An alternative way to serve clients

The financial services sector has embraced direct marketing to a greater extent than almost any other industry.In this special feature, reporter Patti Summerfield interviews managers at banks, trust companies and other financial service institutions to find out why this is the...

The financial services sector has embraced direct marketing to a greater extent than almost any other industry.

In this special feature, reporter Patti Summerfield interviews managers at banks, trust companies and other financial service institutions to find out why this is the case and in what ways they are using, and expect to be using, direct marketing initiatives. Four direct marketers address the issues from their perspective.

Included in this report is a preview of the Canadian Direct Marketing Association’s spring conference, to be held May 18-20 at the Westin Harbour Castle in Toronto.

Hugh Furneaux, head of the cdma’s program planning committee, explains why the association chose The Power of Direct as its conference theme. As well, we asked some delegates to identify the key issues inhibiting the growth of direct marketing in Canada.

The preview appears on pages 20 and 21. The report continues to page 29.

Having invested heavily in databases to keep track of their customers’ business, banks, trust companies and others in the financial services sector were among the first to realize the potential of direct marketing.

Soon evolved

Initially an advertising message on someone’s statement, direct marketing techniques soon evolved to include forms, brochures and telemarketing methods as financial services companies looked for ways to sell more product and increase consumer loyalty.

And there are plenty of reasons to suggest the use of direct marketing by these companies will continue to grow.

Sharon Oatway, general manager of direct response at the Canadian Imperial Bank of Commerce in Toronto, says banks must look at alternative ways of delivering services, as the cost of doing business in people-intensive branches continues to rise and profit margins narrow.

As well, the proliferation of automated teller machines (atms) has meant many clients rarely enter a branch.

The challenge of communicating with these customers has required financial institutions to re-examine how they sell their services.

And while a lot of people do not require face-to-face consultation to get their banking done, they do want more banking convenience.

Faced with reducing costs and providing an alternate delivery system for their services, financial institutions have stepped up their direct marketing efforts.

Sherry Martin, senior manager of direct marketing for Royal Bank in Toronto, says the bank has doubled the number of its direct marketing projects in the past three years and believes the number will continue to rise.

Royal Bank has more than eight million customers registered with its database and 95% of its direct marketing is targetted to them.

Martin says one of the benefits of direct marketing is that the bank is able to monitor results.

‘There’s no questioning of whether we really got those results or not because it comes off the bank’s computer system,’ Martin says.

‘There’s a lot of credibility in the numbers we’re able to show the product groups about what happened when we mailed and the kind of results we got,’ she says.

We’re able to track, not just response rates, but actual dollars associated with the campaign as well.

‘We have found it’s a very effective way to promote products and services to very specific target segments,’ says Martin, who adds the bank uses direct marketing in a variety of ways.

Use it to sell

‘In some cases, we use it to sell, particularly with credit cards where it is a simple product,’ she says.

‘People know what it is. They fill out an application. They mail the application in. It’s very much a closed-loop scenario through the mail.

‘With other products, where they might need more information, it’s often used as a traffic-building or lead generation because the final sale will close in the branch.’

Direct mail can also be used to educate the client and provide information.

Martin gives the Royal Bank’s debit card, or electronic funds transfer card, as an example.

Launched this month in Alberta, the accompanying direct mail campaign explains to customers how their client card can now be used as a debit card.

‘We look at how we can best match a product to what a client would need,’ Martin says. ‘We determine the scenario that would make the most sense, and we select those people and mail them the solicitation.

‘That selection is done in a variety of ways, from historical response rates to more sophisticated ways of predictive modelling,’ she says.

‘Direct marketing is the best way we have of targetting individuals versus mass media,’ says Bill Gunton, senior vice-president of consumer card marketing for American Express Canada, based in Markham, Ont.

Budget

‘Although we have a fairly significant advertising budget in terms of the brand image we have in the marketplace, when we get down to trying to find the individual customer for the American Express card, the best way to target is through direct marketing programs we’ve put together,’ Gunton says.

He says the bulk of the American Express marketing budget, roughly two-thirds, is for direct marketing, which includes its telemarketing, direct mail, and its Take One distribution network for applications.

As well, in its traditional print advertising campaigns, a 1-800 number is used for direct response.

Gunton says although the direct marketing budget has remained constant in terms of the dollars spent over the past couple of years, the efficiency of campaigns has increased significantly.

