Offer Management in Four Stages
Bank marketing spend for credit cards is up, so why aren’t acceptance rates up as well?
The answer – for credit cards and other services – probably lies in gaining and using a better understanding of the four stages of offer management.
Stage One – Unqualified Offers
Stage One offer management, at its most basic, means welcoming all customers and pushing the same product to all of them. The same offer to every customer results in low life time value, extreme ad-fatigue, and potential attrition at the annoyance of being hassled about their money.
The regulatory climate that protects customers from unrequested credit examination prevents most completely unqualified offers of credit. While this stops most poor outbound marketing, inbound marketing doesn’t have this limit. Often bank tellers ask customers if they would like to apply for a credit card with their balance inquiry, circumventing the “firm offer of credit.” The only qualification might be that the customer isn’t paying a fee or in a “bad mood.”
This isn’t really offer management because there is no real “management.”
Stage Two – Risk Qualified Offers
Stage Two offer management is a result of the Fair Credit Reporting Act. Post FCRA all firm offers of credit are backed with a credit report where usage gets tracked by a CRA (Credit Reporting Agency). This permits some offer segmentation to make sure that a customer isn’t lured in with 1.9 percent only to get slapped with 5 percent when data is available. As far as the customer experience goes this is pretty safe. Risk-qualified offers also enable DDA cross-selling and point-of-sale prescreen. A customer requesting a DDA account is going to have to submit to a credit check. At that point a bank can automatically see what other products in the portfolio the customer also qualifies for to rapidly expand the relationship.
This still isn’t a “smart” offer. The bank likely isn’t checking other customer aspects such as how many credit instruments the customer has, if the product lines up with the customer’s common uses, or if the customer is satisfied with the instruments the customer has. At account opening we know very little about a customer’s behavior and unless you are augmenting with additional data, you can’t predict offer acceptance, just offer qualification. Even if a customer accepts this offering, there is nothing to say this is the “right” product. Fitting the customer in the wrong product creates a “poor fit”, lowering the likelihood that any other products will be accepted and decreasing the stickiness of the relationship.
Risk qualified offers do facilitate cross-channel integration. Unfortunately it is still only at a particular interaction and a credit card is the traditional cross-sell. If a history of extended offers is being kept and being leveraged as a “do not solicit until x days” list, it can help improve the banking experience.
There is a significant gap between Stage Two and Stage Three because of market conditions. As Stage Two was almost a forced strategy due to regulation, Stage Three is really the birth of a nuanced, “customer-centric” strategy. While not necessarily the largest technology shift, Stage Three represents a mentality shift for the banker and an analytics shift for the marketing organization.
In our next blog, we will address the next two stages – targeted offer management and personalized offer management.
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