The document details a marketing optimization modeling study conducted for Alpha Bank, which revealed that marketing contributed only 8.4% of total revenue despite the bank spending $39.5 million, generating a substantial ROI. Notably, the modeling found that the bank was under-investing in marketing and could achieve significantly higher growth with increased spending, especially in new markets and for branded products. Additionally, the impact of Hurricane Katrina was surprisingly positive, contributing to increased revenues due to inflows from federal aid and insurance claims.

1. Marketing Optimization
Modeling
Alpha Banking Corporation
June 2007 Update

2. 2
• The following is a real case study from a regional bank
located in Louisiana and Texas in the US.
• This was one of the largest banks in the South and recently
experienced some of the chaos and devastation of
Hurricane Katrina.
• Alpha Bank commissioned Bottom-Line Analytics to do a
marketing optimization modeling exercise in order to
continue past efforts a keep growth on a steady upward
path. As part of this, we also had to model the impact of
Hurricane Katrina.
• This was an exercise across 9 city markets. Some of these
were markets which the bank just entered, while others
were long established.
Forward

3. 3
Key Insights
Model Data Architecture
Direct Mailings Consumers
Direct Mailings Direct Deposits
Direct Mailings Business & Grand Openings
Media TV, Radio, Print & OOH
Media Digital Banner Ads & Search
Branch Grand Openings
Federal Funds Interest Rate
Customer Satisfaction Rating
Hurricane Katrina Event
Monthly
Revenue
Balances
By 9 Regional
Branch
Markets
Seasonality
Our models used
5 years of monthly
data

4. 4
• Across 9 regions where this bank operated, the overall contribution of marketing was quite low at 8.4 percent of
total revenue. What is remarkable here is this 8.4 percent applied to very large bank balances of $21.5B. Thus,
marketing expenditures of about $39.5 million was responsible for generating $1.8B in revenue. With margins
of about 5%, this means that the bank’s marketing spending was very profitable. This very high level of ROI
suggested that the bank was under-investing in marketing and could drive substantially higher growth and
returns with much higher marketing budgets.
• Other key insights found from this modeling exercise included:
– One of the bank’s markets was significantly impacted by Hurricane Katrina. Surprisingly, this impact was
positive rather than negative due to the inflow of FEMA and insurance claims following this event. Overall,
this event had about a 1 percent net positive impact on total bank balances.
– The bank regularly measured customer satisfaction at the branch level. We included customer
satisfaction metrics in our model and found it to be a very important driver of the bank’s overall
performance.
– During the year in question, this bank expanded into 4 new local markets via acquisition. Our model
findings revealed that marketing spending was very effective in these markets and was a key catalyst to
the bank’s +13% revenue growth for this year.
– This bank had a wide portfolio of products, from insurance, investments to loans, checking and savings
products. Some of these products were name-branded and were highly advertised. Our model findings
revealed that these “branded” products were significantly more marketing driven and these products
likewise represented a key catalyst to the bank’s overall 13 percent growth for the year.
– The bank could increase revenues 2.9% through more efficient spending without incremental total
investment. Our model optimization found that the bank could further increase revenues by an additional
+9 percent through a significant +50 percent increase in total marketing spending and through more
efficient spending across more efficient regions, products and marketing mix elements, as determined
through the model. Because the bank was found to be significantly under-invested in marketing, such an
increase not only was found to generate significant growth, but also would be a profitable move,
financially.
Key Insights
Executive Summary

5. Impact and Productivity of Alpha Banks Marketing

6. 0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Jan.2004
Mar.2004
May.2004
Jul.2004
Sep.2004
Nov.2004
Jan.2005
Mar.2005
May.2005
Jul.2005
Sep.2005
Nov.2005
Jan.2006
Mar.2006
May.2006
Jul.2006
Sep.2006
Nov.2006
Rev.Balances$MM
Actual
Model
6
R2 = 98.4 Holdout R2 = 98.7
Model Validation

