Bbva Compass: Marketing Resource Allocation

Case Study: BBVA Compass: Marketing Resource Allocation

In 2010, BBVA Compass has allocated its marketing budget on both online and offline to drive brand awareness, improve consideration among potential bank customers, and acquire new customers for its various lines of businesses. With the data provided, this essay will discuss whether the marketing budget allocation is appropriate and effective, using expected Customer Lifetime Value (LTV) to measure customer attractiveness versus customer profitability.

Role of BBVA Compass Online and Offline Advertising

In 2010, BBVA Compass allocated 21% and 79% of its advertising budget on online and offline respectively. In addition, it spent multi-million dollar on sponsoring various sports events. The major role of offline advertising is to build brand awareness and improve consideration among potential bank customers. Newspaper, magazine, outdoor, TV and radio advertising are effective enablers to drive awareness among mass public, especially after BBVA Compass adopted a new name. Sponsorship on the other hand strengthen the brand’s affiliations with its target customers who shares the same value, thus improve consideration among potential bank customer. Online advertising also plays a major role in building brand awareness and acquiring new customers, and has a distinctive advantage over offline marketing as it’s supported by a more sophisticated tracking systems, thus supporting the advertising campaign with more data, and more effective targeting strategy.

Lifetime Value of Customer Acquired from the Online Channel Versus The Offline Network

To measure the success of BBVA Compass online and offline advertising, we can look into the customer lifetime value. With reference to Appendix 1, various assumptions have been made on the banking industry’s retention rate, interest rate and acquisition cost, we can derive the industry average profit margin as $187. To calculate the lifetime value of BBVA’s customer from online and offline, the acquisition cost is required. The acquisition cost for online is $201.25 [Appendix 2] based on given data, whereas the cost for offline is $131.25 based on assumptions and calculation [Appendix 3]. The lifetime value of online customer would be $198.63, whereas offline is $307.13 [Appendix 2] [Appendix 3]. Based on the historical and industry data, and various assumptions, one can simply conclude offline advertisement is simply more successful and effective than online. However, the assumptions made in the calculation may not take into consideration of the future trends, for example, the growth rate in profitability of online banking, the variation in retention cost over the years, etc. We can indeed hardly conclude if BBVA Compass shall reallocate majority of its budget to offline, simply based on the acquisition cost and lifetime value of customer.

Review of BBVA Compass’s Online Advertising – Paid Search Vs Display Ad

BBVA Compass has allocated around 45% and 55% of its online budget to paid search and display ad respectively. The performance on paid search and display ad can be evaluated from the below perspective. For paid search, the cost per application is $73, and given the approval rate for each application is at 80%, together with the average $100 promotion offers, the actual acquisition cost for each successful customer is $73/80%+$100 = $191.25, whereas for display ad is $210. With reference to the assumptions and calculations made on Appendix 1 on BBVA Compass’s margin, interest rate, and the given retention rate, the calculated customer lifetime value from paid search and display ad is $208.63 and $189.9 respectively [Appendix 4]. These two figures showed that the customer profitability from paid search is higher and that BBVA Compass should allocate more budget to paid search indeed.

Taking a closer look at the paid search campaign, there are definitely room for budget reallocation. The average conversion rate (application completed) is 1.5%. Google’s conversion rate is 1.58%, and Yahoo is 1.46%. The rest are below average. BBVA may consider reallocating resource to higher conversion site. When we look at the a lot of clicks paid search campaign, the allocation may have skewed towards brand keywords, which appeared to be generating a lot of clicks, but may fail to effectively drive brand awareness. To achieve the goal to drive brand awareness, BBVA may indeed consider shifting its allocation to more generic keywords are more relevant to customers’ needs including “Free Checking Services”, “Convenient Brand Locations”, “Easy Online Banking Service”, etc.

Recommendation on Promotion Budget Allocation

From its marketing purpose, the major role of offline and online advertising was to build brand awareness and improve consideration among potential bank customers. In 2009, the brand awareness and consideration dropped significantly because of they changed their brand name to BBVA Compass. Another role is to bringing in new customers and increasing the total number of accounts at the bank. In this aspect, online advertising has a distinct advantage than offline advertising that is information tracking. This can help BBVA have a good sense of return on investment and thus allocate marketing budget in different channel effectively. Additionally, BBVA also want to utilize online and offline marketing to support its product lines such as checking, savings, mortgage, commercial banking and improve satisfaction and retention of the current customers and cross-sell to them. Because, from a survey, the top-three criteria for customer to choose a bank includes free checking service, convenient branch locations and easy online banking services.

Appendix 1: Calculating Profit/Margin for Banking Industry

With the use of the Lifetime Value Formula and various assumptions, the profit/ margin for banking industry is calculated as below.

Value Assumptions/ Remarks

Banking Industry Lifetime Value (LTV) $800 Based on case data

Discount Rate in US (d) 1% Based on historical data

Retention Rate (r) 75% BBVA Compass’s Annual Retention Rate is 55% - 65%

Assume it is below industry average given its awareness and low than its competitors

Acquisition Cost (A) $100 BBVA Compass’s aims at an acquisition cost between $100 - $150