Perhaps the value of the "MCIF" -- or Marketing Customer Information File -- would be better understood today if the generic name for these systems was more descriptive of how they are processed, how they function and how they are applied.

The process is householding -- creating a household file that is organized around the customer and customer household, the most important customer unit for the marketing of retail financial services. This household-based file helps financial institutions to recognize, address and develop complete relationships between customer and institution. It allows financial institutions to:

• Profile customers by financial behavior, demographically and geographically.
• Segment the customer base into meaningful market segments.
• Approach each segment uniquely -- for customer service and sales, new product development, pricing strategy, database-targeted communications ("direct mail" and inbound and outbound telemarketing) and other approaches.
• Ultimately, treat each customer household uniquely based on their financial behavior, proximity to delivery systems, and lifestyle segment -- at every point of contact in which the customer comes into contact with your company.

Before the arrival of householding systems like Customer Insight, Explore and AnalytiX, it was nearly impossible to get a complete view of a customer's relationship. Though a customer (and perhaps the customer's spouse and extended family living at home) might be doing a number of different kinds of business with the financial institution -- checking, money market, CD, equity line, etc.-- each service ran on an independent business system dedicated to that service alone, or to a group of similar services ("the savings system", "the loan system").

Since financial institutions could not readily see the totality of relationship, they were distanced from the customer -- and could not address the relationship and approach the customer appropriately. In many cases, institutions simply did not know who many of their valuable customers were.

This resulted in a number of very costly problems. For some institutions, the cost of MCIF installation is justified with just one targeted mailing to the customer base -- because untargeted, duplicate mailings to the same customer household waste such large amounts of money. Also costly has been the failure to recognize relationship in pricing strategy, because information systems couldn't support such a strategy. A good example of this from the late 1980's was the wave of repricing small savings accounts -- including those of multiple service, high balance customers. This resulted not only in losing entire, highly profitable relationships, but in very negative publicity and word-of-mouth effects. More recently, many credit unions discovered when instituting fees for the first time that they were punishing some of their best, most highly cross-sold, members -- because fees on checking accounts cannot be waived based on loan relationships since "the checking system" does not talk to "the loan system".

Here are just a few of the successes brought about through relationship, customer portfolio and/or household focus that we've observed in our consulting practice:

• A portfolio approach to profitability, where profitability analysis is sensitive to the customer relationship, rather than completely focused on individual products composing that relationship, allowing an institution to reward its best relationships, and assess costs where they are incurred to other relationships. For example, checking account repricing is based on the complete customer relationship, avoiding placing at risk hundreds of dollars of annual profitability contribution for a few dollars worth of fee income.
• Improved marketing of lending products achieved by specifically targeting and soliciting credit-driven households.
• Segment-targeted new product packages, based on the behavior and demographics of existing customer households.
• Targeted, appropriate, efficient and personalized offers -- instead of IRA and/or VISA balance transfer solicitations to over age 65 retirees addressed "Dear Customer".
• Identification and retention of the most important Savers -- the 5% responsible for 50% or more of the dollars -- because their relationships were recognized and addressed although they come into the branches less often than do Borrowers and Transactors.

Further, while the arrival of MCIF has been a boon for financial analysts, marketers, researchers, and planners, there has not been a lot of emphasis on using these systems to improve customer service and sales. This is a function they are perfectly capable of and should be supporting. The latest wave of important Household File applications addresses the updating of on-line, real-time business systems to recognize customer relationship at all the points of customer contact -- and that includes the Internet. In this way, the MCIF system is used where it matters the most -- at the Moments Of Truth where customers interface with cashiers, new accounts and service representatives; where the service is produced and where fact-based decisions must be made.