In previous Raddon Report posts we addressed the characteristics of profitable and unprofitable accountholders and ideas for growing relationships with both.  Our most recent Raddon Report provided several tactics for turning unprofitable households into profitable ones, and now we’ll share a case study that shows those tactics in action.

As the previous article noted, retail households are assigned to the D and E groups based on their annual net income contribution to the institution. D households have annualized profit of -$1 to -$99 per year, and E households have annualized profit of -$100 or less.

A Case Study

Recently, a financial institution launched a marketing campaign to re-engage its least profitable households, targeting those E households specifically. After a year, it analyzed its E household reboarding campaign to answer three questions:

1. Were accountholders actually moving into higher profit groups?
2. What product engagement was moving those accountholders from E status to another group?
3. Was it a new or different product that moved the accountholder, or was it an increase in balance in an existing product that moved a household out of the E group?

What this institution found was encouraging. Of the more than 6,600 E households in the reboarding campaign, 660 – or 10 percent – had moved into another profit group after one year. Another 100 of the targeted unprofitable households had ended their relationship with the institution.

Newly purchased loan products helped the most in moving the households out of E status. However, many deposit products also helped to migrate these households into a new, higher profit group.

All total, at the end of the year, those 660 E households either opened or changed the balance on 206 mortgage accounts, 123 consumer loans and 102 used auto loans. There were other loans as well, such as home equity and HELOC. Note: Credit cards were not included in the analysis but are part of this institution’s loan portfolio.

But let’s not forget about the deposit side of the books; a change in balance and/or rate can most certainly improve a household’s profitability status, with benefits for the institution. During the year, the households in the reboarding campaign opened or changed balances in 55 savings accounts, 51 checking accounts, 29 money market accounts and various other deposit products (CD and IRA).

Most interesting was that none of these households moved back to the E group during the year. Once they had migrated out, they stayed out at least for the remainder of the year.

Focus on Relationships

With your most profitable households driven by balance, it’s important to remember that relationships drive unprofitable households. One of three things typically make a household an E household:

1. A low loan balance, which means that they have borrowed with you and at one time were likely an A or B household, but as their outstanding principal declined, so did their profit contribution
2. A deposit account with an aggressive rate in which the institution paid more than it would have paid to have borrowed those funds from the market. Typically, these E households are rate-shoppers
3. Checking accounts that are not used as primary accounts and have little to no activity (debit) and some balance, so they cost the financial organization money but do not generate non-interest income

A reboarding matrix of E households was very successful for this financial institution in migrating those households out and into another profit group by either new products or increased balance.

The successful reboarding campaign that migrated more than 600 E households to a higher profit group focused on two of the three factors that drive a household to become an E household: loan balances and checking. Deposit growth wasn’t a strategy, but there were some deposit products opened during the year from this group.

In addition, this financial institution went one step further to segment the E households, referencing the Raddon Expanded Consumer Segments and ensuring that the right product recommendation went to the right households.

Loan products promoted were specifically consumer loans and mortgages. However, midway through the year, the institution paused the mortgage campaign because it was driving enough mortgage business and wanted to focus on another product for this group. Enter the Free Credit Check campaign.

Targeted Messaging Moves the Needle

The first touchpoint in this campaign was to thank these accountholders for their business. How often do we forget to thank accountholders for their business and remind them we still have the products and services to help meet their needs?

Following the thank you message, households received a consumer loan or mortgage message (before it was paused) based on their specific segment and if they already had that product. Next came the checking message to households that did not already have a checking account.

To optimize effectiveness with the checking campaign, the institution segmented its messaging based on Raddon Consumer Segmentation methodology. Younger segments received a message focused on having no overdraft fees (ever), while older segments found a message about how easy the app and debit card are to use. The two pieces, while promoting the same product, used completely different imagery and text better suited to the target audience. By making the message and imagery more appropriate to the recipients, the institution found greater success in adoption.

Realizing that accountholders might be in new or different financial situations in 2020, the Free Credit Check felt like the right offer at the right time. This offer also gave the staff the ability to talk to accountholders about their current financial situations and how the financial institution could help potentially save them money and possibly lower monthly payments.

In the end, the E household matrix wasn’t overly complicated and didn’t offer an abundance of products or services. Rather, it simply reminded these households why they did business with this financial institution in the first place. The messaging:

• Thanked them for their business
• Offered to show them ways in which the institution could help save them money
• Expressed that the institution wanted to make sure they were getting the right product at the right time

With this approach, the financial institution proved that, yes, you can make unprofitable households profitable.