email remains a significantly more effective way to cross-sell to existing customers than social media nearly 40 times that of Facebook and Twitter combined, according to digital tech firm Custora. Issuers should develop custom emails and landing pages in concert for greater impact and consistency in their message, rather than developing the message and then the landing page on an individual basis. The omnichannel world has also necessitated customized messaging and design for viewing on desktops, smartphones, and tablets. The other advantage to email as a cross-sell or upsell tool is its inherent trackability. Email is a customer management tool. Messages can be tested and optimized. Customer status is automatically tracked by the sent, opened, clicked, and converted rules. Email is a customer lab and, as part of an acquisition strategy, should be planned in sequences with varied frequency and messaging. Most issuers use emails to either manage existing customers or cross-sell cards versus cold prospect acquisition. Some best practices are: 1. Use the subject line like an outer envelope customization, benefits, and directive. 2. For customers, follow a standard format where the last four digits of the card number and customer name are displayed to ensure authenticity. 3. Make the offer obvious and as simple as possible with a clear call-to-action; this needs to be placed above the fold. 4. Provide hotlinks early and often (facilitates and encourages response). 5. Use short copy and blocks of text, and incorporate enough white space. 6. Always provide a vehicle for opt-out, in case someone does not want to receive further emails. 7. If possible, limit to one page avoid scrolling. 8. When using HTML, do not over-design. Mobile marketing is growing and should work in concert with digital and direct mail. According to an August 2014 report from the Aite Group, more than half of financial institutions surveyed anticipate taking applications for checking accounts, mortgages, and car loans via a mobile device by the end of 2015 (Figure 3). 5 ADVISORS MARKETING ADVANCING COMMERCE

FIGURE 3: DEPLOYED AND PLANNED MOBILE BANKING CAPABILITIES FROM FINANCIAL INSTITUTIONS (N=233) BILL PAY 86% 11% CHECKING ACCOUNT APPLICATIONS 55% 20% 25% MORTGAGE APPLICATIONS 54% 23% 23% CAR LOAN APPLICATIONS 53% 23% 24% BUDGETING 49% 30% 21% EXPENSE CATEGORIZATION 48% 30% 22% ALREADY HAVE OR WILL LIKELY HAVE BY END OF 2015 NOT DEPLOYED, BUT PROBABLY WON'T NOT DEPLOYED, BUT PROBABLY WILL Source: Aite Group survey of 233 bank and credit union executives, Q1 2014 The research also found that many issuers are applying traditional forms of outbound marketing transmitting marketing messages to the channels, media, and devices that consumers use to the mobile channel. The Aite Group report shows that the mobile aspect of cardholder retention is urgent. Getting mobile wrong can alienate cardholders, and direct marketing techniques are currently in place to develop effective programs. Among them are a Mobile Optimization Program (MOP) to develop QR codes, mobile landing pages, mobile apps, and a mobile-optimized credit card application to support acquisition and retention efforts. The pieces all add up for issuers to be agile and act across channels. All the elements of omnichannel marketing mentioned here direct mail, onsite, telemarketing, email, and mobile can be sequenced. For example, mobile messaging can be followed up with an email campaign or vice versa. Direct mail can be added to the channel mix, depending on your customers. As the consumer changes and travels on a unique journey, a complete set of direct marketing techniques can be used to communicate the most relevant offers and encourage desired behaviors. 6 ADVISORS MARKETING ADVANCING COMMERCE

Among those techniques: Make your communication compelling. Make it easy to process and understand. Use bullets, headlines, and subheads. Keep copy short up to 85 characters/line and a maximum of 4-5 lines/paragraph. Use primarily initial case or lowercase instead of uppercase. Enumerate benefits and features to ease comprehension. Keep prospects involved. The more time they spend with a piece of communication, the more likely they will be to take the desired action so don t give them the opportunity to stop. Use (but don t overdo) personalization. Avoid negatives, as well as periods, in headlines or subheads. Use icons in conjunction with (or as part of) text. Icons are easy to process and get the message across quickly. Use strong calls to action on all available surfaces of all channels. SECTION THREE: ENGAGEMENT STRATEGIES Again, same rules but a different game for issuers. Today s game requires new approaches across target audiences, offers, and channels for new customers as well as ones that are currently engaged on some level. The right customers must be found through sophisticated analytics. These targeted campaigns value profitability over growth at any cost. They value cross-selling and deeper relationships over huge volumes. Smarter segmentation and targeting come from a feedback loop: from targeting and segmentation, to list selection, to response and propensity models to profitability profiles. Only through continual testing and learning can issuers build new segmentation models based on elements such as customer demographics, retail product ownership, and likely use of credit. Targeted campaigns based on this level of segmentation can dramatically increase response rates. Offers and segmentation also sync up in the omnichannel world. Smarter value propositions match cardholder needs with product features and the issuer s own business model. Here, effective direct marketing will tailor offers to best customer lookalikes. Moving beyond zero percentage offers, it will create value propositions that spur profitable behavior. Instead of me too rewards, it will help create offers relevant to each segment. Acquisition and engagement today require new approaches across target audiences, offers, and channels. These new approaches push direct marketing to a new level by embracing the many channels where customers receive offers and integrating them into a seamless application and positive experience process. Use internal and external data to target creditworthy customers and non-customers and, finally, always use valid test and control methodology to provide strategic direction to continue to grow. CONCLUSION Customer acquisition and retention requires the ability to change as customers change. It drives customers to respond from online to mobile and even onsite, using proven tactics. Legacy customers will have different behaviors, for example, than Millennials, but the objectives to get them to respond will be the same. Therefore, influence those actions in every customer channel. Testing is the key. The varied techniques of omnichannel marketing must be tested to understand channel preferences and/or combinations. Understand that the customer is fluid. Over time, the majority of customers will be using online and mobile at rapidly increasing levels. Embrace omnichannel marketing. i Competition and Customer Acquisition in the US Credit Cards Market, by Daniel Grodzicki, Stanford University, Jan. 25, 2014 ii. The Financial Brand, 4 Big Direct Marketing Trends in Banking, June 9, 2014, http://thefinancialbrand.com/40264/direct-marketing-trends-in-banking/ iii Mintel Comperemedia 2014, http://www.comperemedia.com/ iv ibid 7 ADVISORS MARKETING ADVANCING COMMERCE