Number down

‘We’ve done a lot of work on targetting so the actual number we mail is down dramatically in the past couple of years because we’ve been able to target better who we think might want to obtain an American Express card,’ he says.

‘Even to our current customers, we’re trying to target even more specifically on what individual customers want from us, not just making an offer available to everyone in our customer base.’

Direct marketing is new for Canada Trust.

Canada Trust is using direct marketing mainly to deepen relationships with its existing customers, retain customers and sell products such as rrsps and mutual funds.

‘Direct marketing is an important corporate mission for Canada Trust right now,’ says Dominic Mercuri, assistant vice-president, direct marketing.

‘It’s a way we see we’re going to be able to grow and compete more effectively without building lots of bricks and mortar,’ he says.

Mercuri says EasyLine, Canada Trust’s telebanking service introduced earlier this year, is successful and going forward as planned.

In fact, it has been so well-received that the rollout plan has been accelerated and has been launched in Western Canada slightly ahead of schedule.

Mercuri says his department’s budget this year is around 10% of the total marketing budget.

But he says the budget will grow rapidly over the next year or two as it gets past the developmental phase, and eventually the company will execute more programs.

Gaining importance

Gwyn Humphreys, director, direct marketing for North American Assurance of Toronto, says direct marketing is gaining importance within the company, although it is still committed to insurance agents because the face-to-face interpersonal relationship is important to their business.

‘We’ve been in the direct marketing area for a long time, and the success rates support the efforts,’ Humphreys says.

‘We primarily use it to sell product, but are exploring the many other ways we could use it, such as customer loyalty programs and customer service,’ he says.

‘It’s convenient for the customer, it enables the company to target, it’s measurable.

‘We’re using it at the moment for fairly straightforward products such as life insurance, hospital, disability, accident, rrsps and for upgrades within our existing client base.

‘For prospective clients, our main source is through third-party endorsed marketing,’ Humphreys says.

‘We’re big in association and alumni association business, where an association endorses our insurance plan and then we would use their mailing list to mail to their members,’ he says.

Lends credibility

‘With our mailings, the endorsement of the association is very important in the selling process. It lends credibility and security to the product offering.

‘Frequently we try and tie in with the association’s look, colors of their logo, putting their logo on marketing materials.’

Humphreys says the company has been able to build a good profile of its customers by analyzing responses to every campaign in terms of age, income and other demographic information to help shape future campaigns.

The common anniversary date for everybody in a particular insurance plan is used as a chance to pass along plan improvement information and encourage people to review their coverage to make sure it continues to meet their needs.

Telemarketing is used to follow up to see if the client is interested in upgrading the insurance amount.

Financial planning

Investors Group, based in Winnipeg, is a financial planning company that operates 75 offices across Canada with more than 2,600 representatives, selling mutual funds, guaranteed investment certificates, life insurance and disability insurance.

David Horne, vice-president of marketing for Investors Group, says traditional advertising gets the main share of the company’s advertising budget.

‘We use direct marketing very little, only with our existing client base because the only method of distribution is through our direct sales force,’ Horne says.

Investors has recently tested the use of direct response coupons in non-related merchandise such as consumer products rather than associating itself with other financial services.

‘We have been trying to reach seniors and have targetted products purchased in greater numbers by seniors, for example, denture cleaner and bran flakes cereal,’ Horne says.

Traditional awareness advertising is used to predispose prospects to discuss financial planning with an Investors Group representative.

All newspaper and magazine advertising contains a direct response component.

Oatway says over the last five years the bank’s advertising mix has been dramatically shifting and expects that shift to continue.

‘In 1987, we mailed 750,000 direct mail, this year we are likely to mail eight million,’ she says.

‘My department works like an internal agency, and its clients are the individual service groups who are attempting to market their products.

‘We work with them to help them utilize direct response as a distribution channel, an alternative distribution channel, and an alternative way to communicate to their clients, as well as develop programs that support branch activities.

Execution

‘Once we develop the program, the idea for the program, we then work with our agencies to do the execution.’

cibc aggressively began to expand its direct mail operations two years ago as a way to reach people beyond the branch networks and build better relationships with existing clients.

‘In 1987, we weren’t doing any telephone selling activities, we were doing reactive customer service,’ Oatway says.

‘This year, we will receive over one million telephone calls from our clients and prospects that are in the sales mode,’ she says.

‘Right at the moment, we have aggressive programs in the area of sales to new and existing customers of the bank.

