Case Analysis 2: First Tennessee Bank

Company Background

The company utilizes the First Tennessee Bank name in the state of Tennessee, its primary market
and where it has dominant market share. Outside Tennessee (with the exception of suburban
Memphis within Mississippi and Arkansas, and suburban Chattanooga in Georgia), it utilizes the
First Horizon Bank nameplate, the company's official name. First Tennessee is the only major
bank headquartered in the state. Until recently, it had expanded into Northern Virginia (2003),
Maryland (2003).

The bank is a full-service provider of financial products and services for businesses and consumers.

On the path to becoming the Chief Marketing Officer of First Tennessee Bank, Dan Marks has
shown all the earmarks of being a “numbers guy.” There’s the natural sense of skepticism—a need
to see the proof in the numbers—that comes along with being the analytical sort. Do bank
marketers have a unique way of thinking, of looking at the world? Marks affirms his belief that
they do, but with a caveat. “Within banks, marketing people tend to be great at seeing opportunity
and conceptualizing new ideas,” explains Marks. “But in today’s banking market, it’s increasingly
important to view them with a critical eye, to discern where it makes most sense to focus the bank’s
resources. That’s the balance—between creativity and discipline, between art and science—that
we need to strike.”

What Marks had in mind went beyond budgets to the very heart of First Tennessee’s marketing
processes, with granular metrics and analytics providing the basis for optimization. “Our aim was
to shift from the ‘marketing-as-an expense’ mindset to the idea that marketing is a true profit
driver.”

The market that Marks is talking about is defined not only by increasing competitive intensity, but
also by the strategic challenges it presents to banks, not least of which is how to optimally focus
marketing resources. Banks offer a more diverse portfolio of services than before, and they do so
over a wider range of channels. While this trend has given banks more latitude to compete, it has
made formulating and modulating marketing strategies, tactics and programs considerably more
complex. That’s because as the range of options has grown—a good thing by any measure—
marketing resources are as scarce as ever. To optimize how they invest them, banks need a way to
continually measure their effectiveness, learn what works and adapt over time.

For banks today, having more ways to communicate with customers is a good thing. But it has also
made it harder for banks to figure out where and how to most profitably commit their marketing
resources. Leveraging predictive analytics, First Tennessee Bank is applying the ultimate acid test.
It’s combining a granular understanding of the needs of customer segments with real P&L data to
optimize its marketing spend, focusing on programs that deliver the highest ROI. First Tennessee’s
ability to target its campaigns more intelligently has increased its response rate by 3.1%, cut key
marketing costs by nearly 20%, and enables the bank to get the most from its resources.
Selling First Tennessee’s President of Banking on the idea wasn’t hard. Putting it into place
required action on a number of fronts. Conceptually, think of an upside-down pyramid, with the
technical capability to do predictive analytics at the bottom, underpinning the effort. Though it’s
an essential foundation, its enablement represented a relatively modest share of the effort. More
extensive (and the next level up in the pyramid) was the need to secure the business intelligence
(from the bank’s data warehouse and finance organization) and from that develop the framework
for ROI-based modeling. Based on product parameters like fees, spread and ccount balances, the
model would create tiers of profitability for different kinds of products and accounts and—by
extension—different segments of customers. At the top of the inverted pyramid was Marks’s
biggest challenge and, in many ways, the most important ingredient to his success— driving
change at the process level. In this context, the key processes relate to choices made by marketing
managers and within the lines of business around program funding.

Should, for example, more funding be put into customer acquisition activities like lead geration?
Or should the funding emphasis be on retention and crossselling opportunities? Traditionally, such
decisions were the epitome of “in-the-box thinking”—guided by a mix of past experience, intuition
and conventional assumptions about where the opportunity is.

Marks’s aim was to promote a new way of thinking about opportunity that would permeate the
entire organization. “The message we’re getting across to our people is a new way of managing
and optimizing our marketing resources around ROI—one that looks ‘under the covers’ at the
relative profitability of all these programs and uses that as the basis for decisionmaking,” says
Marks. “We understand that the most effective way to drive this change is not ‘top-down,’ but
through a dialogue that moves all of us—including the LOBs—towards this new way of thinking.”

First Tennessee used to structure its marketing campaigns around product lines. Over the last few
years, the bank has developed a highly systematic and targeted approach. Here’s how it works.
Start with a granular understanding of each customer’s banking needs drawn directly from lots of
customer data points. Using predictive analytics models developed by Marks’s staff, each
customer is “scored” on their likelihood to purchase each product in First Tennessee’s portfolio.
The corollary benefit of this approach is that it helps the bank’s marketers to pinpoint product
clusters that represent “sweet spots” for cross-selling opportunities. That’s just the beginning.
What sets the First Tennessee approach apart is how it applies a rigorous, systematic approach to
prioritizing which opportunities make it to the campaign stage. By combining product revenue and
cost information from its data warehouse with the segment data discussed above, First Tennessee’s
model generates a quantitative measure of the expected profitability of a given product offered to
a specific subset of its customers, such that each product/segment offer under consideration is
assigned an expected ROI value. With this hierarchy established, Marks and his team now have an
evidenced-based framework through which to prioritize programs and allocate resources
accordingly.

The bank’s performance numbers also underscore the effectiveness of ROI-based optimization.
For instance, the rate of response to its marketing campaigns has risen 3.1 percent, a reflection of
its ability to more accurately target offerings to specific customer segments based on their needs.
First Tennessee’s recent growth in market share, producing gains across most of its geographic
footprint in and around Tennessee, provides yet another window on its success. Overall, the bank
has tallied a 600 percent return on its investment in predictive analytics through more efficiently
deployed resources. By gaining the ability to target the most attractive segment for specific
offers—a “qualityover- quantity” approach—First Tennessee has been able to 0ptimize its
campaign expenditures, evidenced by a 20 percent reduction in mailing costs and a 17 percent
reduction in printing costs. Looking down the road, Marks expects tight resources and intense
competition to be par for the course in the banking market. But with predictive analytical
capabilities in place, he sees these conditions as only heightening the bank’s hunger for
opportunity, since it has the ability to pursue it efficiently. “We’re committed to profitability and
were committed to strengthening our customer relationships through every aspect of the way we
do business,” says Marks. “Predictive analytics gives us the intelligence and insights we need to
follow through on this commitment.”

Business Objectives
• Identify areas where marketing resources should be allocated
• Identify which services to offer to clients

Questions
1. Identify how predictive analytics was used to solve the business problem. Explain how
the predictive analytics solution works.
2. What were some of the predictors used for the predictive analytics model?
3. How did Dan Marks build an analytics culture?