Banks have been dedicating larger portions of their budgets to marketing home equity loans and lines of credit.
This is driven by the increasing demand by consumers to consolidate debt and minimize taxes.
Marketing of equity products is not for the faint of heart.
Banks have faced market and competitive pressures during the past few years.
The refinancing boom of the late 1990s, marketing of 125 percent loan-to-value products and younger people making lower down payments to finance their homes have reduced the number of homeowners with equity in the market. Moreover, competitive pressures from other banks, credit card and consumer finance companies have further reduced the number of viable prospects. These challenges have resulted in decreased response and net-booking rates as well as customer retention issues.
These issues have arisen as competitors focus more efforts on targeting potential switchers who may already have an existing home equity line or loan with another institution.
How are banks offsetting the increased market pressures?
Although each bank’s objectives, products, credit criteria and offers may be different, several common traits distinguish the successful programs. Key factors for success in marketing home equity products for banks include:
Mailing more frequently and making the commitment to testing. In the past, banks marketed equity products once or twice a year as part of an overall campaign initiative.
Banks have come to understand the importance of being in the mail on a regular basis. This provides a means to quickly monitor and respond to changes in the market, as well as being able to rapidly apply learning from prior mail periods. Additionally, by having a well-planned testing strategy, the bank can help ensure that the overall mailing will be successful while facilitating testing that over time will enhance overall program effectiveness.
Focusing resources on cross-selling existing bank customers. The presence of a customer relationship is a major driver of response for equity products.
Unlike credit cards, customers do care which institution they do business with when it comes to home equity lending. Existing banking customers can often be three to four times more responsive than prospects. In some cases, the worst-responding customer segment performs better than the best-responding prospect segment.
It’s critical that the bank drill deeply into the customer population, using both invitation-to-apply and preapproved strategies. Additionally, offers should be segmented based on product purchasing patterns.
Targeting prospects within the bank’s footprint. Over time, as the customer database continues to be mined, response rates will show diminishing returns. To achieve growth objectives, banks often include prospects in their mailings.
Typically, it is best to start with smaller mailings into this audience, until sufficient responders can be obtained to build net-booking models.
Mailing to prospects is normally most successful in a preapproved format. This allows the marketer to use credit bureau data as well as demographics and mortgage variables for targeting purposes. It also helps the marketer identify who is likely to be approved, minimizing the waste of targeting prospects that only would be turned down in the underwriting process. Just as the case with customers, brand recognition and branch concentration can play a major role in the success of these programs.
Employing enhanced analytics and segmentation techniques. Perhaps the most critical variable in developing a successful home equity mail program is list targeting. After the initial mailing, net-booking models can be developed to help the marketer rank-order the potential mailing universe.
Net-booking models vary from response models in that the sample used for modeling includes prospects who responded, were approved and ultimately went through the paperwork to book the home equity line or loan.
A variety of variables play a key role in building these models, including credit bureau data, household relationship and buying patterns (for existing customers), distance from closest branch, mortgage variables and demographics – listed in order of importance.
Through the use of bureau data, multiple segmentation approaches can also be developed. This information can be used to identify prospects that have both high credit balances and utilization – meaning they have tapped out existing credit resources.
Offering a competitive product. With the increased competition and ability for consumers to shop-rate easily via the Internet, offering a competitive product should be considered the minimum price of entry into the market. This often involves the marketing of rates as low as prime or very low fixed rates in the case of a loan with lines up to $100,000 and no closing costs.
Matching the offer to the audience. The success of any mailing is dependent upon reaching the customer at the time of need with a relevant offer.
The use of credit bureau data can help the marketer determine the best candidates for each product, lines vs. loans, based on credit usage patterns.
For example, a prospect with a substantial number of credit cards and high balances may be a good candidate for a home equity loan – as this product would help to reduce monthly payments. Prospects with substantial equity, large credit lines and limited loans may be better prospects for an equity line of credit.
Clearly communicating the features and benefits. The primary benefits message should focus on the low rate, no closing costs, tax deductibility, as well as ease and speed of approval. The low rate should be communicated both in copy and tables – to help make the offer more relevant to the prospect by demonstrating how lower rates translate into interest and tax savings.
Integrate direct mail with other media. Direct mail is most effective for equity marketing when coupled with other media. These media vary but should include telemarketing, ATM messaging, statement inserts, newspaper and radio.
This approach makes the bank top-of-mind as an equity lender, but also assists in building brand recognition, a major driver of response.
Since rate is king to this market, advertisements are most successful when they focus on both product benefits as well as the offer.
Managing response from application through booking. The bank’s role in
making the direct marketing program a success cannot be overstated.
There is an indirect relationship between time required for processing and net booking. The longer the time required for application processing, the lower the net booking rate.
This makes it essential that the bank be able to track an application throughout the process, from response to approval and net booking.
These systems also are able to monitor declination reasons, which can further assist the marketer on the front end in defining credit criteria.
Marketing home equity products has become a science and an art.
Keep in mind that understanding and employing these key success factors can make the difference between program success and failure.
James Alcott is president and Diana Tummillo is director of strategy and account planning at Alcott + Routon, Nashville, TN, a full-service direct marketing agency with experience in marketing equity and other banking products. Alcott’s e-mail address is.