How the credit crunch affects FS customer acquisition (or rather, how it should)

The collapse in the US sub-prime mortgage markets and the ripple effect throughout global capital markets has been well documented, so I won't even attempt to add to that debate. I honestly don't believe I can add any value to it.

What does need further exploration however is the impact this has for Banks and more poignantly their acquisition strategies. Whilst the lending markets are being squeezed, do not expect to see the major lenders relent on their respective pushes to acquire new customers. After all, debt is not bad. If you're a bank, debt is your business. Only bad debt is bad.

So at times like these, it becomes increasingly important to understand where the bad debt has been acquired from - what do these individuals look like, how can we identify them, and how we can withhold credit terms from them in order to protect the wider business' profitability - the underlying concern for the banks (as for any profitable business).

We are beginning to see some banks react by adopting tighter credit scoring systems, or (more likely) by shifting the credit score criteria that they are prepared to offer terms to. Whilst this goes some way in protecting the lenders' interests by reducing the levels of bad debt that are likely to manifest on their loan books, you could also liken it to choking the goose. Or slamming the stable door shut, as bad debt doesn't normally appear over night, but rather it appears over time. The bed has already been made, so to speak.

So the focus needs to be on reducing the bad debt we can expect in a year's time. Without changing the way a bank attracts these new customers, by profoundly changing the types of customer you promote to, then your marketing efforts will be increasingly wasted. Not so much not knowing which 50% is working, more like not knowing which 75% isn't working. And in many instances this can occur overnight with a strategic change in the business' credit policy.

So it has never been more important for marketers to know where the valuable customer comes from (in simple terms, that being one that won't go "bad" in this example), and how they found out about and access our product. Lifetime customer value is rarely understood even after a prospect has become a customer, but to understand where exactly those higher value customers are deciding to buy our product is little more than nice-to-have in marketing circles. We cannot rely solely on demographic information about the people that use a site, and frankly why should we. All the data we need to do this is available to each business from their own datasets. We just need to be smarter about how we use it, and how we transform that data into insight that we can act upon.

At it's most extreme, you could argue that to fail to act is negligent towards the shareholders and stakeholders in the business. It is certainly at least a gross oversight of any FS business that hasn't taken steps to better understand customer value from an acquisition or marketing perspective. Would it have saved Northern Rock? Probably not, as they were hit by their business model rather than bad debt per se as far as I can tell. But would it help a marketer better understand how to adapt their campaign in light of the increasingly stringent acceptance criteria they are now working under? Almost certainly.

Understanding customer lifetime value, and what actions and sources are more or less likely to increase that value, needs to be given far greater priority in UK business, throughout all industries. It should become a core business activity, but will always struggle due to the wide-spread responsibilities. Finance, IT and Marketing need to work together to deliver this and all of the benefits. But the last time Marketing spoke to Finance is all too often the Christmas Party.