Budgeting for 2008: Marketers, Are You Ready?
By Vince DiPaolo & Christine Durkin
Earlier this year, CFO magazine urged that, when budgeting, companies think more in terms of long-term fiscal goals rather than just current period revenues and earnings performance. Unfortunately, it will be awhile before this new way of thinking reaches the typical bank board room. The problem is that today's obsessive focus on short-term outcomes makes it all the more likely that a bank will engage in behaviors that ultimately destroy long-term value. This is particularly true in planning the marketing budget.
In their book "Return on Customer," Don Peppers and Martha Rogers note that while the customer base is the revenue-producing asset for any company, and loyal customers are the surest route to business growth, companies rarely take such "customer equity" into account when planning their annual budget.
Both marketing and sales reps are under severe pressure to bring in new high-profit customers. However, with the high cost of acquisitions, many banks spend more on a new customer than that customer will ever be worth. The challenge then for today's bank marketer is to prepare and present marketing budgets that contribute to the long-term profitability of the bank, while at the same time generate enough short-term profits to validate the merits of continuing programs over several years.
What keeps you up at night?
In a recent webinar, Eloqua, a provider of demand generation applications, asked B2B marketing executives, "What keeps you up at night?" Here were the top five results:
||Generating more and better-qualified leads
||Deepening relationships with prospects/customers
||Making their web site a lead-generation machine
The question really boils down to, "What constitutes effectiveness?"
A November 2006 CMO (Chief Marketing Officer) Council survey of 568 marketing executives made clear how the CMO's job has evolved into one that today is much more accountable for client retention. And, the report adds, while marketers are making customer development a priority, many continue to have a significant disconnect with the realities that drive effective customer targeting, acquisition and retention. Only 44% of marketers indicated that they monitor customer churn and retention, the survey found.
One of the solutions in bridging the disconnect between long-term profits and short-term goals may be found in re-evaluating the employee compensation structure. In the May issue of 1to1 Magazine, the article "Is Your Compensation Strategy Costing You Customers?" argues that you can cut operating costs and increase profits by tying employee pay to performance in delivering customer service.
Too often the opposite scenario prevails. Sales reps are compensated handsomely for acquiring new business but no attention is paid to how effective those same representatives are at keeping clients from defecting or at increasing customer spending through cross-selling.
Marketing compensation incentives also are often counterproductive. The same 1to1 Magazine article noted how, according to subsequent research, one financial institution's credit card advertising campaign actually drove many of its customers to the competition. Ironically, the institution's marketing team was rewarded with a compensation increase for having achieved higher brand recognition, despite the erosion of its customer base.
Fortunately, there is a slow but notable shift in the value companies place on loyal customers, and this shift is gradually having an impact in the marketing departments of some of today's banks. In a recently developed FPS White Paper, Dismantling Silos to Build a Customer Focused Enterprise, we discuss in some detail how banks can reorganize around their customers to reap substantial economic benefit.
Technology has enabled better, more measurable and more relevant options for reaching out to customers in ways that strengthen the client/bank partnership. Solutions-based messaging is helping business banks and other financial services providers compete and succeed. Electronic delivery and tracking of that messaging facilitates a level of customer insight that was impossible a few years ago. This insight gives both marketing and sales professionals a window into the interests and challenges of their customers and enables bankers to respond more relevantly. It's no wonder that the Direct Marketing Association finds that e-mail marketing is achieving a return on investment five times that of any other form of direct marketing.
As you prepare your institution's 2008 marketing plan, we invite you to take advantage of our Strategy Facilitator discussion guide, which is designed to help you strategize with your colleagues to define and achieve your unique marketing goals. If you like, we can custom-develop for you and your marketing and sales team an Online Workshop that reviews some cutting-edge e-mail marketing strategies banks are pursuing today. To see a three-minute mini-demo of issues we typically cover in our workshops, click on the following link: Workshop Mini-Demo. To schedule a workshop or to request more information, e-mail us at [email protected].
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