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Four years ago, First Direct made 75 per cent of its sales over the phone and the rest through direct marketing. "Today it's 25 per cent direct, 25 per cent electronic and 50 per cent phone," Peter Simpson, the bank's commercial director, reveals.

The brand, which has never had a high-street presence, is making increasing use of electronic channels; 650,000 of its customers have embraced internet banking while 400,000 use its SMS services.

Electronic banking is a big issue for First Direct. "We were the only direct bank in the UK when we launched in 1988," says Simpson. "We had things our own way until around 1996, when our competitors realised that direct banking was here to stay. That affected our market share and forced us to examine our strategy."

Simpson says First Direct has three primary objectives: "To build a brand that stands out as different, to acquire customers and to sell into our customer base." The bank has 1.25 million customers and picked up 150,000 last year alone - making 2004 its best year for acquisitions since launch.

Email database investment

Over the past two years, First Direct has embarked on a massive drive to build and develop its opt-in email database. In June 2003, it had 186,000 email addresses. A year later, this had risen to 463,000 and now stands at 630,000 addresses overall, approximately 550,000 of which are marketable.

First Direct ran a number of integrated campaigns to capture these addresses. The first, in June 2003, sent postcards to 100,000 customers, asking them to confirm their addresses; 10,500 did so. Next came an internet banking message to non-responders, followed by a text message. This drive generated 14,000 addresses overall.

More customers signed up to receive e-communications and First Direct sent out its first email newsletter in April 2004, using internet banking and SMS campaigns to drive takeup. This effort, which asked customers to confirm their email addresses, generated almost 20,000 responses. Simpson is keen to integrate more text messages and emails into campaigns and recently ran a demo SMS campaign. A text message banking alert, followed by an email, went out to prospects who had provided the bank with their mobile phone numbers. The purpose was to demonstrate First Direct's text banking service, which keeps customers up to date with important news, such as a bill being paid or a warning that they are about to go overdrawn.

First Direct's acquisition campaigns have a typical response rate of about three per cent, but this one was three times more effective. "We used direct combined with e-marketing to drive volumes," says Simpson. "And it was very successful. Email combined with text is becoming a high volume area. We're increasingly doing integrated campaigns with electronic channels."

Most of the bank's direct activity is used for acquisition rather than retention. "We're the bank with the highest level of customer satisfaction in the UK so we don't need to spend many marketing pounds on retention," Simpson says. "Customers tend not to leave."

First Direct runs three acquisition campaigns a year to keep pulling in new customers. "Most people switch accounts in January so that's when we run our major campaign," Simpson explains. "We mail about four million people and do door drops and inserts as well. We then do a mailing campaign in March/April that is about half the size, and another in September."

The bank also does a fair amount of cross-selling, mailing throughout the year. This tends to be customer rather than product-based.

First Direct's customers are slightly older than those of rivals Egg, Cahoot and Smile. "Our customers are mainly in the south of England and have higher than average incomes," Simpson says. "They tend to be home owners and young professionals, and there is a high penetration in marketing and IT."

Irreverent tone of voice

First Direct uses an irreverent style of communication to appeal to this market. "Our best performing pack - the 'Funny' customer acquisition pack - has been around for about five years now," says Simpson. "We use slightly witty, not too serious copy and visuals but it's also packed with information."

The recent 'Sweetie' mailing took a similar tack. Aimed at sweetening up prospects so they would apply for a First Direct account, the pack contained branded sweets in addition to all the information a consumer needs when opening an account.

This pack exceeded its targets to gain a 4.25 per cent response. It did this with a cost per customer of £29, compared with the bank's average of £50.

Email and direct mail are proving to be stronger performers than the telephone for First Direct, prompting a strategic shift. "We use all forms of online marketing and we're just beginning to find conversion rates to direct mail tend to be higher than for e-marketing," says Simpson.

"At the moment we're at the tipping point where email is becoming as cost-effective as mail. We'll do more email in the future, probably at the expense of the telephone rather than mail."

VITAL STATISTICS Name: First Direct Marketing challenge: Build a brand that stands out from the norm DM spend: Approximately £10m on mail Agency: Craik Jones Watson Mitchell Voelkel is the primary agency. Dig for Fire and Story are used for other activities Media: Predominately mail, telephone, email and SMS Date of project: Ongoing