Segmentation strategies identify likely HELOC borrowers

Consumer lending is down across the board, making competition for the loan business of budget-conscious consumers challenging to say the least. Home equity lines of credit (HELOC), however, may be experiencing a bit of an upswing. According to Experian, HELOC lending increased 27 percent in Q2 2014.

Smart marketing will be key for credit unions looking to ride this apparent wave. HELOCs, generally, are a popular choice for consumers hoping to consolidate debt, entrepreneurs looking for start-up money, and increasingly, boomers more interested in improving than in selling their homes. The question becomes how to find these likely HELOC candidates among a credit union’s existing membership.

For credit unions, segmentation strategies may be the answer.

Direct marketing campaigns are a traditional marketing tactic for many credit unions – especially those looking to enhance the penetration of their home equity loan products. By promoting and cross selling these products to their existing customer base, credit unions are able to capitalize on existing relationships, reaching out to those already familiar with their business practices and reputations.

However, it’s not unusual for these campaigns to generate less-than-exciting results. Often this is because recipients of the promotions are not the right audience in the first place. Simply because a consumer does some business with a credit union does not mean he or she is in the market for a HELOC. Nor does it mean the consumer would likely use the credit union for this particular loan. The result is an abundance of wasted energy, creativity, and of course, marketing budget.

To increase both the booking rate and return on investment from direct marketing efforts, credit unions should first identify those members most likely to take action on a HELOC promotion. In one recent case, the results of doing just that were worth every bit of the up-front investment.

A financial institution that typically sent 150,000 direct mail pieces to its customers at least four times each year achieved an average response of 25 basis points (bps).

To increase that average response rate, the marketing team collaborated with data analysts at our firm to first evaluate existing home equity loan customers using a CHAID  decision tree. If that sounds like industry jargon to you, don’t worry. It is. A CHAID decision tree is nothing more than a process to assess and identify the key characteristics of a particular consumer segment. After identifying the different groups of consumers, the decision tree helps analysts predict each consumer’s likely response to a particular set of marketing messages or promotions.

Using the information that came from this analysis, the team was then able to review the characteristics of customers who had purchased other products and compare them to the characteristics of its HELOC borrowers. In this way, they were able to easily identify and target customers most likely to be in the market for a HELOC, and thus, most likely to respond to the campaign.

This technique allowed the marketing team to predict an increase in the campaign’s return on direct marketing investment. By securing a higher response rate from the most appropriate segments of its existing customer base, the overall results of the HELOC campaign were expected to increase significantly.

The prediction came to fruition, as the segmenting techniques earned nearly double the response over previous efforts – 43 bps. That response fed the campaign’s overall success dramatically. The team experienced a HELOC booking rate that was 70-percent higher than its average performance, translating to approximately $218,000 in incremental revenue.

The best part? Each campaign the team generates informs the next. Predictions are proven (or challenged), and the analysis becomes even more accurate with each passing direct marketing effort.

As competition for HELOCs increase, credit unions will need to think outside the typical marketing box. Segmentation and data analysis can go a long way toward helping marketers get fair, consumer-friendly loans in the hands of more deserving members.

Karan Bhalla

Karan Bhalla

Karan Bhalla is the CEO of CU Rise Analytics and who has almost two decades of financial services and data analytics experience. CU Rise Analytics is a global CUSO helping ... Web: https://www.cu-rise.com Details