Just for You

Everyone has a story to share when it comes to sloppy direct mail customization. The Electronic Document Systems Foundation reports digital bloopers such as a sweepstakes notice addressed to “God” at a church in Florida, or a letter from a British bank to a customer's dead wife that began “Dear Mrs. Deceased.” The list goes on and on. * When people talk about customization they often say things such as, “How do they know that about me?” or “They spelled my name wrong.” The first comment addresses personalization, while only the latter truly speaks to customization. Personalization is simple variations of name, address and salutation. Customization is communication tailored to segments of customers, based on data. Personalization is as simple as raindrops, where every communication is largely the same. Customization is more like snowflakes, where no two are alike.

There are two major considerations a company should weigh when implementing customization. First, consider how to incorporate knowledge about customers and prospects in an insightful way. Second, ensure that the benefits truly justify the costs through quantifiable improvements in marketing return on investment.

Using Consumer Insight

The most effective customization is transparent to the recipient and speaks to him or her in pertinent language. There's a simple word for it: relevance. This is not a new concept to marketers. It's the main reason why most have made a big investment in segmenting their customer database.

Appending demographics such as age, gender and ZIP code had long been the basis for segmentation and then customization. For example, age is extremely important when selling life insurance, annuities or college savings programs. The problem is that for many financial products such as checking accounts, demographics are less relevant. To get really relevant, savvy marketers have gone beyond the basic demographics into behaviors and attitudes.

There are many commercially available segmentation schemes that take behaviors and attitudes into account. Tailoring them to specific business situations is not easy. Two challenges to overcome are applying the segmentation to your database, and finding the consumer motivators that matter.

An attitudinal segmentation model could be developed focusing on the financial services consumer. Major segments would be based on attributes such as loyalty, knowledge, trust, privacy concerns and the purchasing process. By mapping all segments back to the U.S. population, these can be applied to any customer database. By analyzing customers and prospects with the greatest promise, the behaviors and attitudes that matter most are identified and used to drive relevant communication.

An example of how to put this segmentation into practice is an assignment done for a regional bank challenged with low credit card response, approval and activation rates. The bank had a homogeneous demographic segmentation and wanted to incorporate attitudes into its approach. Working together, we prioritized two segments, incorporated knowledge of financial behavior and crafted two styles of communication.

• Relationship seekers, who rely on trusted sources for advice, often consolidate their accounts with one company and use credit cards for both transactions and to revolve credit. When communicating with them, it was important to emphasize their relationship with their local bank and low interest rate product features.

• Money-savvy types, those who are self-reliant in financial matters, use multiple providers and skew heavily toward transaction use. For them, we highlighted a 0% rate as a reward for the tenure of their relationship and their financial responsibility.

In the past, customization has meant modifying creative, timing and offers for different consumers. With attitudinal segmentation, customization can mean varying these things and talking to customers in their preferred style.

Weighing Costs and Benefits

Customization is more effective, but it's also more expensive. To understand specific scenarios, a campaign cost index can be developed to analyze customization's incremental cost and benefits. Typically, an index can show that the cost of printing versioned customization is only a few percentage points higher on a campaign level than printing with no customization. When the investment for customized pieces is viewed within the total campaign budget, including strategy, creative and distribution, but not postage, the cost increase is minimal.

One way to further analyze the cost benefit is to calculate the value of customer segments cell by cell. It may be that the value of some segments is so high that these customers warrant a higher cost of communication.

Is the difference in the cost of customization offset by gains in results? In many cases, the answer is yes. When the response benefits of customization are factored in, the ROI is very attractive.

Average response rates to customized mailings have shown an increase of 35% over generic mailings, according to CAP Ventures' Document Outsourcing Market Forecast study. A rise in response rates alone shows that direct marketers using customized mailings immediately boost ROI.

But there's something even more meaningful. Longer term, customization establishes a customer relationship, which improves companies' retention rates and ultimately, revenue and profits. CAP Ventures estimates retention rates go up 48 percent with customized vs. generic mailings and achieve hikes in overall revenue and profit of about 32 percent. These types of longer-term benefits ensure that direct marketers will recover the money spent on customized communication. In fact, in the end they will profit.

Rick Erwin is the managing director of R.R. Donnelley's financial services direct marketing group.