Want to look your finance director in the eye? Read on...

A simple ratio can help marketers know what to do. If you were told to trim 10% from your direct marketing spend, for example, what volume of business would you lose? What's that ratio? If all you did was to select the 10% reduction randomly then you'd probably lose 10% of the business. A ratio of 1:1. Not very impressive.

What if you applied some statistics to it? You'll probably be able to create some differentiation but what could you expect? What is a good ambition? More importantly, what data do you need to drive a ratio where, for example, knowing which 10% not to spend only loses 2% of the business? That's a 5:1 ratio.

Now, that's one to make a marketing director stride into the finance director's office with fresh confidence.

If that all sounds easy, it's not. However, as with many areas of marketing, impressive results can be achieved.

The discrimination that allows this sort of activity is not driven by a single key variable or data source. The
understanding comes from the overlay of customer data, prospect data, geodemographics and, importantly, credit data.

It's not a ‘one size fits all' solution and aspects of consumer appetite, affordability and acceptance all have a part to play. What direct marketers have learned about response and conversion modelling can't be forgotten either. Layering these sorts of models and the interplay between variables, alongside the ability to use the right data, for the right model,

in the right way, helps to ensure a successful campaign. Access to a wide range of multi-sourced data is key.

Taking control
It applies to customer management as well as cold activity. For example, if a loan company or card issuer uses
responsiveness without detailed reference to the probability of the prospect's application actually being accepted, problems are being stored up for the future.

This frequently occurs when the scorecards between marketing selection and application acceptance aren't based on the same method-ology and data. In the words of Shakespeare, ‘the evil that men do lives after them'. When you do want to sell to that same individual they are highly unlikely to consider your brand as a choice. Which isn't exactly what marketing is meant to achieve, is it?

Existing customers should be more open to a cross-sell. It should be more cost-effective, but the downsides can be severe. All the equity and revenue built up over years is easily lost by poor marketing, especially if a customer isn't eligible, either from credit worthiness or a life stage perspective, for a cross-sell product.

To be offered a personalised loan application and then be turned down is a snub that you don't forget in a hurry. It's inexcusable, but it happens.

The problems are increased when you operate in a multi-product environment and treat individual products separately. Behaviour in one service should be reflected in the marketing approach to others. A customer is a single entity, so any
approach to targeting should be as a single entity; whether for cross-sell, risk management or even a combination of the two.

So the way to beat the recession is two-fold. Don't offer any product to people who aren't responsive and acceptable. And reduce what you do in a scientific way, not a knee jerk.

Cut costs but don't cut success to the same degree. Align marketing response models, credit thresholds and acceptance rules holistically. Take a fresh approach to modelling, including traditional prospect pools and credit data in a single analysis. Models or scorecards pre-May 2008 are unlikely to be performing optimally.

Overall, ensure that you use the best data for your purpose - and change. Darwin was right when he shied away from ‘survival of the fittest' as a description. He preferred to suggest that those most capable and willing to change survived better.

Charles Ping is client services director at Ai Data Intelligence

Risk marketing jargon buster

Discretionary income Available income after subtraction of credit commitments and cost of living from net income. Often incorrectly termed ‘disposable income (gross income minus tax)'.
Indebtedness State of owing money. ‘Over-indebtedness' occurs when credit commitments represent a significant percentage of net income.
Affordability The extent to which something is affordable as measured by its cost relative to the amount that the purchaser is able to pay. For responsible lending it is often defined as a percentage of discretionary income.
Application alignment Alignment of prospect targeting strategies with application vetting processes to improve conversion rates.

Database marketing jargon buster
Customer scoring Assessing and ranking at customer level instead of product/account level. It takes into account all the products held by the customer.
Behavioural scoring Statistical model for existing customers that incorporates transactional data.
Appetite models To quantify a customer's requirement for a specific product or service.
Multi-dimensional scoring Modelling that considers and combines multiple outcomes, such as risk and value.
Customer classification Portfolio modelling to identify groups of similar customers. Typically used in combination with propensity models to tailor communication and interaction strategies.

Risk and marketing: the strategy brief

If you are thinking of adopting a risk and marketing strategy, these are the questions you need to ask of your company:

Marketing
- What should our direct mail/marketing strategies look like?
- How should the database/warehouse/data marts be designed?
- How do we get the best results?
- What does ‘best in breed decisioning' look like?
- How do we look compared to rivals?
- What is the future of marketing and regulation in this sector?

Risk management
- What should our risk management/collections/debt recovery strategies look like?
- What will our bad debt look like? How can we meet business targets?
- How do we improve debt collections, eg outsource to debt collectors, or sell the debt on?
- How do we look compared to our competitors?
- How will risk and marketing come together in our future plans?
-  What reporting do/will we need?