Market Research II Essay

9/07 7-1

Chapter 7 How to Conduct Marketing Research

INTRODUCTION TO COMMUNITY BANK MARKETING RESEARCH

Need for Marketing Research

There are two ways a bank can make its marketing decisions: based on its best guesses or based on research data. For example, data from the bank’s systems might show that the bank is attracting about 200 new customers a month, while it is losing about 200 customers per month; for a zero net gain. Management can guess where the 200 new customers are coming from, or it can use a simple new customer questionnaire. Similarly, management can guess why 200 customers leave the bank each month or it can collect a closed account survey and ask them why they left the bank and where they are going. One way management is guessing, the other way management is sponsoring marketing research. While banks have more information on their customers than any other business, they need an organized approach to using that information and marketing research is the preferred approach.

Our experience with community banks suggests that there is way too much guessing and far too little marketing research. There are two major reasons for this. First, experienced community bankers believe they understand their customers and their markets, and that marketing research will merely confirm what they already know. Therefore, why do the research? In this, community bankers are badly mistaken. Quite often they are surprised by research results. They cannot believe that there are 842 affluent people in their county. They are surprised that customers do not perceive the bank to be as friendly as management thought — often what bankers believe is friendly is perceived to be faked friendliness by customers, and is resented. Research will show this, guessing will not. Seldom will a bank president accurately know details of how the citizens of a community perceive a bank — it takes solid marketing research to find this out.

The second reason why community banks do too much guessing and too little research is that they do not know how to conduct marketing research efficiently. There is a tremendous need for community bank marketing research, and for guidance on how to conduct it. Marketing research is not nearly as difficult, or as expensive, as most bankers think it is.

9/07 Community Bank Marketing Manual

7-2

Two Types of Marketing Research

There are two fundamentally different kinds of marketing research: (1) secondary research and (2) primary research. Secondary research uses data already collected to answer questions that come up from time to time. While the fit is not perfect, secondary research is far cheaper and easier to collect. Government data for market share information, data mining customer records for determining success of cross-selling efforts, and profitability studies all rely on secondary research data. The data already exist, and therefore, a simple secondary research project will generate the data.

Primary research is research collecting new data specifically designed to answer the question at hand. Why are customers leaving? What is our image in the community? What do customers expect in an Internet banking product? Primary research is collected several different ways — observation, experiment, and survey. Observation would be the traffic studies a bank undertakes to analyze the potential success of a new branch or ATM location. Experiments include any test markets a bank may conduct. As an example, many banks offer certain new products in only one part of the community to test demand. An ATM near the local college campus or a boat loan promotion near the lake branch.

Surveys or questionnaire research are what many people consider “true” market research. These include focus groups, mail surveys, telephone surveys, and person-to-person interviews. Each has its advantages and disadvantages.

Focus groups consist of a group of 10 to 15 people chosen specifically for their similarities. Unlike other types of survey research, you don’t want a random sample for a focus group. You are trying to get insight for future surveys from the group that understands the product or service best. For example, to learn more about Internet banking and what people expect, your focus should include heavy Internet users who already use Internet banking. From the focus group, you will find the issues that will become questions on the mass surveys.

Mail surveys are the cheapest and the slowest to administer of all the questionnaire formats. You can ask in depth questions and lots of them, but 90 days is a quick time to collect a mail survey. Another problem is response. If the survey is done by people outside the bank, they may only generate a 2 to 5 percent response at best. One way to avoid low response is to have the survey mailed directly to the bank, even if the tabulation will be done elsewhere. It can increase response to as high as 50 percent. This can reduce the cost of collecting the data needed for a viable sample. Closed account and customer satisfaction surveys are best done by mail.

How to Conduct Marketing Research 9/07

7-3

Telephone surveys are more expensive to administer and offer less data, but can be accomplished overnight if necessary. While response rates are down, a viable sample can be collected much easier than by mail. If you are calling customers, phone numbers are not a problem, but non- customers response can be skewed if a large portion of the community has unlisted numbers. (Community banks in large metropolitan areas beware — some cities have over 60 percent of their phones unlisted. This can adversely affect your survey.) You do collect less information with a phone survey because twenty questions is about all people will stay on the phone for. It is also harder to get qualitative information over the phone. Advertising awareness, community image, and branch location analysis are easy telephone survey topics.

Person-to-person surveys are the most expensive, take the most time, and give the most complete information. You can chose who you will talk to and interview them in depth. Qualitative and quantitative questions are both easy to deal with. New product, customer attitude, and service quality surveys are best done by personal interviews.

As a general rule, secondary research is relatively inexpensive and easy to accomplish, while primary research is more difficult, time-consuming, and expensive.

Qualitative vs. Quantitative Research

Similarly, research can be categorized as qualitative or quantitative. Qualitative research arrives at subjective statements, informed opinions, good ideas, and new thoughts; quantitative research develops numbers. A bank poll of the economists at the local university might result in a valuable insight as to what drives the local economy and how it will perform over the next few years. This poll results in primary, qualitative research. A close study of U.S. Census Bureau data, on the other hand, might develop some very specific numerical data on the local economy. This is secondary, quantitative research. If the bank asks a marketing research specialist to interview selected groups of bank customers, the bank is sponsoring primary research that will result in qualitative data. If the bank mails a questionnaire to 300 of its customers and the customers score a series of questions from one to 10, this is primary research that will result in quantitative data. If designed properly, research questionnaires can contain and collect both qualitative and quantitative research data. There will be times when qualitative data are called for and there will be times when quantitative data are called for, but many times the bank will need both.

9/07 Community Bank Marketing Manual

7-4

Clarify Research Objectives

Here is a cardinal rule of community bank marketing research: Each research project must have clearly defined objectives. Ask yourself specifically: What questions need to be answered and what information is needed to answer those questions? What is the best way to access that data information? The answers to these questions clarify the objective of a research effort. The first step in any marketing research effort is to make absolutely sure the person responsible for the research clearly understands what the objectives of the research are. If this is not done, the wrong question might be researched and the results might be meaningless. In addition, you will find that most of the time, the data needed to answer the question is available through secondary research sources and therefore cheaper and easier to obtain. The importance of clearly defining research objectives will be emphasized over and over in this manual.

Research Population, Sample Size, and Research Precision

The term “research population” refers to the total number of people that could potentially be included in the research. If, for example, the bank is doing countywide research on consumer attitudes toward local banks, and the county is made up of 14,942 family units, then the population for the research is 14,942 families. If the bank decides to use a sample size of 1 percent, then it will survey 149 families, but this would be an insufficient sample size for the research to produce meaningful results. The larger the sample size the more precision there is in the research and the more confidence you can have in research results. In most research projects, a sample size of 400 to 450 will usually give significant results.