‘We have some proactive retention initiatives going on. We use predictive modelling to find people who are high risk of leaving the bank and we do things differently with them than we would normally.

‘We have outbound telemarketing programs to try to recover business that’s been lost. That’s more a reactive retention program.

Inform and educate

‘We use it quite extensively to inform and educate our customers, and have been using it quite a lot this year to activate product, to get them to use the new debit card programs, to get them to use [the automated teller machines,] to get them to contribute to their rrsp or monthly saving plan.’

Oatway says a combination of direct mail and telemarketing has helped with the success of programs.

The cibc has pulled direct mail, telemarketing and all alternative (non-branch) delivery channels under one umbrella.

‘There’s an awful lot of synergy between them,’ Oatway says. ‘What we’re attempting to do is build full-service relationships with clients outside of the traditional branch banking environment.

‘But it ties into what they do at the branch,’ she says.

Martin says the Royal Bank’s mortgage program is one of the most innovative the direct marketing department has implemented.

‘Timing is such a key issue because, with mortgages, what you’re dealing with is the renewal date,’ she says.

‘By building a database and logging all the pertinent information, it certainly has been one of our most effective ways of reaching the client at the key time.’

Telemarketing

The whole strategy, from building the database to closing the sale in the branch, is handled through direct mail and telemarketing.

The first outgoing direct mail piece asks the customer if he or she would like to receive more information and when. The reply information is then databased.

The second piece is a reminder that the mortgage is coming up for renewal and includes an outline of mortgage options.

A telemarketing call follows up.

In 1991, the cibc introduced Double Cheque with a direct marketing campaign.

Double Cheque is a one-page photocopy of all cheques written on an account each month that is sent along with the client’s monthly statement.

The original cheques are kept on file at the bank.

‘At the time of the launch, our branches were very involved in an investments program, so the direct marketing area was seen as a way to market a brand new service to our existing customer base without impacting the client base,’ Oatway says.

Profiled clients

The cibc profiled its clients and developed a model of the people that would be most interested in this service.

They were sent a direct mail piece and asked to respond either through the mail or by phone. Response was immediate.

‘The goal was to sign up 10% of our chequing account clients with Double Cheque,’ Oatway says.

‘Within the first four-week period, we had already exceeded our target by 120%,’ she says.

‘The important thing, it caused minimal impact on the branch network so they were able to sell other more complicated products and services.’

The cibc does not just use direct marketing to sell outside the branch environment. It is also used to build traffic for the branches.

‘Traditionally, in the fall period, it’s a very competitive period of time,’ Oatway says. ‘It’s very difficult to catch customers’ attention.’

‘We developed a program that had tremendous mailbox appeal,’ she says.

‘One year we used a flat tube, where you rip off the ends, and the tube opens up, and you have a blueprint of all our investment products.’

‘Last year, we went with an oversized, off-sized envelope and very strong creative in the form of a blue marbling effect all over it.

‘By breaking through the clutter we were able to talk to our existing client base, get them inside the envelope and educate them about all the products and services we have.

‘The response rate of the first effort was $250 million in new cibc investments.’

Another successful program for the cibc was the launch of its debit card.

A debit card allows retailers to debit a customer’s bank account directly for their purchases by scanning their client card.

Debit cards, in the process of being launched by all Canadian banks at the same time, were first introduced last year in b.c. and Quebec and will be available this month in Alberta.

Ontario is scheduled for a 1994 launch.

‘What we wanted to do was convert customers who used the atm but hadn’t done direct payment program before,’ Oatway says.

‘We communicated to them via direct mail,’ she says. ‘We told them about the program, how it worked, and illustrated how easy it was. We felt consumers might be a little intimidated by it because it was new.

‘We also offered them store coupons for dollars off that they could redeem when they used their debit card at grocery, drug or department stores.

Convenience-oriented

‘We targetted people who were convenience-oriented and active atm users,’ says Oatway, who adds behavior is often a more accurate predictor than psychographic or demographic profiles.

‘Early adapters to debit cards are those who use atm more readily and that does not tend to be the older age group,’ she says.

‘But that older age group is always concerned about carrying too much cash with them – this is a very good product for them too.’

‘Again, it’s a matter of understanding the consumer behavior, communicating to them and providing them with an incentive to change their behavior. dm is perfect for that.’

