Magazine for Senior Financial Executives: Who gets what?

Who gets what? – Customer Relationships

Russ Banham

Many companies invest in technology in order to “know their customers,” but then what? When Dallas Teachers Credit Union (DTCU) wanted to grow its assets two years ago, it invested in customer-segmentation software to analyze its customers–all 150,000 of them. By creating 150,000 distinct customer profiles, DTCU was able to determine each customer’s individual banking needs. They were profiled based on more than 100 different data points, such as age, level of schooling, annual income, and type of home and location. Customers were also “householded” to discern who else in the nest might need one of the bank’s 100 services, which include checking accounts, IRAs, credit cards, and mortgages. Then individual customers were hit with targeted marketing material. The upshot: DTCU has increased its assets by more than $500 million in the past 18 months, making it the fastest-growing credit union in the nation.

So full speed ahead with customer segmentation? Maybe not. Despite many successes, analysts warn that customer-segmentation strategies can actually backfire. “It’s a sticky thing,” says Jill Griffin, president of The Griffin Group, an Austin, Tex.-based consulting firm that specializes in customer-loyalty issues. Griffin explains that a customer who is categorized as low-end and is provided service that is inferior to that provided to a high-end customer–Web-based self-service versus access to an eager phone rep, for example–will be less likely to stay a customer as his or her material wealth increases. Karen Smith, an analyst at Aberdeen Group, says the issue boils down to whether “the segmentation strategy is predicated on serving the customer or simply serving corporate interests and the bottom line.” She cites cases in which financial institutions have provided better service to a husband than a wife, even though the wife is the breadwinner, or mailed the same marketing pitch to all five members of a ho usehold because the household was deemed a ripe target for such material. Fireman’s Fund Insurance avoided such problems by limiting its customer-segmentation efforts to product marketing, not customer service.

COPYRIGHT 2003 CFO Publishing Corp.

COPYRIGHT 2003 Gale Group