Data Collection Methodology

At the beginning of a research project the first question asked is: What population should you work with? In effect you are determining whether you should research (1) only customers of your bank, (2) only people who bank with competitors, or (3) all the people in the market area, regardless of their banking preferences. Your selection depends on whether your information needs are to determine satisfaction (customers only), reputation (both customers and competitor’s customers), or new products (community at large). The research objectives should indicate who the survey population will include.

After the population to be researched has been determined, you need to determine whether the research can be conducted by observing the population, or by communicating with a sample of

How to Conduct Marketing Research 9/07

7-5

the population. For example, drive-up banking patterns can be determined by counting cars or by asking people about their drive-up preferences — one is research by observation, the other is research by communication. In most bank research situations, communication is needed, but often the data can be collected through observation, thereby negating needs for direct communication. When this is the case, the research will be more objective, simpler, and less expensive.

More often than not, however, the bank will need to use a questionnaire so that answers can be obtained from a selected group of people. When a questionnaire is the appropriate method of collecting data, you must then determine if the questionnaire should be administered through personal interviews, telephone interviews, or by mail. If you are looking for qualitative answers, personal interviews will probably work best. But if you are seeking quantitative data, telephone or mailed questionnaires will probably be needed.

It is an open question whether people should know that a survey comes from the bank. If the bank mails a survey to its customers asking them to rate the bank on a variety of issues, this is perceived as concern about service quality and tends to build the bank’s image with customers. On the other hand, if customers know the survey is from the bank, this knowledge invariably will influence responses, depending on what message each customer wants to send to the bank. Also, since noncustomers are not a part of such a survey, there is a built-in bias in favor of the bank. If the data need is serious, and important decisions will be made based on survey results, then it is better for a third party (such as a university marketing department) to conduct the survey, thereby keeping the bank’s sponsorship a secret.

Collecting and Processing the Data

As a part of a research design, you must determine who will be responsible for data collection, who will be responsible for editing and coding the data, who will be responsible for the software that will be used to generate the output, who will enter the data into the computer, and who will design the formats of the reports.

If the bank is conducting the research without the use of marketing research specialists, then we recommend that the bank sign a small contract with a local computer specialist. Often there is a knowledgeable computer hobbyist, student, or professional who will do the computer support for a nominal fee. Almost without exception, this is preferred to having someone in the bank do the work. Several of our client banks have open contracts with local computer specialists to support their marketing research efforts, and their experience suggests this is the best way to go. If you

9/07 Community Bank Marketing Manual

7-6

use this approach, we suggest the computer person help design the questionnaire; otherwise, the design could significantly complicate subsequent data analysis.

Probably the best and cheapest way for a community bank to administer a survey is to utilize the local college business or psychology classes. A student project led by the professor will, in many ways, give the bank a superior survey to what some marketing research firms will deliver. The students are going for a good grade (usually the best students are chosen to participate), and the professor doesn’t want to be embarrassed by putting out an inferior product. Remember, most college professors are trained researchers with great experience in statistics and the computer facilities to make tabulation easy. The bank gets the best of both worlds.

Cost and Time Budget

As a part of the initial research design, you should closely estimate how much the research project is going to cost, and you should establish a schedule for the project. This, of course, sounds routine, but if it isn’t done, the research is left open-ended and it will likely cost too much and not get done by the time the data are needed. It is much better that everyone involved know what the budget is and when the data must be available. This way misunderstandings are avoided.

Using a Research Proposal Form

Each bank marketing research effort should be based on a research proposal form. Exhibit 7.1 shows a form that can be used for this purpose. We recommend that as soon as the bank starts considering a marketing research project, the marketing officer complete a copy of this form. We also recommend that the form be used in the bank’s marketing plan.

CUSTOMER RESEARCH

Exhibit 7.5 at the end of this chapter is an overview of how to use your bank’s computer data to do customer research. In the remaining paragraphs of this section, we develop several other approaches to customer research. A major area of marketing research is concerned with a better understanding of the bank’s customer base, from the point of view of both existing customers and potential customers. The most basic concern about a customer base is its size. We recommend that the bank do whatever research is necessary to come up with a good estimate of the size of the market it serves. In estimating the size of the consumer market, the bank should use as its unit of

How to Conduct Marketing Research 9/07

7-7

measurement households or families. The information will be available through secondary research. Usually, it comes from U.S. Census Bureau data and is obtained by contacting someone involved in community planning. This might be someone with the chamber of commerce, a city planning commission, a county planning commission, or a regional economic development office. Once you locate a source for the data, get all the local numeric, economic, and demographic data that the source has. This will usually be a lot of raw data, some of which will be immediately relevant, but most of which should be saved to fill needs that have not yet been clearly defined.

You will be interested in the degree of homogeneity or heterogeneity of the market. A homogeneous market is one in which all the potential customers have the same banking needs. A heterogeneous market is made up of potential customers with major differences in their financial services needs. We recommend that you segregate the data on your market area as much as you can until you have exhausted your sources of secondary research data. You are interested in what percentage of the market has household incomes of more than $100,000, $60,000, $30,000, $15,000, etc. You are also interested in the age and education level of the principal income provider in each household, and you would like these data broken out for each income category.

You want to know how much money comes into the local economy from manufacturing, services, agriculture, etc. The better you understand the economics of your local market, the better you understand the market’s financial services needs. This is basic to a marketing program. It is imperative that sources for the data be located, the data be collected, and the data be analyzed.

Perceptions of Community Financial Services

After you have gathered and analyzed the available data on the customer base you serve, it is time to find out what these people know and what these people think about local financial institutions.

Study 1

One of our client banks decided it needed to know a lot more about its potential customer base than could be determined through secondary sources, so it contracted with a local university marketing professor. The professor, and a group of students, conducted a study on consumer perceptions of community financial services.

The specific objectives the bank established for the study were as follows:

9/07 Community Bank Marketing Manual

7-8

• To identify motives of customers for selecting specific financial institutions.

• To evaluate the perceived images of the banks serving the local market.

• To assess levels of awareness of, and recall of, advertising by specific financial institutions.

• To gather other correlating data about the household units being surveyed.

The study became a research project for a senior-level undergraduate class studying marketing research techniques. Working with the bank, a questionnaire was developed and tested. Then the class determined that 300 was an appropriate sample size and that a telephone survey conducted by the students was the best way to collect the data. The students used a random digit telephoning technique and continued to make calls until 300 households had participated in the survey.

The results were enlightening and resulted in major changes in the bank’s marketing program. If you want to conduct a similar survey, a sample questionnaire is in Exhibit 7.2 at the end of this chapter.

Study 2

One bank keeps some questions constant from survey to survey so that it can study data trends, but other questions are added to the standard questions to collect data on today’s hot topics. In their most recent survey, the objectives were as follows:

• Determine the market share of Example Bank and its major competitors.

• Determine to which financial institution customers would change if they were to leave their current one.

• Determine if customers consider Example Bank to be their primary or secondary financial institution.

• Measure community perceptions of Example Bank as compared to its competition.

• Determine if Example Bank is perceived as being stagnant in providing products and services.

