Mergers: Search for Best Practices

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In 1997 alone, more than $1.6 trillion changed hands as companies merged or agreed to be acquired. The pace in 1998 hasn't slowed -- already in the first half of the year, another $1.3 trillion has been committed.


This year includes some of the largest mergers in history: BankAmerica and NationsBank, BancOne and First Chicago/NBD, Citicorp and Travelers. AT&T's merger with TCI and Daimler with Chrysler are examples of the many transactions outside the financial industry.


Behind the headlines, there are many issues that affect marketers. The surviving entity after a merger faces the challenge of merging its current marketing programs. This can be especially difficult for database marketers because of the inherent complexity of most database marketing programs. Programs that may have taken years to build often have to be closed down, folded into another program or doubled in size -- literally overnight. The issues involved can be daunting:


* Database compatibility of hardware, software, decision rules, access, proprietary systems vs. open systems.


* Blending the best data overlays, segmentation systems, data-mining tools, models, algorithms and analytical techniques.


* Measuring the relative value to customers of each program's benefits and the corresponding economic cost of that value to the company.


* Choosing which communications strategy is the best to keep or whether to replace both with a new program.


Purchase decisions that may have taken months or even years to make before a merger now have to be quickly evaluated as senior management determines what programs and systems to keep, what to expand and what to drop. Typically, systems are different, data-mining tools are different and even data overlays can be different. With enough time, the ideal process would be to set benchmarks for both sets of capabilities and look for the "best in breed." Most often, however, the lack of time drives the need to do a quick analysis of the two challengers and pick a champion. In many cases, the decision is made to leverage the combined budget outlays and make major upgrades in capability.


The financial services industry has learned a great deal about handling the merging process. Their learning falls into two areas: how they have learned to blend internal capabilities and how they communicate change to customers. Blending internal capabilities can be an immense challenge, but the institutions that have been most successful have a knack to cut through things. They are able to focus on two key objectives: what is it we have that customers value and what systems and programs do we have that will grow that value over time.


While this common-sense approach seems obvious, it wasn't always this way. In fact, earlier in the decade, many of the more aggressive financial acquirers adopted a "winner take all" philosophy regardless of the impact on staff morale and the acquired firm's capabilities. This changed as the scale of mergers grew to the point that it was highly unlikely that one firm had all the best answers. The banks that have completed the most mergers now have a process to identify best systems and capabilities as well as people -- regardless of source. The resulting hybrid organization attempts to merge best practices while cutting programs that don't meet a preset threshold for performance.


What could easily be lost in the race to identify best practices internally is the impact on customers. Just as banks have learned how to blend internal operations, they also have become increasingly adept at communicating change to customers. As part of an effort to identify best practices in how banks handle mergers, Sigma conducted a study earlier this year among a number of financial institutions. After hundreds of mergers and acquisitions, financial firms have found that there are three key questions consumers want answered when companies change ownership, and they are remarkably simple:


* Who are you? Tell me about your firm and its values. Be brief.


* Where are you? Where can I do business with you? How will this affect me?


* What are you going to do to me? Tell me the take-aways. If there are new benefits, what is the catch?


How institutions communicate change has evolved tremendously in the last decade. It used to be that the primary focus of banks' communications to customers was to meet legal regulations for notification. As banks realized that customers were becoming less sensitized to change, they began to see the legal notification as an opportunity. First, they wanted to reduce customer defection and PR nightmares as operations were merged. Second, they wanted to make customers aware of improved services and capabilities. Most banks sent out catalogs that combined information about how customers' accounts were changing with information on other services being offered. Little effort, until recently, was made to segment customers based on service mixes, their propensity to purchase new services, let alone their current or projected profit contribution.


Today, some banks even have adopted one-to-one marketing approaches as they communicate with customers -- despite the time and legal pressures that drive merger communications. One bank, for example, has built a database of prewritten paragraphs of information regarding every product, service or change notification. The possible combinations of paragraphs can result in more than 1.5 million permutations! Each customer receives a unique mix of information tailored to his/her current account and service mix and what the bank thinks he/she needs to know about other services.


As other industries follow the financial model and consolidate, it's likely that many, if not most, database marketers soon will face the challenge of how to work through a merger. The good news is that the Darwinian race to identify best practices gives everyone an equal shot.


David Stirling is president and co-founder of Sigma Marketing Group, Rochester, NY, a database marketing company. Sigma is a division of May & Speh Inc.

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