Aerogold

Oatway cites the cibc’s launch last fall of its Aerogold program, a joint credit card program between the cibc and the Aeroplan program of Air Canada, as a successful use of telemarketing.

‘We leveraged the general advertising that was running to build awareness by putting a 1-800 number in it,’ she says.

‘I’m always frustrated when I see general advertising for a product which does not offer an immediate way to respond. I encourage our general advertising group to use the 800-number when it’s appropriate.’

The launch of the CIBC Ford Visa credit card announced earlier this month will be handled strictly through direct marketing.

Mercuri says a recent mutual funds solicitation to existing Canada Trust customers gave the customer several options on how they might want to complete the purchase.

The mailing allowed them to request additional information with a reply card or through a 1-800 number.

The purchase could be made over the phone or at any branch.

‘Within the fulfillment package sent to customers wanting more information, we also include an application form that can be self-completed and mailed in, or taken to a branch,’ Mercuri says.

Gunton says American Express’ mailing pieces for acquisition of new customers vary but usually consist of an outer envelope, letter, application and maybe a brochure that talks about the benefits of the American Express card.

To respond, the consumer just fills out an application, mails it in and the company processes it.

Gunton says some of the other mailings are for products in the merchandise services area.

‘We sell through a catalogue, or select solo mailings to make available select merchandise for card members to buy,’ he says.

‘It can go to different segments of the card member base.

‘What we find that’s not surprising is that people who have bought in the past are more likely to buy in the future. And those are the ones who fully expect to continue to receive those merchandise offers.’

New electronic technology now starting to show up in the u.s., called information highways and linking telephones, tvs and computers, will play a major role in the future of direct marketing.

The younger segment of the North American population is more computer-literate, meaning the industry will likely be moved more and more toward at-home financial services transactions.

‘Face-to-face still has a place, but I think, gradually, we’ll become accustomed to picking up the phone at nine on a Sunday night to make our rrsp deposit or check on our bank statement or insurance,’ Humphreys says.

Prime contributor

Telemarketing is a prime contributor to today’s convenient financial services.

Mercuri says Canada Trust has made substantial commitments to developing technology and has already invested quite heavily in its telemarketing system.

The Canada Trust system links the telephone to a computer that guides the telemarketer through a sales call. It prompts them to ask the customer for information and allows for input of that information.

The system also facilitates sales tracking. The telemarketer can note what promotion is generating the call – statement inserts, dm, newspaper ads, newsletters – to help trace the most effective communication methods for various products.

Predictive dialing

Mercuri says this substantial piece of technolgy also features database management and fulfilment capabilities and handles predictive dialing for outbound telemarketing.

Canada Trust operates two 1-800 numbers.

The general number handles calls generated by newspaper ads, direct marketing and other brochures, with a separate number reserved for EasyLine, its telebanking service.

Martin says although telebanking is not in the market to a great extent right now, it is the first step toward people banking outside of a bank environment – that is, a bank machine or a branch.

‘Once this technology starts to be commonplace within households either with computers or interactive networks with tvs, telephones and computers, I think people will really start to do their banking outside of the normal channel,’ she says.

The cibc has also implemented a fairly sophisticated telephone system over the last two years, and coupled it with a telemarketing support system similar to that of Canada Trust.

Everyone in the telemarketing department has a personal computer with access to all of the different systems within the bank.

Oatway says an in-bound telephone call starts with an automated voice response system that allows clients to receive information and do transactional banking – balance inquiries, transfer funds and pay bills – using a service called LinkUp.

She says the telephone side is where most of the new technology is showing up.

‘Probably by the beginning of next year, cibc customers will be able to do everything over the phone or by mail that they can do in the branch today. Which is an important thing,’ Oatway says.

She says residential smart phones, new phones developed with display screens on them, makes the voice response technology of telebanking more user-friendly.

Instead of hearing ‘Press 1 for English, 2 for French,’ the commands pop up on the display screen so the process is easier and faster.

‘It’s not really good enough in my mind to do some things over the phone, or by mail, and not others, such as to take an application over the phone and then have the client go into the branch to sign it,’ Oatway says.

‘Brickless banking’

‘We call it brickless banking, which means everything we do should be able to be done without the involvement of the branch if the client wants it that way,’ she says.

‘That kind of philosophy has caused us to look to new technology in a much more aggressive way.’

Oatway says for an automated banking experience to be superior to that in a branch environment, it cannot be fully automated.