How to Conduct Marketing Research 9/07

7-9

• Ascertain the importance of Saturday banking, and the preferred Saturday banking hours.

• Ascertain advertising awareness and recall.

• Determine the importance of knowing specific people at the bank.

• Determine the importance of out-of-town ownership to the bank’s customers.

Exhibit 7.3 at the end of this chapter contains a questionnaire similar to the one used by Example Bank.

Service Quality Survey

Chapter 1 of this manual emphasizes the importance of quality customer service in a community bank. In that chapter, we make the point that a bank does not know how its service is perceived until it surveys its customer base. One of our client banks recently did exactly that. The questionnaire it used is similar to one in Exhibit 7.4 at the end of this chapter.

Financial Services Needs and Wants

Another area of potential customer research is financial services needs and wants. A bank exists only to service the financial needs and wants of customers, and unless a bank does sufficient marketing research to develop an understanding of these needs and wants, it cannot be sure it is offering its customers the appropriate mix of products and services. From time to time banks must survey their customers to determine their financial services needs and wants.

Needs differ from wants. Needs are basic and are the underlying customer concern. Wants, on the other hand, are needs that have been transformed, often through marketing efforts of a bank. Most bank customers have needs for credit services. It is a feat of bank marketing that this need has been transformed into wants for home equity lines of credit.

Current Product Usage Among Customers

Current financial product usage among customer households and businesses is information that can be useful to a marketing officer. This information helps define current profitability by market segment and helps create an effective product line. It also helps in putting together bank

9/07 Community Bank Marketing Manual

7-10

advertising programs, particularly when trying to promote multiproduct relationships. A marketer knowing what products are likely to be used together helps in the design of cross-selling programs.

This information already exists on the mainframe computer; it is only a matter of collecting and collating the data. This is a perfect example of in-house secondary research that can be performed at little cost and little trouble. More than anything else, it requires ingenuity.

BANK RESEARCH

Another line of marketing research can be performed that is best classified as in-house research regarding the bank’s strengths, weaknesses, opportunities, capabilities, etc. For the most part this will be research done in-house by the bank’s staff, but on occasion it is worthwhile to ask an outside consultant to do a study of the bank and make appropriate recommendations. Here are areas of marketing-related research often included in a bank’s marketing plan:

Data Mining

Data mining is using data a company already has to add insight to its customers and its products. For many people, data mining is just an extension of the old practice of cross-tabulation (i.e., how many people with checking accounts also have savings accounts). But it also helps a bank understand relationships between customers, products, and when they will use or need them. One New England community bank noticed that most of its car loans were paid off about six to nine months before maturity. Looking deeper, they found that many of these people had purchased new cars. Secondary data showed that most people trade before the old car is paid off. Rather than lose these customers to the car finance companies of GM and Ford, this bank offered to finance the customer’s new car at a discounted rate. The mailing of this offer went out to all of the bank’s qualified customers in the last year of their car loan. Result — car loans increased 75 percent.

In collecting customer data to be mined, keep in mind you are basically segmenting your customers by their characteristics (occupation, education, marital status, sex, etc.) or by their buying characteristics (what they use, when and how, and how much as well as where they buy it) or a combination of the several sub-level characteristics. For example, you may find a college- educated person between the ages of 25-35 uses debit cards, Internet banking, and credit cards but hasn’t written over 2 checks a month in the 5 years he has been a customer. Further mining

How to Conduct Marketing Research 9/07

7-11

would show that he has no teller transactions in the last six months (using direct deposit etc.) and his bill-pay statistics show payments to Ford Motor Credit. You may want to design an account for this profile of a customer emphasizing electronic access as well as a pre-approved consumer loan because he is probably not going to see the banners in the branch.

Data mining can also help you become more efficient by revealing what transactions occur when and where and who makes them. Finding that most ATM withdrawals took place on Friday near the edge of town lead one Ohio bank to locate ATMs at or near gas stations and convenience stores on the way to recreational areas.

Data mining is not rocket science but it is learning about your customer base, who they are, what they need and when, and the utilizing that information to serve them better and offer more and better products to keep them with your bank.

Much of the data mining techniques and software is very sophisticated, but again, using the local college business school would be very easy and inexpensive. In addition, data mining lends itself very easily to privacy concerns, as identities are not necessary for relationship analysis and only the bank sees the final results.

Bank’s Financial Position

The bank’s current financial condition is a major factor that gets built into its marketing plans. A bank financial analysis will identify the bank’s financial strengths and weaknesses. Its strengths often translate into marketing opportunities, and its weaknesses translate into areas where the bank is vulnerable to others and promotional efforts may be needed to mitigate financial weaknesses. This is secondary research in that the data are readily available, they merely need to be collected, analyzed, and put into an appropriate format.

Most often this is a financial analysis of the bank’s historical performance as well as an analysis of how the bank is doing when compared to its local competition.

Bank’s Market Share

When we think of market share, we tend to think of the share the bank has of its local market. This is important, especially for specific products, but even more so to pinpoint growth

9/07 Community Bank Marketing Manual

7-12

opportunities. Growth analysis on a branch by branch basis of both the bank’s branches and the competition’s can identify growing areas of the market.

Data regarding household usage of bank products is not included on the call report. A bank can have 60 percent of the transaction account balances in the market, but only 30 percent of the households. Such a bank has the affluent market and has relinquished the low-balance accounts to other banks. Data regarding which bank has which strata of local business requires primary research and must be collected through some form of survey.

Profitability of Various Bank Products

Determining the profitability of the various products a bank offers the public is never easy and in a community bank it is so difficult that it may not be worth doing. Only banks that have cost accounting systems can collect the data, and even here the validity of the data depends on the sophistication of the cost accounting system.

This is not to say that studies on the profitability of bank products are impossible, because such studies are often done — but with secondary data instead of primary data. That is, Federal Reserve Board functional cost data are used as a stand-in for the bank’s data, and then the profitability of products and services is determined using costs from this source. This subject is addressed in some detail in the chapter on pricing bank products.

Bank Employees

Seldom does a bank’s marketing plan include research on employees, but this kind of research is often needed. The role of employees in the quality of service being rendered is obvious, and shortcomings in this area can seriously effect the overall results of a bank’s marketing program. Generally, problems with employees fall into two broad areas — capability and motivation.

Banks need to pay a lot more attention to the quality of people they hire. Emphasis must be placed on hiring employees who genuinely like people and have a natural knack for rendering quality service. Then, after people are hired they must be taught how to render quality service and they must be taught how to do their jobs effectively and efficiently. It is imperative that the bank develop in its employees the capability of doing the jobs they were hired to do. Problems of morale and motivation are more difficult to overcome, but it is impossible to implement the kind of marketing program needed if the bank has employee morale and motivation problems.

How to Conduct Marketing Research 9/07

7-13

Research in the area of employee capabilities should concentrate on the degree to which the staff has been trained and has the ability to implement the bank’s programs. Research might also be needed to determine the degree to which morale and motivation are problems.

