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A Case Study of BBVA Compass

BBVA Compass is the fifteenth-largest bank in America. In December 2010, they considered about how to allocate the bank’s marketing budget in order to improve the brand awareness and market share. Based on the data and time line provided in the case material, this essay will use expected Customer Lifetime Value (LTV) to measure customer attractiveness versus customer profitability in their marketing decision making. 1. The role of online and offline advertising.
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. 2. The budget allocation between online and offline.
In the banking industry, the average lifetime value of a new checking account over its five-year expected life is about $800. Thus, it can calculate the annual margin of online and offline by utilizing the formula:
LTV=t=15annual margin * retention ratet-1(1+interest rate)t-acquisition cost
The average annual retention rate of the customers acquired online is about 55% compared to a 65% retention rate for those acquired through branches. The interest rate in U.S. in 2010 was about 2%, the cost per complete application (CPA) of offline and online was given as $150 and $81 respectively. This CPA need to be divided by the approve rate (80% online and 95% offline). Thus, the acquisition cost of online is $101 and offline is $158. So, the estimate annual margin of online and offline are $810 and $610. These annual margin will be used in the following analysis.
It can be concluded that the net annual income from online customers is slightly higher than that from branch customers. So, through only 5% of BBVA’s overall sales come from the Internet, it still allocate more than 5% of their budget to online channel because of the growth opportunity. 3. Display versus search engine advertising.
For the online marketing, it contains display and search engine advertising. As the analysis below, figure1 demonstrates that the click-through rate (CTR) of search engine is significantly higher than display advertising. This also leads to a better probability of booking. Moreover, depending on the $810 of the online customer profit margin, it can calculate the LTV of display and search engine are $794 and $814 respectively. Therefore, it shows that the search engine advertising is more profitable than display advertising. Thus, it can raise the budget on search engine to increase the total revenue and the return of investment (ROI). Like figure 2 shows. Current Year Budget Allocation | Display | Search | Total Online | Amount spent | $637,000 | $516,000 | $1,153,000 | current year mix | 55.25% | 44.75% | 100.00% | Impressions | 309,274,438 | 11,529,237 | 320,803,675 | Impression % | 96.41% | 3.59% | 100.00% | Completed Applications | 7,209 | 7,107 | 14,316 | Approve rate | 80% | 80% | 80% | Approved Applications | 5,767 | 5,686 | 11,453 | Cost per application (CPA) | $88 | $73 | $81 | Acquisition Cost | $110 | $91 | $101 | Avg. Cost Per Impression | $0.002 | $0.045 | $0.004 | CTR | 0.05% | 4.10% | 0.19% | Probability of Booking | 0.002% | 0.049% | 0.004% | LTV | $794 | $814 | $803 | Total Rev | $4,580,381 | $4,627,561 | $9,207,942 | ROI | 719% | 897% | 799% |
Figure1. Current budget allocation of display advertising and search engine
Assuming that in next year, the budget spends on display advertising will be decreased to 10% of the total budget, while the rest will spend on search engine. From this way the impact on total revenue will be around $1.5 million, which equals to 15% of increase rate. Actually, if BBVA keep enlarge the budget on search engine the increase rate of total revenue will keep grow. Next Year Budget Allocation | Display | Search | Total Online | Budget percentage | 10% | 90% | 100% | Next year spend | $122,200 | $1,099,800 | $1,222,000 | Impression next year | 59,330,198 | 24,573,362 | 83,903,560 | Booking next year | 1106 | 12118 | 13225 | Total Revenue | $878,685 | $9,863,161 | $10,741,846 | ROI | 724% | 881% | 866% |
Figure2. Budget reallocation between display advertising and search engine 4. Different channel of search engine.
The 5 Search engine channels that BBVA utilized are Google, MSN, SuperPages, Yahoo and Unified Marketplace (See figure 3). Within these channels, SuperPages has the lowest cost per application and the highest LTV. However, from probability of booking aspect, MSN is the best channel and SuperPages is the lowest one. Site | Media Spend | Impressions | Cost Per Impression | Cost per App. | Approved App. | CTR | Probability of Booking | AC | LTV | Google | $288000 | 5,575,637 | $0.052 | $77 | 2974 | 4.2% | 0.067% | 97 | $808 | MSN | $37000 | 897,406 | $0.041 | $56 | 530 | 5.6% | 0.074% | 70 | $835 | SuperPages | $70 | 116,922 | $0.001 | $4 | 13 | 1.2% | 0.014% | 5 | $899 | Yahoo! | $177000 | 4,435,709 | $0.040 | $73 | 1935 | 3.7% | 0.055% | 91 | $813 | Unified Marketplace | $14000 | 503,563 | $0.028 | $48 | 234 | 4.1% | 0.058% | 60 | $845 | Total | $516000 | 11,529,237 | $0.045 | $73 | 5686 | 4.1% | 0.062% | 91 | $814 |
Figure3. CLV of different search engine channels
The current budget allocation among these 5 search engine channels is not much efficient. Like figure 4 illustrates, these search channels are located in 3 quadrants. Therefore, BBVA should found more on MSN because it excellent at generating booking (0.074%) and with reasonable cost ($0.041, lower than average level). For Superpage, it needs to improve search of site side copy on this channel since it has the lowest price ($0.001) and highest LTV ($899) but poor at generating booking (0.014%, much small than average). For Google, it will be better that decrease the budget because it has high cost ($0.052).
Average cost per impression: $0.045
Average probability of booking: 0.062%

Figure 4 Current budget and marketing performance on search engines
For example, it can decrease the found of Google, Yahoo and Unified Marketplace by 28%, 16% and 1% respectively. Additionally, adding 35% more budget on MSN and 10% on SuperPages. In consequence, the total revenue of next year will be boosted up by 235% (next year total revenue/current year total revenue-1). Site | Current year impression % | Next yearImpression% | Next year spend | Impressions | Approved App. | Total Revenue | ROI | Google | 56% | 28% | $144,480 | 2797111 | 1,865 | 1,506,323 | 1043% | MSN | 7% | 42% | $216,720 | 5256374 | 3,883 | 3,242,263 | 1496% | SuperPages | 0% | 10% | $51,600 | 86188217 | 11,794 | 10,605,372 | 20553% | Yahoo! | 34% | 18% | $92,880 | 2327620 | 1,269 | 1,032,245 | 1111% | Unified Marketplace | 3% | 2% | $10,320 | 371198 | 215 | 181,825 | 1762% | Total | 100% | 100% | 516,000 | 969,405,19 | 19,027 | 15,486,224 | 3001% |
Figure5. Budget reallocation between the 5 search engine channels
To summarize, in order to maximize the profit acquiring form online, BBVA Compass could allocate more budgets on search engine advertising, especially on MSN and SuperPages. In this way, it can utilize the limited recourse more effectively.

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