7. 7
87.9%
1.0%
1.0%
1.8%
1.2%
1.3%
1.0%
1.5%
8.4%
MARKETING LEVERAGE: Below represents total Alpha Bank revenue balances of $21.5B for YE Sep 06.
• During this period, Alpha Bank spent $39.5M on marketing, representing 0.2% of revenue balances.
• Direct Marketing Campaigns contributed 3.2% of total balances, while media contributed 5.1 percent.
• This $39.5M in spending generated 8.4% of total revenue balances or $1.8B, which in turn produced
$94.9M in total net returns.
What proportion do marketing programs/channels contribute to total revenue balances for Alpha Bank overall and
what leverage does marketing play in penetrating this?
Decomposing total marketing impact
Direct.Consumer
Direct.Deposits
Direct.Grand Openings (0.1%)
Direct.Business
(0.3%)
Media Print
Media: Radio
Media: TV
Media OOH
Media OL (.1%)
Grand Opening Events (0.2%)
}
}
Base
Marketing Programs/Channels12 Month Revenue Balances
YE Sep ‘06
Katrina
Marketing Contribution:
% Impact on Total Revenue

8. ($183)
($36)
($36)
($23)
($7)
$14
$21
$44
$45
$129
$135
$333
$572
$886
$1,003
($400)($200) $0 $200 $400 $600 $800$1,000$1,200
TV.MEDIA
DIRECT.DEPOSITS.CAMPAIGN
DIRECT.CONSUMER.CAMPAIGN
INTEREST.RATES
PRINT.MEDIA
ONLINE.MEDIA
DIRECT.BUSINESS.CAMPAIGN
DIRECT.GRAND.OPENINGS
RADIO.MEDIA
BRANCH.PENETRATION
GRAND.OPENINGS.EVENTS
OOH.MEDIA
BASE(INTRINSIC GROWTH)
CUSTOMER.SATISFACTION
KATRINA RECOVERY
Annual Revenue Growth Drivers
Rev Variance $MM
8
Marketing Variance:
Drivers of Growth

9. 9
Markets: Explaining Revenue Balances in “Established” v. “Expansion” markets
70%
75%
80%
85%
90%
95%
100%
Market.1 Market.2 Market.3 Market.4 Market.5 Market.6 Market.7 Market.8 Market.9
ONLINE.MEDIA
OOH.MEDIA
TV.MEDIA
RADIO.MEDIA
PRINT.MEDIA
DIRECT.BUSINESS.CAMPAIGN
DIRECT.GRAND.OPENINGS
DIRECT.DEPOSITS.CAMPAIGN
DIRECT.CONSUMER.CAMPAIGN
GRAND.OPENINGS.EVENTS
BASE
• Markets 3 and 4 (expansion markets) are most impacted by marketing efforts
• Expansion markets are 2x more affected by marketing than established markets
Marketing Contribution:
By Branch Regions

10. 10
Products: Explaining Revenue Balances by Product
Branded and advertised products were significantly more impacted by marketing
than non-branded products
60%
65%
70%
75%
80%
85%
90%
95%
100%
Katrina
Media.Online
Media.OOH
Media.TV
Media.Radio
Media.Print
DM.Business
DM.GrOpengs
DM.Deposits
DM.Consumer
Grand.Openings
Base
Marketing Contribution:
By Product Line

11. 11
ROI: Determining Relative Contributions by Market
Market 1, $1.29
Market 2, $1.12
Market 3, $2.08
Market 4, $1.07
Market 5, $1.90
Market 6, $3.52
Market 7, $2.93
Market 8, $22.28
Market 9, $41.24
TOTAL, $1.94
$0 $5 $10 $15 $20 $25 $30 $35 $40 $45
• For all Alpha Bank regions, an additional dollar spent on marketing returns more than a
dollar in net returns, making marketing a profitable investment with $1.94 in net returns
for every $1 spent.
• Expansion markets deliver a higher ROI at $2.55 per every incremental dollar spent, v.
$1.49 in established markets (1-5).
Incremental Returns Per $
Total Marketing Returns
Per Investment by Market