Effectiveness of Promotional Efforts

Measuring the effectiveness of promotional efforts is extremely common in most industries, but is seldom practiced by community banks. Mainly this is due to the perceived cost being too high, but it is also due to doubts about the need for the research. Once a promotional effort has been completed, its costs are sunk costs, and there appears to be little value in research to determine the effectiveness of the effort. This is, of course, shortsighted — only when you know how effective a campaign was can you put together the next campaign and make it more effective.

Effectiveness of the Bank’s Distribution System

While this subject borders on being an executive function, it still remains an issue of marketing research. Marketing research can determine the most effective location for branches, the potential for growth of a branch, the most appropriate design for a branch, the most appropriate staffing for a branch, etc. Another distributional topic that can be addressed by marketing research is the use of, and location of, ATMs.

Using the Web for Research

For research projects like closed account surveys, customer satisfaction, advertising recall, etc., that just need a short closed end questionnaire, there is a free tool on the Internet called Survey Monkey. You can find it at surveymonkey.com. This allows you to quickly survey those customers using the Internet and have the statistics developed for you as the questionnaires come in. By allowing you to design the questions, you can find out exactly what is important to you.

A second way of using the Internet for research involves what is commonly known as Web 2.0. This includes “social networking” sites such as MySpace, YouTube, etc. This is the future of advertising and communication as more than 52 million people visited MySpace in June, 2006 alone. Major companies (and a few banks) are building profiles on MySpace (currently free) and generating discussions with their customers. From a research standpoint, what you are creating is a perpetual focus group that will give you honest feedback on your products and service. It serves

9/07 Community Bank Marketing Manual

7-14

to help you find out quickly what problems you may have while allowing your bank to communicate with your public.

RESEARCH ON THE COMPETITION

A third area where additional research will likely be needed is research regarding the competition. Just who is the competition for financial services in your market? Obviously, the answer will include banks and thrifts; but also, it includes credit unions, brokerage houses, insurance companies, and anyone else who competes with you for either savings or investments. Note that a physical presence is not always required to be a competitor, especially with Internet banking. Other examples include mutual funds and annuities for consumer savings, and those companies sponsoring them seldom have a local presence. As we consider the competition, we will likely conduct a limited amount of research in the following areas:

Financial Strength, Capabilities, and Market Shares

Earlier we discussed the need for an understanding of the bank’s financial strength and capabilities and for research to determine the bank’s market shares. Both of these are topics that relate directly to the competition. It goes without saying that we need to understand the financial strengths, capabilities, and market share of the competition as badly as we need to know these things about ourselves. Appropriate marketing strategies can be determined only from an understanding of the financial strengths and capabilities of all the financial institutions operating in the market area.

This is information that is quite easy to determine. You can get it directly from the competing institutions, since they are legally required to make it available. Also, now you can get it from the federal supervisory agencies directly through the Internet.

Pricing Strategies

Most banks do a reasonably good job of determining prices charged by their competitors. It is what they do with the data that is often wrong. There is a lot of information about the price sensitivity of the market that is buried in pricing information, but it must be dug out before it can be used.

How to Conduct Marketing Research 9/07

7-15

We suggest that you keep a permanent record of the prices your bank charges and the prices charged by the competition. After you have accumulated about three years of data, you will have enough data to do in-depth analyses. We suggest you compare these prices with the financial reports used in the preceding study of competitive strengths, weaknesses, and market share. How many of the changes in market share appear to be due to pricing and how many appear to be due to other factors? The answer often leads to insights regarding the pricing philosophies and the strategic plans of competitors.

In addition, an on-going pricing survey of competitors is necessary to keep up with the marketplace. This survey should also include Internet companies that your other research shows as being active in your market.

Strategic Plans of the Competition

On the surface it would seem to be impossible to determine the strategic plans of a competitor, but this is not true. Think about your own strategic plans, and how easy it would be for a competitor to determine them. Strategic plans are revealed to too many employees and are often leaked to the competition. An analysis of a competitor’s allocation of resources and promotional efforts will yield insights into its plans. Analyze each competitor by asking these questions: (1) Is this a low cost competitor? (2) Is this a competitor who is trying to differentiate his products and services? (3) Is the competitor growth-oriented? (4) Does the competitor appear to be focused on certain aspects of financial services?

In community banking, many competitors lack a focused strategic plan, but when a competitor has one, in time it will not be difficult to ascertain what the competitor is about. As you figure it out, you need to document your findings and build it into your planning accordingly.

WHO CONDUCTS THE RESEARCH?

To a surprising degree, a significant amount of the research discussed in this chapter can be conducted by the bank. Seldom does the bank require the services of a consultant to conduct secondary research, and there are various forms of primary research that can also be conducted in-house. You can routinely ask people opening a new account to complete a new accounts survey. Similarly, you can routinely contact people who have closed accounts and ask them why. While talking to them you can also get feedback on their perceptions of the bank. After all, these are people who know the bank quite well, but for one reason or another, they no longer bank with

9/07 Community Bank Marketing Manual

7-16

you — they are an outstanding source of data and no outside consultant is needed to tap the data source.

When conducting a serious survey of bank customers, or of families who live in the market area, we tend to use an outside consultant. Sometimes we do most of the work and use a consultant, such as a marketing professor, to keep us from making foolish errors. Other times we contract with an outsider to do most of the work. Marketing surveys are more sophisticated and complicated than their simple sounding questions imply. There are people who spend years learning how to do marketing surveys, and they still are prone to making fundamental errors.

When we contract with an outside firm to do marketing research, however, we do not relinquish control of the effort. We fill out a form, like the one shown earlier, and we make absolutely sure there is no misunderstanding about research objectives. Similarly, we make sure there are no misunderstandings regarding when the project will be complete and how much it will cost. Just before the survey work starts, we go over the entire project with the contractor, and we pay particular attention to the questionnaire and how meaningful data will be pulled from the answers obtained. We also question how the sample will be taken, who will be contacting the respondents, whether they will know of the bank’s involvement, and whether there is a chance the bank’s image will be damaged in the process. Also, marketing research is research, not a promotional effort, and we do not want promotion mixed in with the research. These things are made clear to the consultant before the survey work begins.

SAMPLE SURVEYS

Earlier, in the chapter on cross-selling, we developed sample survey forms that can be used to survey new accounts, closed accounts, and existing commercial customers. These are obvious sample marketing research survey forms. In addition, Exhibits 7.2 through 7.4 in this chapter contain sample survey forms that existing banks have used.

How to Conduct Marketing Research 9/07

7-17

Exhibit 7.1 Research Proposal Form

Research Objectives:

Research Design: This will be (primary research) (secondary research) (or both). This project will result in (quantitative data) (qualitative data) (or both) that will be collected from (internal) (external) sources.

