In a banking industry that can be described as uncertain at best, the tendency of companies to slash marketing budgets during a downturn is tried and true. Along with other areas of the company budget, marketing strategies have undoubtedly suffered a severe scaling back due to a flagging economy and anemic consumer spending. Indeed, when a crisis arises, new marketing initiatives — often with a return on investment that is difficult to quantify — are typically some of the first to be struck with that little red pen.
But what about de-marketing strategies? This seemingly counter-intuitive phrase has been making its rounds in banking and other industry circles, with return on investment per customer mattering more than ever. And the strategy is exactly what it sounds like — scaling back marketing efforts, but realizing positive results nonetheless. Whereas the traditional marketing process entails gathering and synthesizing demographic and social forces to identify unfulfilled needs and desires, de-marketing consists of pinpointing which segments of the population would not become fulfilled by the company’s offerings and removing them from your correspondence lists. Or, more simply put, striking unprofitable customers from a portfolio to then divert more resources toward those that really matter to the bottom line.
To answer the question of how to tell when a customer is unprofitable, in their book Competing on Analytics, Thomas Davenport, President’s Distinguished Professor of Management and Information Technology at Babson College, and Jeanne G. Harris, Executive Research Fellow and Director of Research at the Accenture Institute for High Performance Business, discuss how Royal Bank of Canada (RBC) measures the profitability of its clients. The first step was to identify labor cost, which accounts for 60 percent of RBC’s non-interest expenses.
Data was collected quarterly from general ledgers from individual cost centers, then...