A recent cibc pilot project that put theory into action involved remotely located kiosks at which clients could pick up a telephone and immediately connect with a live operator in a regional area.

Displayed

‘The operator’s picture is immediately displayed in front of the client so we have that person-to-person connection,’ Oatway says.

‘The research we did on this was very gratifying in that the client in post-research did not talk about the technology at all but about the person, the picture, the personality,’ she says.

‘What happens is that the operator actually controls what the client sees in front of them on the screen so the client doesn’t have to figure out how to work the keyboard or touch the screen.

‘They’re having a conversation between two people and the operator, the telemarketer, is actually using the screen in front of the client very much like someone would use an electronic brochure.

‘So when they’re trying to explain a concept, instead of having a one-dimensional flat piece of paper to explain it, they can dig into a database of pictures and graphics and even full-action video to explain concepts to the client to help with the selling process.

‘They can then complete a full application that prints out at the customer location. It’s signed, put in the dropbox and the whole process is concluded.

‘It’s very similar to what you would experience in a branch environment, but the technology helps the operator educate and communicate with the client more effectively,’ Oatway says.

Consumer perception

‘Consumers who have used the service have found that they believed the person was an expert in the area they were talking about when, in fact, they were equivalent to individuals you would find in a branch,’ she says.

The cibc has put the project on hold because technology in the area of multimedia is moving so rapidly.

But Oatway says there will be more about this in the near future.

Smart cards will also have a major impact on financial services companies, she says.

Similar in size to a credit card, smart cards are encoded with a microchip that will allow customers to go to a banking machine and load up the card with cash.

While a debit card takes the money directly out of a customer account when purchases are made, the smart card, when put through a scanner at a store, debits the card.

Direct marketing today is a sophisticated, efficient process for financial services companies, mainly due to the investment the industry has made in database technology.

Peter Case, vice-president of advertising for Royal Bank, predicts that use of relational databases, currently a direct marketing mainstay, will move into other advertising fields including media selection.

Relational databases have been so named because they contain information about customers that allows a company to build and nurture relationships with those customers.

Case says relational databases, notably those owned by advertisers, will be coupled with those owned externally to make major changes or adjustments in the way media is planned.

‘What we’re learning from direct marketing will have, and is already having, some significant implications for media selection,’ he says.

‘It’s taking the direct marketing learning skills and moving them into traditional media skills.

‘For me, that says something positive about direct marketing and what we’re learning from it.

Significant amount

‘Once advertisers develop databases that tell us a significant amount of information about our customer base, where they are and so on, we will probably end up with the ability to know where we should be advertising and what media vehicles can do the job best for us because we’ll do the job of merging databases.’

Case does not believe traditional methods of advertising will suffer as a result of the increased efficiency of direct marketing.

‘Over the longer term, a couple of different streams begin to emerge,’ he says.

Product-specific

‘There is the product-specific kind of objectives that are well-met by direct marketing techniques.

‘However, there are many companies with reputational goals and objectives they wish to obtain – things like stability, or technological leadership, and so on – that are also made well by and through traditional media advertising.

‘I don’t think that’s going to disappear,’ Case says.

‘My sense is that direct will find a natural level juxtaposed with media advertising,’ he says.

Won’t continue

‘I’m not able to determine what that level will be, but I don’t think the growth of direct marketing will continue at the rapid pace it has over the last three to five years.’

Case observes that direct response advertising, those that contain 1-800 numbers, reflects what the future holds for traditional media.

While direct marketing today relies heavily on mail and telephone, he says electronic-based vehicles such as direct response tv will become much more integrally involved in the direct marketing process in the future.

Oatway agrees with Case about the growth of electronic technology.

Losing ground

She feels direct mail is already losing ground to other technologies in the direct marketing field.

‘I believe it’s happening a lot faster than other people in the industry, and I think we’ve got to start looking at long-term planning,’ Oatway says.

‘The ability to communicate in a multi-dimensional form makes direct marketing much more palatable, and the communication capabilities that allow the client to order immediately, without operator involvement necessarily, are all very viable,’ she says.

Someone’s home

‘Now take that multimedia scenario and move it into someone’s home with the television associated with a personal computer.

‘In my mind, it’s something we’re going to see in the next 10 to 15 years, and that’s not very far away.

‘When you turn your television on, you’ll have to wade through a bunch of electronic messages just like you wade through your mailbox today.’