Data Collection Methodology:

1. The population being studied is: _____________________________________________ _______________________________________________________________________ _______________________________________________________________________

2. The sample size will be: _________ The sample will be selected using the following methodology: ___________________________________________________________ _______________________________________________________________________ _______________________________________________________________________

3. Data will be collected by (observation) (interviews) (questionnaire). It will be a (telephone) (mail) survey.

Collecting and Processing the Data:

1. Responsible for Questionnaire Design: _______________________________________

2. Responsible for Conducting the Survey: ______________________________________

3. Responsible for Computer Data Entry: _______________________________________

4. Responsible for Design of Data Output Format: ________________________________

9/07 Community Bank Marketing Manual

7-18

Exhibit 7.1 Research Proposal Form (cont.)

5. Responsible for Writing the Research Report: __________________________________

This research project will cost (use reverse side of form to show detailed cost data): $ _________

The time budget for the project is (if needed use reverse side of the form to show a detailed schedule): _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________

How to Conduct Marketing Research 9/07

7-19

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services

BACKGROUND

This exhibit is a generic version of an original survey conducted by a university marketing class in a senior-level undergraduate course in marketing research techniques. The research was commissioned by a community bank that paid a fee to the university for the results. The survey should not be used “as is,” because it should be tailored to fit your market. If you are interested in commissioning a similar research project, we suggest you negotiate with a local marketing professor for support. With this material, and with a limited amount of professional support, you will likely produce a better research project than the original one. This is often how successful bank marketing research projects come into being.

RESEARCH OBJECTIVES

The impetus for the research was the desire of a community bank to better serve its customers. The intent of the study was to assess the bank in terms of how well the financial needs of its customers were being met. The specific objectives of the study were:

• To identify motives of customers for selecting a financial institution

• To evaluate the perceived images of the banks serving the market area

• To assess the level of customer awareness and recall of banks’ advertising programs

METHODOLOGY

A telephone survey was conducted using random digit dialing. A sample of 300 households in the market area was taken, and interviews were conducted during the third week of March.

9/07 Community Bank Marketing Manual

7-20

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services (cont.)

QUESTIONS ASKED

The students did the telephoning, asked the questions, and recorded the answers. The students had previously studied techniques for conducting such research and had discussed how to get people to agree to participate in the survey and give objective, honest answers. The questions the students asked each of the 300 people surveyed follow.

QUESTIONNAIRE

1. Which financial institution do you currently have a checking account with?

2. Do you consider this institution to be your primary bank? If not, which one is?

3. How did you first hear about the institution that is your primary source of banking?

4. What was your most important reason for selecting it?

5. Which financial institutions do you currently have a savings, money market account, or CD with?

6. Do you conduct most of your banking through the main lobby, a branch, a drive-through facility, an ATM, or the Internet?

7. How many times per month do you typically go to a banking institution?

8. Are you aware of any bank in the area that is associated with the Example Bank Holding Company?

9. Are you aware of any bank in the area that is associated with the Second Example Bank Holding Company?

How to Conduct Marketing Research 9/07

7-21

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services (cont.)

10. When evaluating a financial institution, rate the following features from 1 to 5, with a 5 meaning very important and a 1 meaning not at all important:

□ Friendly service □ Internet banking □ Convenient location □ CD and money market rates □ Free or low-cost checking □ Interest charged on loans □ Accurate records □ Investment Counseling

11. In the next six months are you planning to:

□ Purchase a vehicle? □ Purchase a home? □ Make home improvements? □ Open an IRA? □ Open a money market account? □ Purchase a CD? □ Purchase stocks or bonds?

12. Which newspaper do you read most frequently?

□ Newspaper A □ Newspaper B □ Newspaper C □ Newspaper D

9/07 Community Bank Marketing Manual

7-22

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services (cont.)

13. Which financial institution’s ads can you recall from a newspaper?

□ Institution A □ Institution B □ Institution C □ Institution D

14. Which radio station do you listen to most frequently?

□ Station WXYA □ Station WXYB □ Station WXYC □ Station WXYD

15. Which financial institution’s ads can you recall from a radio station?

□ Institution A □ Institution B □ Institution C □ Institution D

16. What is the most important information you want to learn from an advertisement about a financial institution?

□ Interest on money markets/CDs □ Interest rates on loans □ Service/financial charges □ Do not know □ Other __________

How to Conduct Marketing Research 9/07

7-23

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services (cont.)

17. How long have you lived in the local area?

□ Less than one year □ 1 to 3 years □ 4 to 6 years □ 7 to 10 years □ More than 10 years □ Other ________

18. How many wage earners are there in your family?

□ One □ Two □ Three □ More than three

19. Are you presently:

□ Married □ Single □ Divorced □ Widowed

20. Are you between the ages of:

□ 18 – 25? □ 24 – 35? □ 34 – 45? □ 44 – 55? □ 54 – 65? □ Over 65?

9/07 Community Bank Marketing Manual

7-24

Exhibit 7.2 A Survey of Consumer Perceptions of Financial Services (cont.)

21. In which of the following categories does your total household income for 200X fall into:

□ Less than $25,000? □ Between $25,000 and $50,000? □ Between $50,000 and $75,000? □ Between $75,000 and $100,000? □ Over $100,000

22. (This question was not asked, but was marked based on the sound of the respondent’s voice.)

□ Male □ Female

How to Conduct Marketing Research 9/07

7-25

Exhibit 7.3 Community Perceptions Study

BACKGROUND

Similar to Exhibit 7.2, this exhibit is a generic version of an original survey conducted by a professional group under contract with a community bank. The research report says that the contractor was “to complete a marketing research project to test community perceptions and knowledge of financial institutions in the _____ area.” This was a follow-up to a similar survey by the same contractor about three years earlier, with common questions serving to track changes in public opinion on issues of importance to the bank.

The survey should not be used “as is,” but should be tailored to meet your needs.

RESEARCH OBJECTIVES

The goal of the research was to determine ____________ area resident’s perceptions of and knowledge of financial institutions in the ___________ area, with particular emphasis on the bank commissioning the study. The specific objectives of the study were:

• To determine the current market share of Example State Bank.

• To determine which institution customers would change to if they were to leave their current bank.

• To ascertain if customers consider Example State Bank to be their primary or secondary bank.

• To measure community perceptions of competing banks in the __________ area.

• To assess and rate the products and services customers would like for Example State Bank to offer.

• To ascertain the importance of Saturday hours and the importance of the number of locations with Saturday hours.

9/07 Community Bank Marketing Manual

7-26

Exhibit 7.3 Community Perceptions Study (cont.)

• To assess advertising awareness and recall.

• To determine the importance of knowing the bank’s management staff, and the importance of out-of-town ownership.

METHODOLOGY

A telephone survey was conducted using random digit dialing. A sample of 300 households in the marketing area of Example State Bank was called. Interviews were conducted with the household member responsible for the majority of the family’s banking decisions.

