M&A has been greatly boosted by the private equity financing route, last year setting new records. Now that a credit crisis is upon us, however, most of the expert commentators are predicting not a downturn in M&A, but simply a switch to more trade buyouts, along with somewhat more sensible pricing. Highlights of 2007 to date include Advent International acquiring Lloyds Registrars, and the merger of Thomas Cook with MyTravel.
So little if any slowdown in M&A is expected after the credit crunch, simply a change of buyer type from PE to trade. Whoever the buyer, the advantage of any acquisition must lie in being able to extract greater value from the acquired company than the purchase price. That means that the two customer databases need to be integrated as quickly as possible, their joint potential rapidly analysed, and intelligent cross-selling strategies put immediately into place. Customer interaction has to be rapidly co-ordinated to provide an integrated, joined-up feel immediately post-merger – in particular transactional communications such as bills, statements, customer service dialogue and account management correspondence.
Merging customer databases may seem an obvious enough process, but recent research from MarketingUK seems to demonstrate that too few organisations are actively employing such principles. Following a merger or acquisition, the first step is to understand what has been bought. That means a top-level analysis at a customer level, looking at product holdings and revenue. This in itself may not be a simple process – in that a wide variety of different datasets may need to be combined. Luckily, the data may be complex, but there are now software products available that rapidly merge disparate datasets without the need for expensive hard-coding.
Most organisations turn to data processing bureaux who license such software and then use it to provide services on a ‘number of records’ basis. Once high-revenue, multi-product customers have been identified, they can then be profiled using one of the major geodemographic or lifestyle consumer profiling systems. This helps identify customers with a profile similar to high-revenue, multi-product customers, but who are not yet generating these levels of income or product holdings. Essentially, this is the process of analysing the potential cross-selling value in the acquired customer base, and indeed the potential for acquired company products within the original customer base.
Winding back a stage, there is an increasing appetite for conducting such analyses prior to a merger or acquisition being finalised. Of course, until two organisations are legally merged, there will be natural competitive, regulatory and confidentiality concerns about sharing data on customers. However, a number of database bureaux are now starting to offer a secure, anonymised service which provides the analytical outputs without exposing each party’s confidential information to the other. Additionally, we are seeing an increased willingness to use annual and interim financial reports to manage the merger process, especially where there is a substantial body of shareholder-customers such as we typically see in former mutual building societies or insurers. Our research has shown that over 25% of top companies are now using their financial reports for marketing purposes.
Yet it is probably the existing channels of day-to-day communication with customers that are the most important to integrate as quickly as possible, especially when there is an international aspect requiring sophisticated segmentation. The trend towards event triggered mailings – where a message is sent in reaction to, for instance, a customer breaking through a purchase value threshold – is making the mail communications process even more fragmented. Here, the customer communications industry has introduced both national and international mail consolidation services, which combine many customers’ weekly output in order to achieve the volumes that attract valuable postal discounts.
In fact, day-to-day transactional communications can often now perform a retention and cross-selling role. Again, the last few years have seen technological advances that integrate marketing systems with statementing systems. The result is that marketers can automatically trigger the printing of personalised marketing messages and offers on a statement or a piece of correspondence. Responsiveness to this method of ‘advertising’ will vary, depending on whether the advert references a telephone number, an insert in the same envelope, or a website link. We are currently conducting research into the variation in response rates between these different techniques, but overall responsiveness seems to sit around the 5.5% levels, only a little lower than typical direct mail campaigns.
In conclusion, then, as M&A continues apace, close attention to the efficient and effective merging and analysis of customer databases, both within country and cross-border, is paying dividends. Getting customers of the acquired company to accept the new company brand is the time of greatest risk of defection. Rapidly monetising the combined customer base through relevant and targeted cross-selling is the way to realise return on investment from the acquisition. Existing customer communications are the primary focus to retain and grow the merged customer base, combining effective database segmentation, complemented by practical and affordable communication methods.