12. 12
ROI: Determining Relative Contributions by Marketing Program/Channels
• For all Alpha Bank regions, an additional ($1) marketing dollar spent returns
$1.94.
• OOH generates the largest return of $5.10; Deposit DM ($3.17), Business DM
($2.51), Media TV ($2.47) and Consumer DM ($2.32) also drive 1.5x+ returns in
incremental marketing dollars.
CONSUMER.DIRECT.MAIL,
$2.32
DEPOSIT.DIRECT.MAIL,
$3.17
GRNDOPENING.DIRECT.MA
IL, $1.01
BUSINESS.DIRECT.MAIL,
$2.51
MEDIA.RADIO, $1.60
MEDIA.PRINT, $1.14
MEDIA.OOH, $5.10
MEDIA.TV, $2.47
MEDIA.ONLINE, $0.46
GRAND.OPENING $1.20
TOTAL, $1.94
$0 $1 $2 $3 $4 $5 $6
Incremental Returns Per $
Total Marketing Returns
Per Investment by Marketing Channel

13. 1313
Marketing Investment Optimization

14. 14
Optimization: Determining Alpha Bank Marketing Spend by Market at Constant Total Spending
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Current Contribution Current Spend Optimal Spend
Expansion.Market 9
Expansion.Market 8
Expansion.Market 7
Expansion.Market 6
Established.Market 5
Established.Market 4
Established.Market 3
Established.Market 2
Established.Market 1
• Optimization by MARKET, at constant $39.5MM spend, predicts an additional +2.9% in revenue balances and
$0.75B in average monthly balance revenues over the course of a year.
• Optimization suggests increasing marketing spend in Expansion markets to $6.20 per thousand revenue
balance (an increase from current spend $4.59 per thousand).
• Spending in Established markets is recommended at a rate of $.92 per thousand in revenue balance.
Optimal Marketing Spend Per Market
Total Marketing Spending
Optimization by Market

15. 15
Optimal marketing spend by Marketing Channel
Optimization: Determining Alpha Bank Marketing Spend by Program at Constant Total Spending
• Optimization by PROGRAM results in a 2.9% percent increase in revenue
balances and $.75B in average monthly balance revenues over the course of a
year.
• This solution calls for the greatest increases in business direct marketing, OOH
and Online media.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Current Contribution Current Spend Optimal Spend
ONLINE
PRINT
TV
RADIO
OOH
DIRECT.MARKETING.BUSINESS
DIRECT.MARKETING.OPENDINGS
DIRECT.MARKETING.DEPOSITS
DIRECT.MARKETING.CONSUMER
GRAND OPENINGS
Total Marketing Spend
Optimization by Channel

16. 16
Optimization: Determining Total Alpha Bank Marketing Spend
• Optimization of Alpha Bank’s current marketing spend delivers a high level of
positive net financial returns.
• The upward boundary of our model predicts profitability at even a +50% increase
in marketing spend.
$900
$950
$1,000
$1,050
$1,100
$1,150
$1,200
$20,500
$21,000
$21,500
$22,000
$22,500
$23,000
$23,500
-50%-40%-30%-20%-10% 0% 10% 20% 30% 40% 50%
Tot. Rev. Balances
Total Bank Returns
Total Alpha Bank
Returns $MM*
Tot. Alpha Bank Monthly Avg Rev
$MM
*NOTE: “Total Alpha Bank Returns” calculated as Market weighted net margins (4.99%) times revenue balances
($22,723MM)=$1,136MM at current. Projections calculated through simulation of marketing spend changes for total Alpha
Bank, assuming equal region and market program changes of -50 through +50%
Revenue Balances
$MM*
Total Bank Marketing Profitability
Remains High

17. 17
Optimization of Marketing Spend: Putting It All Together
At 50% higher total spend, the solution calls for slightly higher
relative increase for direct marketing. Overall, this 50% increase is
expected to generate +9% increase in revenue balances or $+2.1B
Marketing Spend Optimization

18. 18
Optimization of Marketing Spend: Putting It All Together
On a market-by-market basis, the solution calls for almost a
doubling of spending in expansion markets, whereas spending is
relatively flat in established markets. Overall, this 50% increase is
expected to generate +9% increase in revenue balances or $+2.1B
Marketing Plan Impact