QUESTIONS ASKED

Since this study was by a professional marketing research firm, trained telephone surveyors did the telephoning, asked the questions, and recorded the answers. Following is a list of the questions asked of each of the 300 people surveyed.

QUESTIONNAIRE

1. Name the financial institution at which you currently have your primary checking account.

2. At which institution do you currently have your primary savings account?

3. Which institution is currently your primary source for mortgage loans?

4. Which institution is currently your primary source for installment loans?

5. If you were to change, which financial institution would you move to?

6. Rate the service you receive from your primary financial institution:

□ Very satisfactory □ Satisfactory □ Adequate □ Unsatisfactory

How to Conduct Marketing Research 9/07

7-27

Exhibit 7.3 Community Perceptions Study (cont.)

7. Is there a financial institution currently serving as a secondary source for you?

8. Are you aware of financial institutions in the ________ area that have Saturday banking hours? If so, name them.

9. If you were choosing a financial institution, how important would Saturday banking be to you?

□ Very important □ Important □ Not very important □ Not at all important

10. How important to you is the number of locations that an institution has open on Saturday?

□ Very important □ Important □ Not very important □ Not at all important

11. I am going to read a list of products and services that some banks offer and some banks do not offer. Please tell me by a 1, 2, or 3, which you are most likely to look for in 200X:

□ IRA account □ Consumer installment loan □ Direct deposit services □ Home mortgage loan □ Early morning banking hours □ Home equity line of credit □ Stock market/discount brokerage service

9/07 Community Bank Marketing Manual

7-28

Exhibit 7.3 Community Perceptions Study (cont.)

□ ATM □ Trust services □ Financial counseling □ After-work banking hours □ Mutual funds investing □ Internet banking

12. With regard to the preceding question, are any of the services listed there ones you will be looking for that are not presently offered by your primary financial institution?

□ Yes □ No □ Do not know

13. Have you encountered any difficulties or problems at your primary financial institution?

□ Yes □ No

14. What kinds of difficulties or problems have you encountered?

□ Statement errors □ ATM service □ Securing a loan □ Other (please specify)

15. Thinking now specifically about the advertising of financial institutions, which one financial institution comes to your mind?

How to Conduct Marketing Research 9/07

7-29

Exhibit 7.3 Community Perceptions Study (cont.)

16. Have you seen or heard any advertisements for Second Bank within the last three months in the following media?

□ Radio □ Newspaper □ Outdoor sign □ TV and newspaper □ Television □ Magazine □ Radio and newspaper □ Other combinations □ Cannot remember specifics □ Cannot recall any of First Bank’s ads

17. Have you seen or heard any advertisements for First Bank within the last three months in the following media?

□ Radio □ Newspaper □ Outdoor sign □ TV and newspaper □ Television □ Magazine □ Radio and newspaper □ Other combinations □ Cannot remember specifics □ Cannot recall any of First Bank’s ads

9/07 Community Bank Marketing Manual

7-30

Exhibit 7.3 Community Perceptions Study (cont.)

18. Which one financial institution in your community would you consider the most innovative and progressive in the products and services it offers?

□ Bank A □ Bank B □ Bank C □ Thrift A □ Thrift B □ Credit Union__________

19. Which one financial institution in your community would you consider stagnant and behind the times in the products and services it offers?

□ Bank A □ Bank B □ Bank C □ Thrift A □ Thrift B □ Credit Union__________

20. Do you know any of the members of the board of directors at your primary financial institution?

21. How important is it for you to know the local management of your primary financial institution?

□ Very important □ Important □ Not very important □ Not at all important

How to Conduct Marketing Research 9/07

7-31

Exhibit 7.3 Community Perceptions Study (cont.)

22. Would you prefer that your primary financial institution be locally owned or a part of a larger statewide or regional banking system?

□ Locally owned □ Part of larger system

23. If you answered locally owned, how important is it that your primary financial institutions be locally owned rather than a part of a larger statewide or regional banking system?

□ Very important □ Important □ Not very important □ Not at all important

24. Are you aware of any local financial institutions that are associated with First Example Multibank Holding Company? If so, which ones?

25. Are you aware of any local financial institutions that are associated with Second Example Multibank Holding Company? If so, which ones?

26. How long have you lived in the ____________ area?

□ Less than one year □ 1 to 3 years □ 4 to 6 years □ 7 to 10 years □ More than 10 years □ Other ______

9/07 Community Bank Marketing Manual

7-32

Exhibit 7.3 Community Perceptions Study (cont.)

27. How many wage earners are there in your family?

□ One □ Two □ Three □ More than three

28. Are you presently:

□ Married? □ Single?

29. Are you between the ages of:

□ 18 – 25 □ 24 – 35 □ 34 – 45 □ 44 – 55 □ 54 – 65 □ Over 65

30. To help us with our statistics, please indicate in which of the following categories your total household income for 200X falls:

□ Less than $25,000 □ Between $25,000 and $50,000 □ Between $50,000 and $75,000 □ Between $75,000 and $100,000 □ Over $100,000

How to Conduct Marketing Research 9/07

7-33

Exhibit 7.3 Community Perceptions Study (cont.)

31. (This question was not asked, but was marked based on the sound of the respondent’s voice.)

□ Male □ Female

9/07 Community Bank Marketing Manual

7-34

Exhibit 7.4 Customer Perceptions of Service Quality

BACKGROUND

This exhibit is a generic version of a survey originally conducted by a professional group under contract with a community bank. The research was done for the purpose of determining customer perceptions of the quality of service being rendered by Example State Bank. Like the two previous exhibits, the survey should not be used “as is,” but should be tailored to fit your needs.

RESEARCH OBJECTIVES

The goal of the research was to determine customer perceptions of the quality of service being rendered by Example State Bank. The specific objectives of the study were to:

• Determine which of several items are the most important and which are the least important in customers’ perceptions of service quality.

• Determine, using exactly the same factors, how the customers of Example State Bank rank the quality of service being rendered by the bank.

METHODOLOGY

The survey was given under anonymous conditions to the bank’s directors, its officers, and its employees. This established a baseline of data regarding how each of these groups felt about the importance of quality and the degree to which the bank was delivering quality service. Then the survey was mailed to 1,000 randomly selected customers of Example State Bank. Four hundred fifty responses were received and processed. These were then compared to the responses of directors, officers, and employees. Each question was scored individually for director responses, officer responses, employee responses, these three combined, and customer responses.

Low scores in the left column indicated lesser importance, while high scores indicated higher importance. In the right column, low scores meant poor service and high scores indicated excellent service. Thus, priorities for corrective actions could be established. The bank intends to repeat the survey at regular intervals to see what trends are occurring in the quality of service being rendered to customers.

How to Conduct Marketing Research 9/07

7-35

Exhibit 7.4 Customer Perceptions of Service Quality (cont.)

QUESTIONS ASKED

The questions contained on the questionnaire and the possible responses to each question follow.

QUESTIONNAIRE

Score each question twice, once in each column.

