02 Aug How to make loan marketing profitable in six steps
Personal loans are the most popular financial services product available in South Africa. There is constant demand from consumers and, as such, plenty of lending businesses are looking to book new clients.
Despite this, direct marketing of loans isn’t easy. They’re one of the hardest products to market profitably. Why? Because there is a lot of interest from people who are not credit worthy and don’t qualify for the loan in question. This results in the bulk of your marketing spend and effort being wasted on people who are not eligible.
To avoid spending more on marketing your loans than you’re making from them, follow our six tips:
1) Pre-target. Before you run a campaign, it’s essential to decide who to include – and more importantly, who not to. Start by excluding anyone who isn’t generally credit worthy and who will be an obvious decline. This includes public information exclusions where, for instance, someone has judgements or is under debt counselling, as well as various affordability parameters. This will reduce your marketing reach by around 30%, but your efforts will be far more targeted. It’s wiser to market to 10 qualified prospects than 100 who are unqualified.
2) Short forms. When it comes to loans, there is a constant battle between risk and marketing. The tougher you are on risk, the harder it is to market. Those who are involved in risk instinctively want to ask as many questions as they can, but this is often at the cost of a response. And if your response rate is poor, your marketing costs go up. The trick is to find the right balance. To pique someone’s interest, use only a short form initially – typically no more than six questions. You’ll get the most important information needed to do a credit check without scaring off a potential client. This rule applies regardless of the channel you use.
3) Quick checks. Arguably the deal breaker of the whole process is the quick check. This is a live credit bureau score card on the potential lead. We’ve never made a direct marketing campaign successful without a quick check in place. Using only the few fields collected in the short form, you’ll know, in real-time, if the person is eligible for a loan based on your own personal score card. Understanding this reduces any human capital that will be spent on processing known declines down the line – which in turn saves you money.
4) Analyse. We analyse everything and always try to maximise profit. But a big mistake is to only focus on reducing costs. A common example is when we target people who own cars. They are about three times more expensive to market to than people who don’t. But they convert to a paid-out loan at a rate of four times that of non-car owners. The point is, while they may be among the most expensive leads, they are also the most profitable. Had we only focused on reducing costs, we would have missed out on this pocket of value.
5) Downsell and cross sell. If you only sold one single product to every loan applicant you would likely lose money. However, using the right process, you could use the opportunity of engagement to find the right product for the right person. Often a person will apply for a loan when in fact the right product for them is debt counselling. Or, they may apply for a big bank loan but a micro loan is more relevant. Being able to downsell the right product maximises the profitability of each additional client. Also use the opportunity to interact with your clients and cross sell other products, like insurance, which improves profitability per application even more.
6) Stay compliant. Loans marketing comes with a host of compliancy issues. Some of our clients think that marketing lending products via direct marketing channels will break some compliancy rules, or it will be very expensive to be compliant. This is simply not true: at Olico we only run 100% compliant loan marketing campaigns via our direct channels. When done correctly, this also saves money.
For more useful tips on how to use direct marketing to convert customers visit www.olico.co.za.