The extent to which I personally think this is important. (1 = unimportant; 7 = extremely important)

The extent to which this is currently happening at Example State Bank. (1 = doesn’t occur; 7 = always occurs)

1. A bank should have visually appealing physical facilities.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

2. The employees of a bank should be neat in appearance.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

3. When a bank promises something by a certain time, that time should be met.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

4. At a bank, the service should be right the first time and each time thereafter.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

5. When a customer has a problem, a bank should sincerely try to solve it.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

6. A bank should keep and deliver error-free records.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

7. Employees of a bank should give prompt service to customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

8. Employees of a bank should always be willing to help customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

9. The correct behavior of employees in a bank will instill confidence in its customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

10. Customers of a bank should feel safe with their money and their transactions at the bank.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

11. Employees of a bank should consistently be courteous to the bank’s customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

9/07 Community Bank Marketing Manual

7-36

Exhibit 7.4 Customer Perceptions of Service Quality (cont.)

Score each question twice, once in each column.

The extent to which I personally think this is important. (1 = unimportant 7 = extremely important)

The extent to which this is currently happening at Example State Bank. (1 = doesn’t occur, 7 = always occurs)

12. The employees of a bank should have knowledge sufficient to answer customer questions.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

13. Customers should get individual attention at a bank.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

14. A bank should have operating hours that are convenient to its customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

15. The employees of a bank should give customers personal attention.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

16. A bank should have its customers’ best interests at heart.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

17. The employees of a bank should understand the specific needs of their customers.

1 2 3 4 5 6 7 1 2 3 4 5 6 7

How to Conduct Marketing Research 9/07

7-37

Exhibit 7.5 MCIF: A Marketing Research Tool

PURPOSE AND OBJECTIVES

A marketing customer information file (MCIF) is a comprehensive marketing database file. The file is generated each month by a software program that pulls customer account information from the mainframe computer. This data file goes to a vendor. The vendor uses a proprietary MCIF software package to turn these data into a new database file that is compatible with the bank’s microcomputers. Thereafter, the bank’s microcomputers sort the data in several meaningful ways, generating information about the bank’s customers. This is an extremely useful marketing research data sorting system.

A client bank recently did a cost/use study and decided to develop an MCIF system. This chapter is based on this bank’s study. Why did our client bank decide to spend the money, time, and effort required to bring an MCIF file online? Here is a list of the objectives this bank wanted to accomplish through an MCIF:

1. Develop a better understanding of the bank’s customer base.

2. Generate periodic sales effort support reports.

3. Provide customer retention tracking.

4. Use the data to improve cross-sales ratios, customer profitability, and customer retention.

5. Assist the bank with its strategic planning. (The need for the MCIF was identified because of a lack of strategic planning support data last year.)

6. Provide product profitability analysis.

7. Support the bank’s private banking initiative.

8. Support the bank’s Community Reinvestment Act (CRA) analysis and reporting.

9/07 Community Bank Marketing Manual

7-38

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

GETTING THE EFFORT UNDER WAY

The effort began when the bank pulled an extract tape from its mainframe database following vendor instructions. This tape was processed by the vendor and a first ever MCIF data file was returned to the bank. Bank personnel then did extensive tests on this data file to determine the quality and integrity of the data. This testing identified several problems and it gave bank personnel a much better understanding of how their MCIF system was going to work in practice. Thus, changes were generated that were designed to correct the errors and problems detected by testing, and to improve the system prior to its going online.

About two months into the effort, a second extract tape was pulled and sent to the vendor. This tape was processed and a second-generation MCIF data file was generated. This file was loaded and tested and was found to be acceptable. The bank then generated its first round of MCIF reports.

The first reports generated were designed to establish baseline data on households* and cross- sells. In other words, these reports established what the bank’s customer base looked like on the first day it had a usable MCIF up and running. From that day forward, the bank could determine whether it was making progress or losing ground. For example, the bank went into the MCIF project knowing full well that it was going to use the program to track cross-sell ratios for the overall bank, for its main office, and for each of its branches. Therefore, as soon as the bank could, it ran data on base cross-sell levels. This was before it began any training or any emphasis on cross-selling. Thereafter, the degree of success of the bank’s cross-selling efforts could be measured against baseline data.

Similarly, baseline data established detailed information on each household doing business with the bank. Thereafter, the bank’s efforts to increase the numbers of households, or changing the mixture of services used by households, can be measured against baseline data.

* A “household” is a listing of all accounts that can be assigned to one customer entity. Accounts are assigned to a

“household” based on names, addresses, and social security (or tax ID) numbers. The age of a household account is determined by the oldest account within the household. For MCIF purposes there are business as well as consumer “households.”

How to Conduct Marketing Research 9/07

7-39

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

The baseline data is chock full of useful information regarding the bank’s customer base. To this information, the bank added a microcomputer file containing census bureau data for its county. This means of course that next year the bank will have the strategic planning data it wished for this year but did not have.

Immediately after the baseline and census data became available, the bank started doing a complete branch-by-branch trade area penetration analysis. It also used the data to develop CRA reports that could be used to study the adequacy and effectiveness of the bank’s CRA compliance program.

Prior to its MCIF initiative, the bank had already established a private banking department designed to attract affluent customers to the bank. As soon as the baseline data became available, the bank started identifying current customers who should be banking through the private banking department but were not. These customers were immediately targeted for special marketing efforts.

MONTHLY MCIF REPORTS

Each month the bank delivers extract database tapes to the vendor and receives an MCIF data file for use by the bank in return. Each month, before the tape is put into use, a series of tests are run on MCIF tape data against mainframe data to test tape accuracy. After these tests are successfully passed, the tape is loaded into the MCIF system and is processed; a final round of checks are run to verify that bank processing has not contaminated the data. As soon as the data processing department has determined that the bank is working from reliable MCIF data, the system is used to generate the following monthly reports:

• For each branch (the main office is considered a branch for MCIF reporting purposes) the system is used to generate the following reports: (1) A cross-sales ratio report; (2) the number of consumer households doing business with the branch; (3) the number of commercial households doing business with the branch; (4) data on accounts that were closed during the month; and (5) data on accounts that were opened during the month.

9/07 Community Bank Marketing Manual

7-40

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

• Each branch also gets a report that details the number of retail and commercial households by category that do business with each branch (plus a total column for the bank). This report instantly shows by branch location the number of, and the mixture of, the bank’s households.

• There is a separate report for branches that details the sources of each branch’s deposits and loans. At the end of this report there are summary data that shows where the bank’s deposits and loans are being generated.

• Bank management receives reports that do not go to the bank’s branches. Among these are the following:

⎯ Combination of services report. This report contains data for the president and the marketing officer on the most common product/service combinations in bank customers’ households. It is used to determine the effectiveness of past cross-selling efforts. It is also used as a guidance tool for future cross-selling initiatives.

⎯ A combination deposit and loan report. This report gives detailed data on the households that have both deposit accounts and loan accounts with the bank. The report is in descending order from the largest to the smallest dollar figures.

⎯ Tracking reports. There are two primary tracking reports: (1) new households and (2) households lost during the month. There are also tracking reports that track specific groups of customers based on balance, cross-sales, etc. If there is a particular group of customers the president or the marketing officer is interested in following, a form is completed telling the data processing department how to slice the data, and right away a new tracking report comes into being. The new report will continue monthly until the data processing officer is told that it is no longer needed.

How to Conduct Marketing Research 9/07

7-41

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

MAILING AND DIRECT MARKETING LISTS

The MCIF is often used to generate a list of people who meet specific criteria. These people are then mailed marketing pieces that do not go to other bank customers. Sometimes the people on a list will be the target group for telemarketing efforts. Each time a person’s name appears on one of these specialized lists, it is noted in the computer. This way, the bank can keep customers from being bombarded with too many marketing pieces or telephone calls.

COMMERCIAL CUSTOMER SEGMENTATION

Through marketing research, this bank has determined that it has the best image in its market with commercial customers. Because of this, senior management has decided to focus the bank’s marketing efforts on the growth of commercial customer accounts. The MCIF is being used in support of this effort. Segmentation codes are being built into the commercial customer database. Later, specific marketing pieces are going to be designed for the commercial customers in each segmentation group. Similarly, the database is also going to be used for directed officer call programs. Based on MCIF data, officers will make calls on specific customers. The type of call will be based on MCIF data. And of course, the officer will have the latest customer household data on the call target before the call is made.

PRIVATE BANKING SEGMENTATION

By combining census data and MCIF data the bank has developed reports on potential private banking customers based on home values, ages, household incomes, deposit balances, and loan balances. Using these reports, the bank determined that 2 percent of existing customers were potential private banking customers. These customers control a whopping 30 percent of the bank’s retail deposit balances. In the future, every customer printout generated by bank will have an asterisk by the names of these high-balance customers. Bank employees will be trained in how to give these customers the special deference they deserve.

9/07 Community Bank Marketing Manual

7-42

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

The people whose names appear with an asterisk are also being targeted for direct telephone solicitations aimed at making them customers of the private banking department. Similarly, commercial “households” are being screened for candidates for private banking attention. It is the bank’s intention to get as many affluent customers as possible to do their banking through the private banking department. The bank first wants to get all of its existing customers that deserve this attention into this department. But almost as high a priority is to get affluent customers that bank elsewhere to move their relationships into this bank’s private banking department.

The following questionnaire, which was included in the earlier chapter on cross-selling can also be used to collect and append data to an MCIF and enrich the data mining effort.

How to Conduct Marketing Research 9/07

7-43

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

YOUR LETTERHEAD

October XX, 200X

Mr. James E. Smith 1234 W. Elm St. Anytown, MO 63119

Dear Mr. Smith,

At First National Bank we are committed to giving you the best possible service. To help us meet that commitment we need your help in discovering the services that good customers like you desire.

Enclosed is a questionnaire which is designed to let us know more about you, what services you need and what kind of job you think First National is doing for you. We would appreciate you completing and returning this questionnaire in the enclosed postage paid envelope. Be assured that all of your responses will remain completely confidential.

Thank you for your time and your business. We at First National appreciate your business and look forward to serving you even better in the future.

Sincerely,

John C. Wilson President

9/07 Community Bank Marketing Manual

7-44

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

1. Where do you do the majority of your banking transactions?

□ Main Office Lobby □ Main Office Drive-In □ Fifth Street Branch Drive-In

□ Clayton Hills Branch Lobby □ Clayton Hills Branch Drive-In

2. Which of the following services do you use at First National or at other financial institutions? (Check all that are applicable.)

First National Second National First FSLA Acme C.U. Stock Broker Checking Account □ □ □ □ □ Interest Checking □ □ □ □ □ Passbook Savings □ □ □ □ □ Money Market Acct □ □ □ □ □ CD’s: • less than 1 year □ □ □ □ □ • more than 1 year □ □ □ □ □ IRA or Keogh □ □ □ □ □ Treasury Securities □ □ □ □ □ Annuities □ □ □ □ □ Mutual Funds □ □ □ □ □ ATM Card □ □ □ □ □ Overdraft Protection □ □ □ □ □ Auto Loan □ □ □ □ □ Home Loan: • Conventional □ □ □ □ □ • Adjustable Rate □ □ □ □ □ • Rate over 10% □ □ □ □ □ Other Loans □ □ □ □ □ Visa or MasterCard □ □ □ □ □ Commercial Loan □ □ □ □ □

How to Conduct Marketing Research 9/07

7-45

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

3. Please rate the service you receive at First National.

Excellent Superior Good Fair Poor

Lobby Tellers □ □ □ □ □ Drive-in Tellers □ □ □ □ □ New Accounts □ □ □ □ □ Bookkeeping □ □ □ □ □ Safe Deposit □ □ □ □ □ Consumer Loans □ □ □ □ □ Real Estate Loans □ □ □ □ □ Commercial Loans □ □ □ □ □ Telephone Calls □ □ □ □ □

4. Which of the following financial services would you use if they were offered by First National?

□ Discount brokerage □ Annuities □ Bank by phone □ Internet banking □ Other: (please specify)

5. Of the savings accounts you use (passbook, CDs, IRAs), please indicate your most important reasons for saving. (1 for most important, 2 for next most important, etc.):

□ Retirement □ Education □ Income □ Security □ Specific goal: (house, boat)

9/07 Community Bank Marketing Manual

7-46

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

□ Other: (please specify)

6. Do you have an account at a brokerage firm?

□ Yes □ No

7. Do you have an American Express card?

□ Yes □ No

8. Do you:

□ own your home? □ rent?

Tell us more about yourself:

9. Date of Birth: Month ____ Day ____ Year ____

10. Occupation: (check all that apply)

□ Full-time □ Part-time □ Technical □ Management □ Professional □ Self-employed □ Retired

11. Do you have any children living at home?

□ Yes □ No

How to Conduct Marketing Research 9/07

7-47

Exhibit 7.5 MCIF: A Marketing Research Tool (cont.)

If yes, please indicate the age ranges:

□ 0-6 years □ 7-12 years □ 13-18 years □ 18 or older

12. Education: (please indicate highest level completed)

□ Grade School □ High School □ Jr. College □ Technical College □ Some College □ College Graduate □ Post Graduate

13. Home Telephone: (___) ___ - ____

Work Telephone: (___) ___ - ____

14. Please indicate your family’s approximate income.

□ under $25,000 □ $25 – 50,000 □ $50 – 75,000 □ $75 – 100,000 □ over $100,000

Thank you again for your time and business!

Copyright of Community Bank Marketing Manual is the property of Sheshunoff Information Services and its

content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's

express written permission. However, users may print, download, or email articles for individual use.